Life is expensive enough without a poor credit history. Without good credit, you may not get the apartment or job you want and borrowing money can be more expensive.

One way to establish credit and a credit score is to open a traditional or unsecured credit card and pay it off in full and on time each month. A traditional credit card does not require a security deposit or collateral and allows the cardholder to make purchases and borrow money up to a predetermined limit.

Securing a traditional credit card may be difficult if your income is low and you have not already established credit. It seems you need credit to get credit, but where to start? Is it possible to establish credit without credit cards?

Pay your bills on time

You don’t have to have a credit card to use this tactic to raise your credit score. Pay your regular bills on time—car loan, rent, utilities, phone, water and others—and make sure they are reported to the credit bureaus. This can help you build payment history, accounting for 35% of a FICO Score.

Get a secured credit card

A secured credit card is technically a credit card, but it works differently from a traditional credit card. With a secured credit card, you provide a security deposit upfront to the credit card issuer, typically equal to the card’s credit limit. This deposit serves as collateral and reduces the risk for the issuer. You can then use the card to make purchases and build credit, just like a traditional credit card.

For example, you deposit $500 in an account tied to the card and get a card with the same credit limit as your deposit. You make payments just like for a traditional card, which are reported to the credit bureaus. If you fail to make repayments, then the card company can withdraw money from your deposit.

After six months or so of using the card responsibly (meaning paying the bill on time), some unsecured card companies offer you an unsecured card and return the deposit to you. Or the deposit amount is returned to you when you close the account.

The new Credit Builder from Credit Sesame is a new kind of credit-building account that allows you to build credit with your everyday purchases and does not require a security deposit.

Open a credit-builder loan

A credit builder loan is a type of loan designed to help you establish or improve your credit scores. Instead of receiving the loan funds upfront, you make monthly payments with interest over a fixed period of time. The lender reports each payment to the credit bureaus, which can help improve your credit score over time. You receive the funds paid into the loan at the end of the loan term.

These loans are meant for people with poor or no credit. Money from the loan is only given to you after you pay off the loan in full. On-time payments are reported to credit agencies, which can be the start of your credit history.

Your loan payments are deposited into a bank account held by the lender, usually a credit union or community bank. You make the monthly payments for six months to two years to pay off the loan, and then you get the loan proceeds.

It may seem to be a counterintuitive way to build a credit history by paying interest on a loan you do not have access to for months or years, but it is designed specifically to establish and build credit.

Get a co-signer on a loan

A co-signer can be added to a credit-builder loan, and one with good credit can help you get a lower interest rate than you would on your own. Other types of loans also allow co-signers and a personal loan may be cheaper than a credit-builder loan.

A loan can be easier to qualify for with a co-signer since their good credit is used to get the loan. And if you repay the bill on time, your credit score should rise.

A co-signer accepts equal responsibility for the loan and is liable for paying it if you fail to pay. If you miss payments or make late payments, you risk damaging your credit score and your co-signer’s credit score.

A parent or relative with a good credit history can be a big help as a co-signer.

Become an authorized user

This is another way to access a traditional credit card without applying for one yourself. An authorized user on a credit card has been granted permission to use someone else’s credit card account. This may be a parent, relative or trusted friend with good credit. It’s like a piggyback ride for improving your credit score.

There is no requirement to use the card, but as an authorized user you benefit from the cardholder’s good credit habits. If you receive the card and used it and fail to make repayments you could damage the cardholder’s credit score.

Repay student loans

Repayment of federal student loans usually begins six months after graduating from college or dropping below half-time enrollment. 

Payments are reported to the credit bureaus, so repaying student loans that are in your name can improve your payment history, which makes up the biggest percentage of a credit score. Missed and late payments could hurt a credit score.

Check your credit scores

Checking your credit score is free and it’s a good idea to check regularly while establishing your credit history. Checking for and correcting mistakes on your credit reports may help improve your score.

If you liked How to establish credit without credit cards, you may also like:

• What does paper money have to do with credit?
• Ten credit building resolutions for 2023
• How to recover from messed-up credit

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How to establish credit without credit cards appeared first on Credit Sesame.

Planning for retirement? Are you liable for tax on your retirement income? Some retirement distributions are considered income and taxed by the federal government. Some states do not tax retirement income. Some states do tax income of any kind.

Here is our ABC os states that do not tax retirement income. Retirement income is 401(k), IRA or pension income. Most states don not tax Social Security benefits.

