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Helping a son with horrible credit scores

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Dear Liz: My 33-year-old son has horrible credit scores. If I added his name to my credit card, would it have a positive effect on his score without any negative ramifications to mine? Could any of his creditors come after me?

Answer: Adding someone to your credit card as an authorized user can have a positive effect on their credit scores without negatively affecting your own or obligating you to pay their other debts. You would be responsible for any debt your authorized user incurred on the card.

In your son’s case, though, being added as an authorized user probably won’t help much.

When someone has fallen behind on their bills, the effect on their scores depends on three main factors: recency (how recently did a late payment occur?), severity (how far behind are they — 30 days, 60 days, 90 days or more?) and frequency (how many accounts have late payments?).

One skipped payment can knock 100 points or more off good scores but won’t result in “horrible” credit. Truly bad credit typically requires someone to be well behind on a number of accounts in the recent past. The fact that you’re worried about his creditors indicates that he may not have resolved his financial problems enough to start rebuilding his credit.

What he should do now depends on his circumstances.

If he still has a job, he may be able to arrange a payment plan or settle debts with collectors. If his income has dropped or he’s otherwise unable to pay, he may need to consider bankruptcy.

Once his past debts are resolved — either paid, settled or legally erased — he can take steps to improve his credit, one of which could include being added to your card. A credit builder loan, offered by many credit unions, also could help, as could a secured credit card, which requires a deposit.

It’s crucial that he be able to make all his payments on time, however. If he falls behind again, he’ll offset any progress that’s been made.

IRS pays interest on late refunds

Dear Liz: I filed my return electronically with direct deposit. I have yet to receive my refund or that stimulus relief check. We have to pay interest on any late tax payment. Will the IRS pay interest on late refunds?

Answer: The IRS has said it will pay interest on late refunds if the return was filed by July 15, the extended tax deadline. The interest “will generally be paid from April 15, 2020, until the date of the refund,” the IRS says on its site. Don’t expect to get rich: The interest rate for the second quarter, which ended June 30, is 5% a year, while the interest rate for the third quarter, which ends Sept. 30, is 3% a year.

IRA conversions and taxes

Dear Liz: You recently advised a reader that if their income was too high to contribute to a Roth IRA, they could still contribute to an IRA or any after-tax options in their 401(k). You didn’t mention a two-step Roth IRA — first making a nondeductible contribution to an IRA and then immediately converting that amount to a Roth. That way those people whose income is too high to contribute to a direct Roth IRA can still have a Roth IRA using the two-step process.

Answer: This is known as a backdoor Roth contribution, which takes advantage of the fact that the income limits that apply to Roth contributions don’t apply to Roth conversions. Conversions, however, typically incur tax bills and don’t make sense for everyone. If you have a substantial amount of pretax money in IRAs, the tax bill can be considerable. (The tax bill is figured using all your IRAs, by the way. You can’t get around it just by contributing to a separate IRA that you then convert.)

Incurring that tax bill could make sense if you expect to be in the same tax bracket in retirement, or in a higher one. If you’re young and a good saver, it’s a good bet that will be the case. Roth conversions also can be advisable later in life if your tax bracket could jump when you reach age 72 and have to start taking required minimum distributions from your retirement accounts.

If you expect to be in a lower tax bracket in retirement, however, you probably should forgo Roth conversions because you’ll pay more now in taxes than you would later.

