Can You Tap Into a Roth IRA for College and Education?

A Roth IRA distribution can be used for college tuition.

A Roth IRA distribution can be used for college tuition.

Roth individual retirement accounts are designed to help you save for your retirement, but they can also be used for college costs if you’re in a tight spot financially. The Internal Revenue Service allows you to withdraw the money you contributed to your Roth IRA at any time without penalty or taxes. But if you withdraw earnings – which you won’t touch until you’ve taken out all of your contributions, they’re taxable.

If you’re under 59 1/2, the earnings are usually hit with an additional 10 percent early withdrawal penalty. But, qualified higher education expenses allow you to avoid the penalty. Whether you’ve used up all of your loan options, or you don’t want your credit score potentially affected by taking out a student loan, tapping your Roth IRA can provide much-need college funds with a minimal tax hit.

  • Request a distribution from your Roth IRA by contacting the financial institution that holds your account. Each financial institution has a slightly different form, but you have to provide your name, identifying information, account number and how much you want to withdraw.
  • Spend your distribution on higher education expenses. To qualify for the penalty exception, which saves you the 10 percent additional tax on early distributions of earnings, you must spend it on tuition, required fees, books, supplies and equipment at a college, university or trade school. If the student is enrolled at least half-time, room and board also count as qualifying expenses. You won’t have to submit receipts with your tax return, but you should keep them just in case you get audited.
  • Report the distribution on your income taxes. If you took out only contributions, you won’t owe any taxes or penalties and you just have to note the amount withdrawn. But if you took out some of your earnings, too, those earnings count as taxable income. As long as you spent the money on qualified educational expenses, you don’t owe the early withdrawal penalty, but you must fill out Form 5329 to report the withdrawal to the IRS.

Keeping your educational goals on track can be a difficult task, but being able to leverage some of your savings in a flexible way can help keep those goals within reach. Knowing your options can help you decide on the best plan for your needs as they change over time.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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Can a Student Pay Bills With a Student Loan?

Excessive student loans can hurt your chances of being approved for loans in the future.

Excessive student loans can hurt your chances of being approved for loans in the future.

Technically, according to the U.S. Department of Education, you can only use your student loan money to pay for qualified education expenses at your school. However, once the money is in your hands, there is limited oversight for how you spend the money, which can make it very tempting to rack up substantial student loan bills for non-educational purposes.

Qualified Expenses
According to the U.S. Department of Education, qualified educational expenses include not only your tuition, but also “room and board, fees, books, supplies, equipment, dependent child care expenses, transportation, and rental or purchase of a personal computer.” Your school can give you a list of the costs of attendance so that you know how much is allotted to each category of expenses. Some of your bills will qualify to be paid with student loans, like your rent, utilities, food and school supplies. But it’s not just free money—you’re not supposed to use your student loans for vacations, or closing out old expenses, like paying off old credit cards.

Limited Oversight
When you take out student loans, the money usually goes directly to your school to fund your tuition. After that, any excess amount gets paid out to you as a refund. For example, say you borrowed $15,000 and your tuition and fees charged by the school is only $9,000. You would then receive a $6,000 check that you could then spend on other bills, like your rent or books. Though you’re not supposed to use the money for non-educational expenses like vacations, and you’re required to sign a statement saying you’re using the loan proceeds for educational purposes, U.S. News notes that students can find themselves in substantial debt because they borrow extra to live extravagantly. This could result in charges of fraud, which carry could result in fines, jail time, or both.

Loss of Tax Deduction
One of the ways the government tries to make education more affordable is allowing you to deduct a certain amount of qualifying student loan interest each year. If you use your student loans for expenses that aren’t qualified, you can’t deduct any of the interest on the loans as “student loan interest” when tax time comes. For example, say that you took out a $20,000 student loan and spend $19,000 of it on qualified expenses and $1,000 on paying off old credit card debt. Technically, you’re not allowed to deduct any of the interest.