Alaska

Alaska has no income tax for anyone. Retired or not, it does not tax incomes. 

For retirees, it doesn’t tax Social Security benefits. For their beneficiaries, Alaska doesn’t have an inheritance tax or an estate tax.

Live in Alaska for a year as a retiree, and you are eligible for the annual stipend that the state pays to legal residents who have lived there for at least one year The Permanent Fund Dividend, as it’s called, was $3,284 in 2022, and the 2023 payout is projected to be $3,800. The money comes from the investment of earnings of the state’s oil reserves.

Florida

Florida also does not have a state income tax for its residents.

Florida also does not tax retiree incomes such as a 401(k), IRA or pension, and Social Security income. There are no inheritance or estate taxes either.

“Snowbirds” who head south to Florida for the winter from other states must establish residency in Florida to take advantage of its tax benefits. The main way to do this is by showing through your actions that Florida is your primary and permanent home. Ways to do this in Florida include:

• Spend six months there.
• Get a Florida driver’s license.
• Register and insure your vehicle in Florida.
• Vote.
• Buy a bigger home.
• Join groups and socialize in Florida.
• Visit doctors and other professionals.
• Bank locally.
• Have all of your bills sent to your Florida home.
• Pay taxes as a Florida resident, including federal income and property taxes.

Illinois

Illinois does not tax pension, Social Security or most forms of retirement income, including a traditional IRA that has been converted to a Roth IRA. The state does have an inheritance tax.

High property taxes, however, may cause retirees or anyone to think twice about moving to Illinois. The statewide median property tax rate in Illinois is the second-highest in the country, at $2,073 per $100,000 of assessed value.

Also keep in mind that Illinois charges a flat state income tax of 4.95%, which retirees must still pay on other types of income. 

Iowa

All retirement income is exempt from the flat state income tax rate of 4.96% in Iowa, including Social Security payments. A new law on exempting retirement income from state taxes took effect in 2023.

Iowa does not have an estate tax but it does have an inheritance tax. The inheritance tax ranges from zero for less than $25,000 in inheritance, to $6,825 plus 6% of an amount over $150,000.

Mississippi

Mississippi does not tax retirement income for anyone 59.5 years or older. Retire earlier than that, and the state takes it share of 401(k), IRA or pension income. 

The state does not tax Social Security benefits. Mississippi also does not charge inheritance or estate taxes.

Nevada

Nevada has no income tax, including on retirement funds or any other type of income.

Social Security benefits also are not taxed by the state, and inheritance and estate taxes don’t exist.

New Hampshire

New Hampshire is the only state in the New England area without a general income tax.

It does, however, impose a tax on interest and dividends, though retirees are exempt from paying it on taxes and interest from retirement plans. The tax on dividends and interest is being phased out and will be repealed on Jan. 1, 2027.

Social Security benefits are not taxed. New Hampshire also does not collect inheritance or estate taxes.

New Hampshire has a high property tax, at $1,766 per $100,000 of assessed home value.

Pennsylvania

Pennsylvania does not tax pension, employer-sponsored retirement plans, or IRAs of retirees. It also does not tax Social Security benefits.

The state’s inheritance tax ranges from 4.5% to 15%, depending on a recipient’s relationship to the deceased and their age. The inheritance tax does not apply to property inherited by the decedent’s:

• Spouse.
• Parents if the decedent is 21 or younger.
• Child 21 or younger.

Pennsylvania has a flat income tax rate of 3.07% for everyone, including retirees. Local governments and school districts may also levy income taxes. Property taxes are a little high, at $1,358 per $100,000 of assessed value.

South Dakota

South Dakota has no income tax and does not tax pension, 401(k) or IRA income in retirement.

The state also does not tax Social Security benefits, and it does not have an inheritance or estate tax.

South Dakota has a property tax homestead exemption for homeowners 70 or older, or their surviving spouses. This delays payment of property taxes until the property is sold. Taxes are a lien on the property and must be paid with 4% interest before the property can be transferred.

Tennessee

Tennessee has no income tax, including on a pension, 401(k) and IRA income for retirees. The state does not tax Social Security benefits, and does not have an inheritance or estate tax.

Property taxes in Tennessee are well below average, at $560 per $100,000 of assessed value.

Texas

Texas has no personal income tax, and retirement income and Social Security benefits are not taxed either. The state also does not have an inheritance or estate tax.