Of course, if you have little or no pretax money in your IRA, then backdoor conversions get a lot more attractive because the tax bill would be minimal. Otherwise, you should seek out a Roth conversion calculator to get a better idea of whether a conversion might be the right choice.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. 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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Virginia Used Car Dealer Offers Local Drivers Reliable Pre-Owned Vehicles and Affordable Prices

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Used Cars Under $10,000 in Virginia

Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

There are many ways for people to save money when shopping for the things they need and can’t live without. For many people, a vehicle that can offer them the reliability they need is incredibly important and something they require every day. Drivers in Virginia that are searching for affordable used cars under $10,000 now have a dealership they can turn to that will help them get behind the wheel of a reliable vehicle they can afford. Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

With used car specials that offer affordable pricing and a large inventory of pre-owned vehicles that can be purchased for under $10,000, drivers will be able to find the vehicle they’ve always wanted to drive at a price that fits their budget. Karen Radley Volkswagen also helps make buying a reliable and budget-friendly used car easy by offering used car loans to drivers regardless of their credit score. Good or bad credit car loans are fast and easy to obtain and apply for when shopping at Karen Radley Volkswagen.

To learn more about how to get behind the wheel of an affordable used car in Virginia, or to view the current inventory of used cars under $10,000, drivers can visit the local dealership’s website by going to http://www.karenradleyvw.com. Questions can be directed towards the sales staff by calling 833-243-5895. Shoppers may also see all the used cars at Karen Radley Volkswagen by driving to 14700 Jefferson Davis Highway.

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Legislation to Combat Unfair Auto Insurance Rates Clears Committee

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Legislation to Combat Unfair Auto Insurance Rates Clears Committee

 

Trenton – In response to high automobile insurance assessments, the Senate Commerce Committee passed legislation sponsored by Senators Nia Gill, M. Teresa Ruiz, Nilsa Cruz-Perez, and Nellie Pou, which would prohibit the use of education, occupation, homeownership status, marital status, or credit score in certain automobile insurance determinations.

 

“The use of factors such as employment status and credit score in calculating insurance premiums carries a severe economic consequence for working-class families. A person’s income or education has no bearing on driver safety or risk and only serves to reinforce existing inequalities,” said Senator Gill (D-Essex/Passaic). “The pandemic has given new importance to how we determine eligibility. Millions of New Jerseyans are experiencing economic hardship; this will inevitably impact their credit scores, occupation, and employment status. This bill is critical to ensure people are not subject to increased premiums based on metrics that have nothing to do with driving, and it will ensure drivers are not subject to increased premiums based on unforeseeable consequences of the pandemic.”

 

The bill, S-111, would prohibit automobile insurers from assigning an insured or prospective insured person to a rating tier based on educational level, credit score, marital status, homeownership status, or employment, trade, business, occupation or profession.

 

“Newark has some of the highest car insurance rates in the country. Under our current laws car insurance companies are preying on New Jersey’s most vulnerable, charging low income customers significantly more regardless of their driving history. Every sponsor has done tremendous legwork to bring an end to this harmful practice. I am proud to have been a driving force in the final push to move this important legislation and to ensure it included prohibiting the use of credit scores,” said Senator Ruiz (D-Essex). “Insurers should be basing their rates on the likelihood that someone will be in an accident, not his or her ability to pay for those damages out of pocket.”

 

“It is absurd that someone with a bad credit score pays more for car insurance than someone who has been convicted of a DUI,” said Senator Cruz-Perez (D-Camden/Gloucester). “We cannot allow insurers to continue basing rates on credit history or socioeconomic status rather than someone’s driving record.”

 

“We must stop penalizing people for being poor,” said Senator Pou (D-Bergen/Passaic). “This legislation will hold insurance companies accountable and help to ensure that our most vulnerable citizens are given fair pricing for policies that are a requirement to drive.”

 

The bill would take effect 90 days after enactment.

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Reasons You Can Be Denied for a Bad Credit Auto Loan

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Everyone’s situation varies, but there are some circumstances that bad credit auto lenders simply don’t accept. To give you an idea of what to expect when you apply for a car loan, here’s what subprime lenders tend to require and what situations they don’t accept when determining your eligibility for auto financing.

Job Situations and Bad Credit Car Loans

First, it’s important to note that all lenders have different work, income, and even residency requirements. However, if you’re applying with a bad credit car lender, also known as a subprime lender, they tend to follow similar guidelines for who they’re willing to approve for auto financing.

