Lending Money in Tough Times

Man handing out money.

Times are tough when money is tight. When you are in need of money NOW, you may find banks unwilling to loan money, especially if your credit score is poor. For some, the only option is to borrow from family or friends, especially if you need the money fast.

If you are the lender, it will be hard to say no. You want to help a friend in need and if you say no, you will feel guilty if they lose everything. If you lend the money and they still lose everything, there may be hard feelings because the debt goes unpaid. If the loan is made to a family member, family gatherings will be uncomfortable. The lender may make mental inventories of anything purchased (while the debt is unpaid) especially if purchases are viewed as WANTS instead of a NEEDS.

When making the decision to lend money, it is important to keep emotions out of it. You should not lend money that you can’t afford to lose. If you do expect it to be paid back, don’t expect it to be paid back quickly. You may want to consider the money as a gift instead of thinking of it as a loan.  Then if you get the money back, it will be a pleasant surprise…instead of a disappointment when it isn’t paid back.

Another thing I have done in the past is to buy groceries or to offer to fill up the gas tank for a friend or family member.  This would free up money for the emergency that would have been set aside for gas or groceries. I have also offered to pay for a service, like painting a bedroom which helped the family member make ends meet, without having to ask for a loan. Make sure your spouse is in on the decision to lend money.

As of the 2019 tax year, the IRS has a $15,000 gift tax rule. A small loan will not make a difference, but if you do not charge interest on a loan of that amount or more, it may be considered a gift. If you do not charge interest, the IRS can say the interest you should have charged was a gift . In that case, the interest money goes toward your annual gift giving limit of $15,000 per individual. If you give more than $15,000 to one individual, you are required to file a gift tax form.  The rate of interest on the loan must be at least as high as the minimum interest rates set by the IRS.

These are tough times, especially for the farming community. Be sure to share information, phone numbers and links from the Iowa Concern Hotline.

Brenda Schmitt

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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Equifax Claim

I didn’t rush to file my claim for a portion of the $425 million settlement from Equifax. In 2017, when the security breach occurred, I confirmed my information had been compromised multiple times by using the look up tool. As an eligible person, I contacted Equifax to put a freeze in place on my file and enrolled in credit monitoring services for a 12 month period.

Everyone is going to benefit from the settlement. In addition to the 3 free credit reports you can receive each year from the credit reporting agencies (one each Experian, Equifax and Transunion), Equifax will be furnishing 6 additional reports for 7 years. Consumers can use an electronic notification system to remind them at set intervals to check their reports.

As a member of the group of 147 million people impacted by the breach, I could request a $25 @ hour payment for the time I spent setting up safeguards to make my identity more secure. I could also opt to request repayment of the fees paid to put freezes in place. Note: Iowa has since disallowed the $10 fee per reporting bureau, so that won’t be an issue in the future. Recent press releases have indicated that both types of payment requests are likely to be paid at a reduced rate, due to the large number of individuals who have filed claims.

Credit monitoring is also an option. It will result in four years of coverage at all three credit bureaus and 6 additional years of monitoring at Equifax. I can also receive enrollment again in a $1,000,000 Identity Theft Insurance policy. A word of caution here: the original policy offered in 2017 included two key measures that limited the scope of benefits. A claim had to be filed within 90 days of an identity theft event and only one claim could be made in a 12 month cycle. Anyone who selects this option should read the policy.

Equifax is required to offer recovery services for those impacted by their breach. To obtain assistance individuals will need to contact the settlement administrator at 1-833-759-2982.

If you need more details about the Equifax settlement or how to take steps to add more security to your personal credit file, visit the Federal Trade Commission website. A claim can be submitted online or by paper; you have until January 22, 2020.

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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What Is a Soft Credit Check?

Your credit history has a great deal of impact on your life. This means you should take full advantage of the fact that the three major credit bureaus-Experian, TransUnion and Equifax-offer one free credit report each year for consumers.

Who else is checking your credit? When you check your credit report, you will find out – and you may be surprised. Have you ever received a credit card offer in the mail? Did you wonder how those credit card companies knew that you qualify for a certain credit card with a specific credit limit? It is likely that the credit card company checked your credit history before sending that offer. When someone looks at your credit history for informational or promotional purposes, this is a soft credit check, and it will appear on your credit report for your information.

Why a Soft Credit Check?

The Fair Credit Reporting Act requires the major consumer credit reporting bureaus to keep a record of all the businesses that look at your credit score.  A soft credit check is when your credit is pulled for any reason other than you applying for a loan or new credit. Examples of  soft inquiries include:

  • Reviews of your credit score or history by an existing lender with whom you have an existing line of credit
  • Reviews by potential landlords
  • Reviews of your credit for insurance purposes
  • Pre-approved credit offers
  • When you check your own credit report or score

Typically, soft inquiries remain on your credit reports for two years to give you a clearer picture of all the institutions that have checked your credit. These soft credit checks don’t affect your credit.

What Is the Difference Between a Soft Check and a Hard Check?