However, Texas makes up for all of these tax exclusions with the seventh-highest median property tax rate in the country, at $1,599 per $100,000 of assessed home value.

Washington

Washington State does not have an income tax. A retiree’s 401(k), pension or IRA income also aren not taxed by the state, and Social Security benefits escape state taxation too.

The state charges estate taxes on estates valued at least $2.19 million. It does not have an inheritance tax.

Property taxes are close to the national average, with the median property tax rate at $836 per $100,000 of assessed home value.

Wyoming

Wyoming is another state with no income tax, and thus no taxes on 401(k) plans, IRAs or pensions. It also does not tax Social Security benefits, and it does not have an inheritance or estate tax.

Property taxes are low in Wyoming. The statewide median property tax rate is the 10th-lowest in the country, at $545 per $100,000 of assessed home value.

If you enjoyed 13 states that don’t tax retirement income you may like:

• Do you need to file a tax return?
• 10 vacation travel savings tips for 2023
• Uncle Sam helps you to save more for retirement

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post 13 states that do not tax retirement income appeared first on Credit Sesame.

Your credit score is a significant factor when mortgage lenders underwrite your loan application. While very few mortgage programs exist for homebuyers with credit scores as low as 500, some options may be available to you:

• FHA home loans
• Non-prime loans
• Seller financing
• Hard money loans

We’ll take a closer look at each of these options, their advantages and drawbacks, and how to improve your chances of getting a mortgage with a 500 credit score.

FHA home loans for low credit scores

The Federal Housing Administration (FHA) is a government agency that insures loans made by FHA-approved lenders. The FHA home loan is one of the most popular loan programs for homebuyers with low credit scores. FHA mortgage guidelines allow scores as low as 500 with a 10% down payment. However, very few applicants are approved with a credit score this low.

Your ability to get an FHA mortgage with a 500 credit score depends on the reasons for your poor credit score. If it’s low because you have a limited credit history or high credit usage, you have less trouble than if it’s bad because of serious blemishes like missed payments, collections, charge-offs, bankruptcies, foreclosures or repossessions.

Borrowers should also understand that many FHA lenders apply “overlays” when they underwrite loans. Overlays are guidelines that are stricter than those set by the FHA. For instance, many lenders set their own minimum credit scores between 580 and 640.

FHA compensating factors

For borrowers with credit scores under 580, FHA requires lenders to underwrite the loan manually using a scorecard.

To get an FHA mortgage with a 500 credit score, you probably need exceptional “compensating factors,” to strengthen your application. Here is a list of common compensating factors that FHA underwriters may be able to use to justify approving a mortgage with a 500 credit score:

• Housing expense payments: The borrower has successfully demonstrated the ability to pay housing expenses greater than or equal to the proposed monthly housing expenses over the past 12-24 months.
• Down payment: The borrower makes a large down payment of 10% or higher toward the purchase of the property.
• Accumulated savings: The borrower has demonstrated the ability to accumulate significant savings.
• Conservative use of credit: The borrower does not use credit excessively (this would be reflected in the debt-to-income ratio).
• Substantial cash reserves: The borrower will have, after closing on the home purchase, enough cash to cover at least three months of payments in the event of a financial emergency.
• Additional income: Some income may be available to pay a mortgage but not counted for underwriting. For instance, income from a second job, commissions or bonuses received for less than two years.
• Trailing spouse: A borrower’s spouse’s income is a compensating factor if one borrower moves for a new job and the spouse works but has not yet found a new job.
• Substantial non-taxable income: If a borrower’s income is not taxable, underwriters can adjust the income upward.
• Potential for increased earnings: The borrower can reasonably expect to earn significantly more in the future because of acquired training and experience — for example, a recent medical school graduate.

FHA mortgage pros and cons

The FHA loan offers a few advantages for borrowers with smaller down payments, higher debt-to-income ratios or low credit scores. First, you can use gifted funds for your down payment. Acceptable gifts can come from a family member, employer, or charitable organization. Second, the program allows home sellers to cover some or all of your closing costs. And third, FHA home loans allow you to bring in a non-occupying co-borrower or co-signer to boost your approval chances.

The main drawback to FHA home loans is the mortgage insurance premium (MIP). When you borrow with an FHA mortgage, you incur a 1.75% upfront MIP and an annual MIP of .5% to .7% for 30-year loans with at least 10% down. You can usually wrap the upfront MIP into your mortgage. For a $500,000 loan, the upfront MIP would be $8,750. If you add that to your home loan, your mortgage amount becomes $508,750, and the annual MIP would be .5% per year or $212 per month. However, the MIP on an FHA loan may be cheaper than higher interest rates charged for other types of loans.