Long-Term Effects
While student loans may feel like free money because they’re so easy to get for most people, you will have to pay them back. And, like other debts, they show up on your credit report. Don’t worry, just having student loans isn’t a death threat for your credit score. If you borrow responsibly and pay back your debt as agreed, it can help your score. But, if you’ve lived lavishly and racked up excessive debt with late payments or are defaulting on, you’re going to have a very hard time getting approved for additional loans, such as a car loan or mortgage, in the future.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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Does My Banking Activity Affect My Credit Score?

Not all banking transactions impact credit scores, or even appear on your credit report.

Not all banking transactions impact credit scores, or even appear on your credit report.

Most people keep their money in the bank, whether in in a checking account, savings account or certificate of deposit. Most of the time, what you do with your bank account won’t show up on your credit report. However, there are certain instances when it can impact your credit score.

Opening Bank Accounts
Opening a new checking account could have an impact on your credit score. That’s because some banks pull your credit report before allowing you to open a new account.  For instance, when you go to open a checking account, the bank may pull your credit score which may result in a “hard inquiry” on your credit report. According to Experian, these types of inquiries may lower your score slightly, but will never be the only reason you’re denied credit. Inquiries also stay on your credit report for approximately two years, so they’re not a permanent fixture there.

Overdraft Protection
Some banks offer overdraft protection, which allows you to withdraw funds for more than the balance in your account. Depending on your bank, it may report your overdraft protection amount as a line of credit, which would show up on your credit report. If you withdraw funds for more than your balance and don’t pay back the money to the bank, the bank may turn it over to a collection agency, which will report it to the credit bureaus as a debt you are late in repaying.

Monitoring Your Credit
Whether you’re curious as to how your bank is or isn’t reporting your accounts to the credit bureaus, or just interested in keeping tabs on your credit score, checking your credit report and score regularly can help you understand what affects your credit score and how it impacts your life. In addition, making on-time payments on your lines of credit is one of the best ways to keep your credit healthy—something that staying connected with your credit can show over time.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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Buying New vs. Buying Used: Pros and Cons

Keeping emotion out of the equation can help you land the best deal for the long run.

Keeping emotion out of the equation can help you land the best deal for the long run.

One of the first decisions you’ll make before buying a car is whether you’ll choose to look at new or used vehicles. New cars and used cars both offer certain advantages to buyers, and which is better for you at the time of your search is a unique decision based on both your own desires as well as your financial capability. Your credit can also play a role in determining whether you should buy new or used, since available capital and financing rates depend largely on your credit score.

Financing
Many buyers look to finance the purchase of their vehicle whether new or used, as even used cars typically cost tens of thousands of dollars. If you’re not in a position to pay cash for your car in full, you may need to apply for a car loan from either the dealer or an outside financial institution. As with most loans, the higher your credit score, the lower the interest rate you can generally get on a car loan.

One of the advantages of financing a new vehicle, says Car and Driver, is that you can usually get a lower interest rate than on a used car loan. This is because new vehicles haven’t been hit with depreciation – yet – but the second they leave the lot, the car will start depreciating. However, a new car will also generally cost you more over time simply due to the higher cost hit upfront.

Customization
When you buy a new car, you can potentially get it just the way you want it—it’s a chief advantage of buying a new vehicle. If you’re a patient buyer, you can custom order the vehicle with all factory options to your exact specifications. If you’re in more of a hurry, you can list your desired build and email dealers to see if your desired car already exists on a lot. If not, dealers can often locate a car very similar to your request and secure it for you. With a used car, you’ll have to choose from vehicles that are currently available in the marketplace. This means you may have to compromise on one or more factors that define your ideal vehicle, like color, drivetrain or interior options.

Warranty and Maintenance
According to Kelly Blue Book, the warranty that accompanies many new cars offers peace of mind that you can’t generally match when you buy a used car. Manufacturers offer warranties of between three and 10 years on new cars, during which time you may only be liable only for “wear and tear” items such as tires and brakes. With a used car, you’ll generally have only a short bit of warranty left—or possibly none at all. When the warranty expires you’ll be responsible for all repair costs, which generally grow as a car ages. These expenses can eventually outweigh the lower cost you originally paid for the car.