A hard credit check occurs after you apply for any type of credit, such as a credit card, a mortgage, personal loan or an auto loan.  Once the credit application has been submitted, the potential lender makes an inquiry into your credit score and history to see whether you qualify for the account.

If your credit report shows a large number of hard inquiries, that may negatively impact your credit score. This is because numerous hard inquiries indicate high credit risk to lenders; lenders assume that frequent applications for credit indicate that you’re having a hard time managing your finances.

No matter how many soft inquiries appear on your credit report, your credit score will not suffer in any way. The more hard inquiries you make, the more your credit score will be negatively affected by those inquiries.

Susan Taylor

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

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A Credit Score Boost

credit score

In the past, the only way to create a credit score for yourself was to borrow money.  This makes borrowing a little tricky for those who have little or no credit history.  How can banks or credit card companies comfortably lend people money if they have no history for determining if they are a good risk?

Payment history – how you have paid your bills in the past — is one of the most important factors in a credit score. Lenders check an individual’s credit score when deciding whether to lend money to him or her.

FICO, the developer of the most widely used credit score, will begin piloting a new score next year (2019) called the UltraFICO score. This new scoring model considers how you manage your checking, savings and money market accounts in addition to how you pay back your credit cards and loans; it could be good news for those who have a strong banking record but have little or no credit history or have negative information on their credit reports. If you manage your checking, savings and/or money market accounts wisely, avoiding overdrafts and usually keep a modest “cushion” of  at least $400 in your checking account, your credit score could receive a much needed boost that can make a difference when applying for a loan.

Use of the UltraFICO score is not automatic. Consumers must opt in before lenders can access their banking records and calculate the alternate score.  Consumers who already qualify for credit on good terms will never need to authorize the UltraFICO score; those whose “regular” FICO scores aren’t quite good enough to qualify are the ones who may benefit from use of the UltraFICO.

FICO has announced the new scoring model as a “pilot” and has not specified how widely it will be in use, so there is no guarantee it will be available through your lenders. Nevertheless, it is worthwhile to be aware of the possibility, for two reasons:

  1. If you are turned down for a loan or credit account, you may wish to ask the lender if they can check an alternate scoring model such as the UltraFICO score.
  2. It is a reminder that responsible management of your banking accounts can pay off; if you have a tendency to occasionally get sloppy and incur an overdraft, the existence of UltraFICO may motivate you to manage your accounts more carefully.

FICO is marketing the new score at its website, which includes a link to a short video describing the basics of UltraFICO.

As always, the best way to improve or protect your credit score is to consistently pay your bills on time, reduce the amount of debt you owe as much as possible and apply for credit only when needed.

Brenda Schmitt

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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Credit Freeze

Thirty percent of U.S. consumers have been notified of potential compromise of their personal information in a data breach. In 2017, for the first time, more Social Security numbers were exposed than credit account numbers. Research finds that counterfeit use of credit cards is more difficult with the new microchip technology; as a result, criminals are focusing on new account creation. The number tripled in 2017 resulting in $5.1 million in losses. Now the Federal government is joining states to give consumers options to protect their credit history.

New federal legislation supports the right for individuals in all states to apply, free of charge, a credit freeze to their credit reports. The action can be taken after September 21, 2018.  By activating a freeze, you put a block on the creation of any new credit account by preventing prospective lenders from viewing your credit report. If lenders can’t confirm your capacity to repay a potential debt, they are unlikely to open an account in your name.   Iowa’s law went into effect in May.  Note: a freeze requires management; you must lift the freeze when applying for new credit.

If you are denied credit, lenders and agencies are required, by law, to send you documents informing you of your right to obtain your credit report and to dispute errors. The documents are now required to also notify you of your right to freeze your files.

In cases of identity theft, consumers have long had the option to place a fraud alert on their credit reports; the alert is a tip that this individual’s personal information was compromised, and consumers are still encouraged to pursue this action. The time frame for how long an alert is posted has been extended from 90 days to one year.  A fraud alert does not, however, block potential lenders from viewing your information; therefore it does not prevent unauthorized opening of new accounts in your name.

Joyce

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Where Are Your Digital Assets?

First, what is a Digital Asset?  It is personal information that is stored electronically on either a computer or an online “cloud” server account.  If you use a computer, a password protected cell phone, social media, OR if you make online purchases, pay bills or do banking online – you have digital assets to consider.

Generally required is a user name and a password and/or PIN to access.  If a family member or friend becomes incapacitated or passes away, it is almost impossible to retrieve information without the user name and log in information.

Take time to record all of your digital assets in a safe place.  Share the information with the person to whom you have granted power of attorney, with your executor, and with other trusted people who would need to have it.

Need help identifying the potential digital assets? Consider the following:

Electronic Devices; Benefit Accounts; E-mail accounts; Financial accounts; online merchant accounts  – Amazon or Zappos.; Organization Accounts; Photography and Music Accounts; Publication Accounts; Social Media Accounts; Video Account; Virtual Currency Accounts with Cash Value; and Web Site Accounts.

So how do you plan for your digital assets? 

