Dear Liz: My credit scores have gone down every few months for about a year. The credit bureau says this is due to a late payment of a credit card balance. My card is on an automatic monthly payment that pays the balance in full every month. Somebody explained to me that if the credit card’s monthly due date is on the weekend or a holiday long weekend and the bank is closed, the balance is paid one or two days later and the credit agency records that as a late payment, which is a major negative and lowers my credit score. My banker suggested I formally arrange credit card payment three days earlier than the due date. Will that work?
Answer: Let’s hope your banker wasn’t the one telling you that nutty story about weekend due dates tanking your credit scores.
If you set up autopay with the credit card issuer, your payment will simply process on the next business day when the due date lands on a weekend or holiday. Such payments aren’t considered late. If you instead used your bank’s bill payment system to send monthly recurring payments, the payment typically shifts to the closest business day before the weekend or holiday.
Even if there were some glitch and your payment landed well after the due date, the credit card company wouldn’t report you as late to the credit bureaus until you were 30 days or more overdue. A payment that’s a few days late could trigger a late fee, but wouldn’t affect your credit scores.
The fact that your scores have been dropping continually for a year indicates you have a more serious ongoing problem that might be due to identity theft. If a criminal opened a credit card in your name and then failed to pay it, the missing payments over many months would lead to continually dropping scores.
Your banker should have told you to get copies of all three of your credit reports for free from AnnualCreditReport.com. (Type that name directly into your browser bar and beware of sites that are trying to sell you credit monitoring or other products. If the site asks for a credit card, you’re on the wrong site.)
Look for bogus accounts. If you find any, you’ll need to file a report with the Federal Trade Commission and get an identity theft affidavit. You can use that affidavit to file a police report. You’ll also need to dispute the account with the three main credit bureaus. While you’re on their sites, you also should put a freeze on your credit.
You can find more information on the FTC’s IdentityTheft.gov site and at Identity Theft Resource Center, www.idtheftcenter.org.
Dear Liz: My wife and I are in our 70s and receive required minimum distributions from IRAs. We make our charitable contributions out of our RMDs. We have considered a donor-advised fund. Which vehicle provides the best tax savings?
Answer: You would typically get the most tax benefit from qualified charitable distributions, which allow people 70½ and older to contribute money to charities directly from their IRAs. QCDs can satisfy required minimum distributions without increasing your adjusted gross income. That, in turn, can mean less taxation of your Social Security benefits and may help you avoid or reduce income-related surcharges on your Medicare premiums.
QCDs must go directly from your IRA custodian to the charity. A check issued by the custodian and payable to the charity can qualify even if you deliver it. It’s not a QCD if you receive the distribution and then pay the charity yourself.
Donor-advised funds work differently. You contribute cash or securities to the fund and may qualify for a tax deduction if you itemize. The contributions can grow tax-free until you direct the fund to make grants to eligible charities, potentially years later.
You can’t make QCDs to donor-advised funds, but these can be useful if you want to make several years’ worth of charitable contributions at once or donate appreciated securities. Donating those investments rather than selling them can avoid capital gains taxes.
For annual charitable giving from your IRAs, however, QCDs are likely the better choice. Talk to your tax pro about how to make sure your donations meet the QCD rules.
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Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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