Depreciation
Depreciation is perhaps the most significant negative factor in buying a new car versus a used one. New cars typically lose 25 to 45 percent of their value in the first few years of ownership—with a major chunk disappearing as soon as they drive off the lot. If you can wait out those first few years and buy used, the first buyer will have absorbed the majority of the car’s depreciation and sorted out any early settling-in service issues. In terms of absolute price, you can often get a good deal on a car that’s just a few years old.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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When Will My Late Payment Disappear From My Credit Report?

Learning how long late payments stay your credit report in important for understanding your score.

Learning how long late payments stay your credit report in important for understanding your score.

Keeping up with credit card payments can sometimes feel impossible. As just one of many bills to pay, it can be easy to miss getting your payment in exactly on time each month. While your creditor may charge you a late fee as well as some interest, that kind of small misstep doesn’t usually appear on your credit report.

Rather, creditors are more likely to report late payments when you’ve missed the whole billing cycle, sharing that information with the credit bureaus to show up on your credit report for other potential lenders to see. That late payment will appear on your credit report for some time, though its impact can gradually lessen as time goes on.

On your credit report, negative information usually appears for a minimum of seven years. So, your late credit card payment will appear for seven years from the initial date the account was reported delinquent. Also, if the late payment eventually progresses to become a default, the seven year period for the information to appear still starts from initial date the account was reported delinquent.

However if you miss a payment to then get back on track, and later happen to miss a second payment, the seven year term for the second missed payment starts at the date of that second time you missed a payment, since those two are seen as separate events (even though they happened in the same account).

The good news is that during the time a late payment appears on your report, its impact can lessen gradually. If you’ve recently fallen behind in your payments multiple times, now is a good time to reevaluate your habits and find ways to improve your credit behavior.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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What Credit Score Do I Need to Qualify for a Mortgage?

credit score is just one factor lenders consider for mortgage approval

Mortgage approval criteria vary from lender to lender; however, there are several factors that could help you get a lower interest rate.

Making the decision to buy a home is a significant life event, and if you’re like most people, you’ll have to take out a mortgage to make it happen. When you apply for a mortgage, one of the items most often looked at before signing off on your loan is your credit. So, it’s important to know what makes up your score and what it can do to your credit standing.

Mortgage Score

It’s hard to give the precise score you need to qualify for a mortgage because each lender has different scoring models and criteria for approving mortgages. According to the Los Angeles Times, you can technically qualify for a mortgage backed by the Federal Housing Administration with a score as low as 580, but other lenders will likely require higher scores.

Other Factors

Regardless of how good your score is, it’s not the only thing lenders look at. Lenders may also look at the size of your down payment and your employment history, how much money you make and debt you have. So, in addition to monitoring your credit report and credit score, having a stable job history, a sizeable down payment and minimal debt may also be considered during the home loan approval process.

Application Factors

Before you apply for a mortgage, consider reviewing your credit report and score to better understand what lenders may see. Knowing what’s behind your score can help with determining how much you can afford.

In addition, each time you apply for a mortgage, an inquiry may be placed on your credit report, which can impact your score slightly. However, if you do all your inquires in a short period of time your mortgage applications submitted during that time frame may count as a single inquiry when calculating your credit score, depending on the scoring model used.

About the Author
Mark Kennan is a freelance writer specializing in finance-related articles. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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How to Help a Spouse Build Better Credit Habits

credit when married

Credit discussions require care and empathy, not accusations. Discover how to work with your spouse to help him or her create better credit habits.

Mixing and mingling finances can be quite challenging – especially when one spouse could use some help getting on the right track. In fact, according to a recent survey from Experian Consumer Services, credit scores were reported as a source of stress for 21 percent of married participants. However, couples who communicate monthly about their financial goals are more likely to agree on financial decisions, including how to use credit as a couple.