Use specific language in estate planning documents (will, trusts, and power of attorney) that authorizes your representative to handle digital assets as well as tangible assets.  Make a list of your digital assets in your will as you would for untitled personal property.  Don’t include private information (e.g. passwords) in your will, however, as it becomes a public document after someone dies.

 

Susan Taylor

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

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Unpaid Debt

What happens if a credit card balance goes unpaid? If you aren’t receiving collection calls, does it mean the debt is no longer a problem?

All states have statute of limitation laws setting a time when a debt can no longer be collected. Credit card debt is considered open account debt because the lender has the option to change the terms of the agreement at any time. Iowa law states open account balances can no longer be collected after 5 years from the last charge, payment, or admission of ownership of the debt in writing.

Once the original lender has exhausted their attempts to collect and elects to discharge the balance, the debt is sold to collection agencies. Timelines vary for when an account is sold, typically at 180 days.  Collection agencies will contact you and attempt to collect a settlement. If the agency is unsuccessful they may bundle the uncollected debts and sell it again to a different agency. Attempts to collect your debt can occur at any time in the five year period and can result in court action. If the debt results in a court judgement to pay, it is valid for 20 years. Iowa allows actions to be taken to renew judgements extending the time when active collection can take place.

Ignoring unpaid debt won’t make it go away. Resources that may help are available through the Iowa Attorney General’s office, the Consumer Finance Protection Bureau, the National Consumer Law Center, and local attorneys.

 

 

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Upon Graduating – Financial Words of Wisdom

Many students recently marked a big milestone by graduating from school.  Looking back, what words of wisdom regarding personal finance would you like to have received when you left high school?

Personal finance does not have to be boring!  The National Endowment Financial Education – www.nefe.org has a couple resources to help your graduate be an independent young adult.

On Your Own –is a blog with a range from credit score calculated, making better money decisions, and the pros and cons of college?  This is a trustworthy site.

Another option is Smart About Money (SAM) is an in-depth, guided learning experience.  There are five sections with valuable tools, worksheets, calculators and quizzes.  Each course is about 45 minutes.

Cash Course targets college students. Some colleges and universities offer it especially for their students, but any student can enroll independently. It’s free, with no strings attached, but you do need to create a user account.

Forty Money Management Tips Every College Student Should Know – this Cash Course resource helps young people learn how to take control of their money instead of letting their money control them.

 

Susan Taylor

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

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Credit Reports: Changes in 2018

A big thank you is in order from Iowa consumers to the Legislature, Governor Kim Reynolds, and Attorney General Tom Miller for passage and enactment of Senate File 2177  . Beginning on July 1st you will no longer be charged fees to use a “freeze” on your credit report.

The Equifax Breach put many individuals in a pool of consumers whose personal information was compromised. Faced with potential misuse, one step to limit damage was freezing your credit report at the three credit reporting bureaus, but the cost was $30.  In passing the new law, Iowa government officials reasoned that consumers should not be forced to bear the cost when a reporting bureau is negligent.

The credit bureaus are also making other changes: what data they collect; how it is reported; and credit score calculations.

  • All public record information, except for bankruptcy, is being removed from files.
  • Reports on medically-related debts are held for six months before posting to allow for insurance closures.
  • Medical debt is given less weight compared to other consumer spending when calculating your credit score.
  • Rent data can now be included in your credit report; only positive reports will be accepted.
  • A series of auto or mortgage inquiries are treated as one event.
  • Paid collection accounts will be removed from reports.
  • Keeping a card open that is paid in full will not help your credit score if it isn’t used. A card that is not used in a 3-6 month time period is dropped from credit score calculations.

Checking your credit report for accuracy is a good habit to maintain. If you haven’t checked yours in the past 12 months, now would be a good day to start!

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Could Rounding Up What You Pay Help You?

Having a debt – perhaps a mortgage or a car payment – may feel as if you have a ball and chain around you for the duration of the loan. Is there a way to lessen the load?

One option is to simply round up your payments.  Suppose your current car payment is $360 per month.  If you round up and make monthly payments of $400, that is like making one extra payment during the year on your car, and the extra money goes toward the principal on the loan. You’ll reduce your interest costs, and you will also pay off the loan faster.

Here’s a mortgage example: if your mortgage payment is $900, but you pay $1,000/month, the extra $100 goes toward the loan principal. That’s an extra $1200/year!  If $1,000 is too much for your spending plan, try $950, which is an extra $600 per year. Over several years, either strategy will save thousands in interest and get your mortgage paid off years early.  Read the fine print on your contract. Make sure your lender accepts larger payments.  Need to know so it helps your cause.

You can use the same strategy with any credit card bills where you are carrying a balance, and on any other loans, as well.

Every time you round up you’re getting closer to debt freedom without feeling much of a pinch. Once you start this habit, it will be hard to break. Fortunately, it’s a very helpful habit!

 

Susan Taylor

Susan Taylor

Resources are important whether you are looking to rent your first apartment, pay your bills, buy your first home or send your child to college. There are many ways to save money to reach your goals, and hopefully ISU Money Tip$ will be one of them. I enjoy traveling, needlework and am a novice gardener.

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