When it comes to your work situation and what type of income you’re bringing in each month, there are some situations that subprime lenders simply don’t accept.

No Income at All

If you’re not bringing in any income from a job or any other type of assistance, expect to be turned down. Any car lender, bad credit or not, is going to need you to provide proof that you have a stable income.

Some subprime lenders can accept income such as alimony, permanent disability, pension, and even public assistance – if you can prove that you’re going to receive it for the entire duration of your auto loan term, that is.

To get into a car loan, you must have provable, consistent income that can support the auto loan the whole time you’re repaying it.

Sparse Work History

This requirement can vary, but borrowers who haven’t held down the same job for around six months to a year can often be turned down for a car loan. Auto lenders typically also require you to have consistent work history over the last three years.

Subprime lenders look for stability in your work history and employment. The longer you’ve held the same job in the same line of work, the higher your chances of getting approved for a car loan.

Brand-New Job

If you just started a job in a new field, then a subprime lender may be hesitant to approve you for financing. Subprime lenders prefer borrowers who’ve been at the same job for at least six months to a year.

However, if you recently switched employers but it’s in the same line of work, then they’re more likely to be understanding of that situation.

Living Situations and Bad Credit Auto Loans

Situations That Can Deny You a Bad Credit Car LoanAlong with having work and income requirements, subprime lenders also take a look at your residence history. While living situations can vary greatly, they are again looking for stability.

A stable borrower is one that is more likely to repay their auto loan. So, the longer you’ve been living in the same area, the higher your chances for an approval. However, just because you’ve lived in the same town for 20 years doesn’t always mean you meet the residency requirements.

Here are a few living situations that subprime lenders probably won’t accept:

You’re Not a Homeowner or a Renter

To meet residency requirements, most subprime lenders require that you’re a homeowner or a renter. If you’re a homeowner, you must prove your residency with a recent utility bill in your name, or maybe even a home title in your name if you don’t have any utilities in your name.

If you’re a renter, then your name must be on the lease. You should also expect to need a recent utility bill in your name to prove your residence. Some lenders may even require a copy of a lease agreement, a mortgage statement, or a copy of a house payment/rent check.

However, if you live with relatives or you live at an apartment where your name isn’t on the lease, then it could be more difficult to qualify for a car loan. Subprime lenders require that their borrowers have a permanent address, with documents that prove that you live there. If you don’t have any utilities in your name, or your name isn’t on a lease or mortgage statement, then you could run into trouble getting approved for auto financing.

You Don’t Have a Permanent Address

Some people live in RVs, or even hotels, to accommodate a nomadic lifestyle. While having the flexibility to move wherever you’d like at the drop of a hat suits many people, the sad news is that these unconventional ways of life aren’t likely to meet the requirements of a car lender. Since your address isn’t permanent, it can make a subprime lender hesitant to approve you for financing.

Other Requirements of Subprime Lenders

There could be many different reasons why a lender can deny you for an auto loan. To help you be best prepared, here’s a list of other common requirements of subprime lenders:

  • Must have a cell phone or landline phone in your name (no prepaid phones)
  • Have to make a down payment of at least $1,000 or 10% of the vehicle’s selling price
  • Bring a list of five to eight personal references with complete contact information
  • Must have a valid driver’s license with your current address

Subprime Lenders and Bad Credit Car Dealerships

If your credit is worse for wear, you’re likely to have a better chance of getting approved for a car loan if you apply with a subprime auto lender, since they consider more than just your poor credit score while they determine your eligibility for a car loan.

Where are subprime lenders? They’re signed up with special finance dealerships, and they are more prominent nowadays. Here at Auto Credit Express, we know what dealers are signed up with subprime lenders, and we can look for one in your area at no cost.

Fill out our free auto loan request form, and we’ll get right to work looking for a dealership near you with the bad credit lending resources you need.

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