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MONEY TALK

Credit Bureaus Can Take Business Accounts Personally

May 11, 2003|Liz Pulliam Weston | Special to The Times

Question: I have two credit card accounts for a business I own. These accounts appear on my personal credit report, even though they are the obligation of my company, not me personally. I use these accounts frequently for the mileage benefits they provide.

How can I protect myself from a lower credit score that results from having my business use a credit card for its purchases?

Answer: You may consider it business debt, but the credit card issuers apparently don't. That's why these accounts appear on your credit report.

If you have any doubt about whether the cards are being reported correctly to the credit bureaus, check the service agreement you got when you applied for the card. The paperwork probably will outline your personal obligation for this debt.

People who are issued credit cards by the companies they work for often face the same situation. The cards, even if only for business use, appear on their personal credit reports and can affect their credit scores.

The FICO credit scoring formula doesn't distinguish between business and personal cards on an individual's credit report, said Craig Watts, spokesman for FICO creator Fair Isaac Corp. The formula also usually doesn't distinguish between balances that are paid down monthly and those that are paid off in full each month. So running up the balances, even if you pay them promptly, can hurt your personal credit score.

The most powerful way to protect or improve your score is to make sure you pay these and all your other bills on time. Don't leave this task to your billing department or anyone else in your company. Since late payments can hurt your score, you want to be absolutely sure the payments get made.

You also should avoid maxing out these and other cards. If you'll be in the market for a major purchase soon -- a mortgage or a car loan -- you should try to use these cards as lightly as possible. Otherwise, you could pay for those "free" frequent flier miles with a higher interest rate than you might otherwise get.

Boost Income to Build Fund for Rainy Day

Q: I am wondering how I can create an emergency fund in case I lose my job. I live paycheck to paycheck with two young children. I gross about $800 a month. Rent is $370. I spend on average $50 a month on the electric bill and $200 a month on food. Throw in $90 for car insurance every month, and with odds and ends, there really isn't any money to save.

A: Saving money on such a small income is an incredible challenge. People do it, to be sure, but your best bet is probably to look for ways to increase your income.

One way is to take advantage of the earned income tax credit, a tax benefit for the working poor. The credit can help you boost the size of your paychecks by more than $1,000 a year.

The credit is based on your income and number of children. With two kids, you could have earned as much as $33,178 last year and been eligible to claim at least a partial credit.

Ask your employer for Form W-5, EIC Advance Payment Credit Certificate, or download a copy from the IRS Web site at www.irs.gov. The credit can be tough to figure out, but the benefit is worth the effort.

You also should consider contacting your state employment development office to see what job training programs are available to you. Better job skills could help boost you over the poverty line. Good luck.

Charitable Donations Can Be Part of Budget

Q: Several months ago you answered a question from a reader who wanted to know how to construct a budget for a $150,000-a-year income. Your answer was good, but you left out one spending category: charitable donations. Maybe you can help encourage people to think about giving as part of their year-round budget, and not something they do just at holidays or when they're thinking about taxes.

A: Charitable giving is a value, and not one everybody shares. But if it's important to you, regular donations can be as much a part of your budget as retirement savings and money for groceries.

The easiest way to give usually is through payroll deductions. You sign up through your employer, and the money is whisked out of your paycheck before you even see it. You also can benefit charities with noncash contributions -- household goods, clothing and other used items that a nonprofit can sell or recycle.

How much to give obviously is also an individual decision. Some people kick back 10% of their gross income to religious organizations and say they're not the worse for wear. Others struggle to give away even 1%. As with other budget categories, you may need to experiment to find out how much you can afford to spend.

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Direct questions to Liz Pulliam Weston at asklizweston@hotmail.com or to Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.

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