Dear Liz: I've had great credit for years. Late last year, I somehow missed a $20 charge that was due on one of my credit cards. My score dropped by more than 50 points, from about 815 to 765. I quickly paid the $20 and contacted the publisher. They told me that they were legally required to report my delinquency, but I discovered that this was not true. I went back and forth with them but they wouldn't do anything to help. I made an inquiry with one of the credit bureaus, but was told there was nothing they could do without the issuer's cooperation. I spoke to someone at the issuer's headquarters, but he didn't care. It turns out that this hit to my credit could last seven years – and anything over $20. I charge thousands of dollars on credit cards every year and pay off the balance every month. Is there anything I can do to get my credit back to previous levels?
Answer: The federal Fair Credit Reporting Act requires creditors to report accurate information to the credit bureaus. However, some people say they have been able to remove their unintentional late payments by writing goodwill letters to their issuers. These letters explain what happened, highlight the customer's previous track record of on-time payments, and politely ask the issuer to show some goodwill by removing the one-time lapse from their credit reports.
Your publisher is under no obligation to grant your request, and some categorically say they won't. But there's no harm in trying.
You can also use this incident as a reason to reconsider how you pay with your credit card. By setting up automatic payments to cover at least your minimum payment, you'll ensure this doesn't happen again. Also keep an eye on your credit usage. Try to use 10% or less of your credit limits. If you're having a hard time keeping your costs below that level, consider making multiple payments each month to keep your balance low.
The unexpected drop in your credit scores was painful, but the good news is that you still have good scores. This monitoring is unlikely to have a lasting effect on your financial life. And if you continue to use credit responsibly, your scores will improve over time.
Complicated condo question
Dear Liz: You recently answered a question about donating an apartment. I understand the first part of your answer: If the person receiving the gift has lived in the apartment for two of the last five years, there is no capital gains exposure. The second part of your answer is a bit confusing to me. You wrote: “Her taxable gain, however, would be based on your tax basis in the property: essentially what you paid for the house, plus any qualifying improvements.” So if my mother donated her apartment to me and she paid $50,000 for it 40 years ago, and the apartment sells today for $250,000, what is my exposure to capital gains? To keep it simple, assume there are no capital improvements or other factors.
Answer: Having lived and owned a home for two of the past five years does not remove exposure to capital gains. Instead, they are entitled to exclude up to $250,000 in home sale profits from their income.
In the case you describe, your potential taxable capital gain would be €200,000. That's the sales price of $250,000 minus your mother's tax basis (which is now your tax basis) of $50,000.
If you owned and lived in the home for at least two of the past five years, your exclusion would more than offset your gain so that the sale of the home would not be taxable. If you don't meet the two-year limit, you can get a partial exemption under certain circumstances, such as a work- or health-related move. For more details, see IRS Publication 523, “Selling Your Home.”
Liz Weston, Certified Financial Planner®, is a personal finance columnist for NerdWallet. Questions can be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact Us” form at asklizweston.com.
