Solid credit rating can crumble quickly
Dear Liz: I’m 28 and have had excellent credit since Day One. In May of this year, I leased a new car and found out my credit score was 780. In July I decided to lease a second vehicle. Instead of paying the leasing company monthly, I used a credit card balance transfer offer to write them a check for the entire two-year lease amount ($18,000). When I applied for two more credit cards in the following months, I was denied by both. I have never been late on any payments and always pay off my credit card debts (except for this balance transfer, on which I make monthly payments). Why was I denied credit? For a person with a great credit score, you can imagine how shocked I was.
Answer: You may not have the great credit you think you do.
You’ve been applying for a lot of credit in a short period, something that can adversely affect your scores. You also put a pile of debt on one of your cards, which can also hurt your numbers. Credit scoring formulas are sensitive to the amount of credit you’re using on each card. The narrower the gap between your balances and your limit, the greater the potential damage.
Even if your scores are still good, they might not have been good enough for today’s credit card issuers, especially if you applied for high-end rewards cards. These issuers often want FICO scores of 750 or above. Drop a point or two below, and you may be out of luck.
You didn’t ask, but you should know that leasing cars is an expensive way to go. Most people are far better off financially buying slightly used cars and driving them for 10 years or more. They don’t get to drive the latest models, but they save hundreds of thousands of dollars over their driving lifetimes compared with those who lease a new vehicle every few years.
Apartment must be habitable
Dear Liz: Our apartment was infested with bugs, had a leaky bathroom faucet that was never fixed after numerous requests, and then our ceiling fell in because of a roof leak that was not repaired. We had to make other living arrangements before vacating the apartment, and now they are saying we’re responsible for $1,800 for terminating our lease early.
Answer: In every state except Arkansas, the law requires landlords to provide “fit and habitable” housing, said attorney Janet Portman, the managing editor of legal self-help publisher Nolo and author of “Every Tenant’s Legal Guide.” “Fit and habitable” typically means the housing is waterproof and free from vermin infestation. The housing also must have heat, lights, water, functional plumbing and a working kitchen.
If the housing isn’t fit and habitable, you legally can break the lease if you didn’t cause the problem yourself and you gave the landlord a reasonable amount of time to fix the problems.
Fixed means fixed, by the way; you can break the lease if your apartment is still infested, even if the landlord has treated the infestation repeatedly, Portman said. You can consult Portman’s book and a local tenants’ rights organization for more information.
Over the 401(k) contribution limit
Dear Liz: When the stock market dropped this past year, I decided that was a perfect time to max out my 401(k) deduction to the plan’s 35% limit. The problem is that the IRS maximum contribution is $16,500, and it’s nearly impossible to get my withholding to exactly match the dollar limit. If I am slightly over the maximum at the end of the year, what is the IRS likely to do to me?
Answer: It’s typically not the IRS that takes action in these situations; it’s the 401(k) plan administrator that will either stop your contributions once you hit $16,500 for the year or send you back a check for any amount over the limit you’ve contributed.
You’ll have to pay regular income taxes on that money, but you won’t otherwise be penalized for trying to be aggressive about your retirement savings.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.