Helping your spouse kick their bad habits can improve their life and help the two of you come closer to achieving your financial goals. Doing it requires not only good habits and advice, but also sensitivity to the fact that your spouse might be uncomfortable with his or her situation.

Here are some tips on how to approach talking with your spouse about credit.

  • Perform a credit report check on yourself and your spouse. Doing it together may help to prevent your spouse from feeling singled out. Reviewing the information in each other’s credit report is also a way to assess both of your credit situations so you will be able to see the impact of any changes that you make moving forward.
  • Build a budget for your household together. A personal budget can help plan spending and also ensure that you have enough money left to pay down any existing debts. A qualified financial advisor may be able to help with this process, either by providing finance-related ideas or by helping to manage your spouse’s feelings or perceptions.
  • Define which habits you want worked on. For instance, a goal might be for your spouse to pay on time or to use only a certain percentage of available credit every month. Another goal could be to reduce balances so that less interest is paid, or to hit a certain credit score target.
  • Establish positive payment history. Consider adding your spouse to one of your accounts as an “authorized user” to help him or her add positive items, such as on-time payment history, to your spouse’s credit report. Gradually open joint credit accounts with your spouse as his credit habits improve and his credit reaches a point where he or she can be approved for accounts on favorable terms.
  • Continue monitoring both of your credit reports. This allows you to see improvements in credit, while also enabling you to minimize the impact of identity theft by ensuring that any new accounts, increased balances, or other problems that you’re not aware of don’t linger.

Remember that your marriage is about more than money. While helping your spouse with his or her credit is part of building a strong foundation, it’s only one of many parts of your relationship.

About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

Posted in Credit Scores | Leave a comment

Can Making Credit Card Charges Impact my Credit Score

strategies for credit use

Using credit the right way may just help your scores. Learn the impact of your credit utilization ratio & how your charges may affect your score.

Your credit score is used to evaluate you as a prospective borrower. One of the most important factors is how good you are at making your payments on time, every time. However, it isn’t the only factor. Another important consideration for your credit score is how much of your existing credit that you use. Generally, less is best, but in some scoring models, not using your credit at all can end up slightly reducing your score.

Credit Utilization

Credit scoring models calculate your credit utilization by dividing the credit card balance that shows on your credit report by your credit limit. If you have one credit card with a $2,000 limit and you owe $1,200, you’d have 60 percent utilization. Cutting your balance down by either paying off the balance or using your card less would give you a lower utilization rate.

How Much Utilization

Experian’s Maxine Sweet suggests that the lower your utilization ratio, the better for your credit scores. Other experts agree that by keeping your total utilization under 30 percent of your limit, you’re usually safe from doing damage to your score. This is because it could be assumed that having high balances is a sign that you could be on your way into financial trouble, so the less you use, the better you generally look.

The Problem with Zero

Sometimes, it’s possible to go too low. A zero utilization rate may actually hurt your credit scores when calculated using some credit scoring models. Often times, lenders check your credit report to predict how you will do if they give you a credit card based on what you’ve already done. If you don’t have any utilization, there isn’t any behavior to use to judge you.

It may also indicate that you might take out a credit card and not use it, not generating an opportunity for the lender to make any money. With this in mind, making a very small charge every month and paying it off when you get your statement could prevent this from happening.

About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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Defending Yourself Against Online Fraud

protection against online fraud

Online fraud is the perfect medium for thieves using deception for financial gain. Don’t become a victim.

Online fraud is similar to other types of fraud in that it can result from thieves using deception for financial gain. The primary difference is the medium. Online fraudsters use techniques such as phishing, malware and tab nabbing to convince you to reveal your essential financial information electronically. Fighting online fraud is important because online fraud can result in significant financial losses and damage to your credit, which can take time and effort to recover.

Types of Online Fraud

While no one anticipates being a victim of identity theft, the fraudsters’ methods to get information have become increasingly sophisticated. Phishing is one of the most common methods of online fraud. In a phishing attack, criminals send out phony emails that look similar to communications from legitimate entities, such as your bank or insurance company. The email will “fish” for information by asking you to confirm your personal data, such as your Social Security number or bank account number.

Another tool for fraud is malware, a type of malicious software that criminals can install on your computer when you click on a pop-up window or other Internet link that may seem legitimate. Tab nabbing occurs when fraudsters gain access to one or more of the tabs open on your Internet browser and fool you into providing login information to various websites.

Damage from Online Fraud

If you’re scammed into providing information about your bank account or debit card, criminals can use that information to tap into your account and take whatever you have there. With credit card information, fraudsters can run up charges until either you or your credit card company gets wise to it. You could also face black marks on your credit report if thieves open accounts in your name or run up your cards over your credit limit.

Protection against Online Fraud

One of the best ways to protect yourself against online fraud is to avoid providing information to unknown sources. If you can’t tell whether a site is legitimate, don’t hesitate to call your bank or credit card company for verification.

Many banks will allow you to set up alerts notifying you of any suspicious transactions, such as charges out of your typical spending pattern or over a certain dollar amount. Taking advantage of these systems can be an excellent defense. Regularly checking your financial statements and credit reports can also help detect unauthorized activity. You can generally check your financial accounts online to get real-time updates on any activity.

Actions to Take After Online Fraud

If you’ve fallen victim to online fraud, you should take immediate action can help prevent long-term damage. According to FTC.gov, an important first step to take is to place an initial fraud alert on your accounts. This will last for 90 days and will notify potential creditors that your identity must be verified before an account can be opened in your name.

Another option is to review your credit report and see if there’s any suspicious activity listed. In identity theft cases, you may also want to file an identity theft report, which includes a police report. An identity theft report can help prevent debt collectors from pursuing unlawful debts in your name, help you correct inaccurate information on your credit report, and place an extended fraud alert on your credit report.

About the Author
John Csiszar began writing in 1989 and his work appears in various online publications, including The Huffington Post. Csiszar earned a B.A. in English from UCLA and served 18 years as an investment adviser and certified financial planner.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

Posted in Identity Theft | Leave a comment

What You Should Know about Healthcare Scams

Using a range of ploys, identity thieves can steal your personal information. Protect yourself from new healthcare fraud scams with these steps.

Using a range of ploys, identity thieves can steal your personal information. Protect yourself from new healthcare fraud scams with these steps.

Medical identity theft and healthcare scams have been around a long time, and unfortunately they can lead to an impact on your credit score, financial well-being and even your health. The newest -scams surrounding the Affordable Care Act are particularly insidious. Scammers are playing on both the optimism of people who hope to protect their families with affordable health insurance, and the confusion that’s developed around how to obtain that insurance.

Using a range of ploys, identity thieves can steal or cheat you out of your personal information. Once they have it, they can use it to open new lines of credit. This type of fraud can cause a drop in your credit score.

Protect yourself from new healthcare fraud scams with these steps:

  • Never give out your personal information over the phone to anyone claiming to be from the government or an insurance company. Contact should always occur through the U.S. Postal Service.
  • That’s not to say every “official” piece of mail claiming to be from the government is not legitimate. Evaluate such mailings carefully and use common sense. For example, if a contact is actually from a government agency, they won’t need to ask for your Social Security or Medicare numbers; they will already have it.
  • Don’t buy insurance from a company that solicits you through phone or email, and don’t deal with people who come door-to-door claiming to sell insurance.
  • Remember, the only official website for Affordable Care Act information and buying decisions is www.healthcare.gov. Other sites may be bogus ones set up to scam you out of personal information.
  • If you are on Medicare, you shouldn’t need to buy supplemental coverage. Be wary of anyone who tells you that you do, or tries to tell you that you must provide personal information in order to obtain a new Medicare card. Under the act, you can keep your current Medicare card.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

Posted in Identity Theft | Leave a comment