Non-prime loans

What used to be called subprime loans are now called “non-QM” mortgages or “non-prime” loans. Non-prime loans are another option for homebuyers with a 500 credit score. Non-prime lenders specialize in providing mortgages to borrowers who don’t qualify for traditional home loans. These lenders charge higher interest rates and fees than traditional lenders, but they are more flexible in their lending criteria.

Non-prime lenders typically require a larger down payment, at least 20-30%. Documentation may be different from a traditional mortgage — for instance, you might be able to prove your income with bank statements instead of tax returns. Non-prime lenders often don’t require a waiting period following a bankruptcy, foreclosure or another serious event.

Non-prime lenders may allow loans with a co-signer or co-borrower. A co-signer agrees to be responsible for the loan if the borrower defaults, while a co-borrower shares the responsibility for the loan and is equally liable for the payments. Having a co-signer or co-borrower with good credit doesn’t make up for bad credit with a traditional loan, but it can help with a non-QM lender.

Non-QM loans are harder to find than FHA mortgages and they are not standardized. A lender can set its own underwriting guidelines as long as they comply with mortgage lending laws. Fees and terms vary widely, so expect to contact many lenders to check their guidelines and compare costs.

Non-prime loan pros and cons

Non-prime lenders often move faster than traditional mortgage lenders. They may allow alternative ways of documenting your income or let you add a co-signer or co-borrower to qualify. Non-QM loans may allow trickier properties like condotels and kit homes or let you use roommate income or short-term rental income to qualify. Most non-prime loans don’t require mortgage insurance.

However, non-prime loans typically have higher interest rates and fees. This can make paying them a challenge and increase your risk of foreclosure.

Seller financing

While not common, some sellers are willing to finance the sale of their homes. Often, they have no mortgage balance to pay off with the proceeds of the sale, and they may prefer a series of payments and some interest income. Your real estate agent may be able to help you find sellers willing to finance your purchase.

Sellers are exempt from most consumer protection laws that lenders must obey, so you need to do your own due diligence. Even though your lender won’t require an appraisal, for instance, you should hire a licensed appraiser to ensure you’re not overpaying for the property. Similarly, you probably want a property inspection to avoid unexpected defects. And it’s smart to have a real estate attorney look over any seller financing agreement for your protection.

Your seller financing may not be a traditional 30-year loan. You might get a five-year term with a balloon payment, for instance. In that case, you must pay off the seller’s loan in five years by refinancing or selling.

Seller financing pros and cons

Seller financing can be a lifesaver, especially if your seller charges lower rates and fees than a mortgage company or private lender. However, sellers who finance understand that your options are limited and can drive a harder bargain — charging more because you can’t negotiate aggressively. They may also push you to forego inspections and an appraisal or charge very high interest rates and fees. And if your loan has a balloon payment, make sure you can refinance or sell if needed.

Hard money loans

“Hard money” lenders are individuals or groups of investors who specialize in expensive, short-term mortgages to nontraditional buyers. Hard money loans are also called “private money” mortgages.

Most hard money buyers are real estate investors like home flippers who borrow and repay money very quickly. However, hard money lenders also make loans to borrowers with poor credit.

Hard money lenders operate under different rules from traditional mortgage lenders. They are less concerned with the borrower’s credit scores because they protect themselves by requiring a larger down payment. This minimizes the chance of losing money if they have to foreclose.

Hard money interest rates and fees

If you borrow using hard money, expect to pay 12% to 25% interest. Your actual rate depends on factors like your credit history, real estate investment experience and the extent of repairs needed to the property. If you have severe derogatory credit history like bankruptcies, foreclosures, judgments, or collections, expect to get an offer on the higher end of the spectrum.

Hard money pros and cons

You may be able to finance with a hard money loan in just days rather than weeks. Hard money is typically used as a bridge loan or for a fast transaction. However, hard money lenders can finance primary residence purchases if they abide by consumer protection laws.

Most hard money lenders, however, do not lend for non-business purchases. If you do finance your home with a hard money loan, exercise caution.

Hard money loans:

• Have much shorter terms, usually anywhere from one to three years. If you cannot qualify to refinance by then, you may have to sell your home or risk losing it to foreclosure.
• Have interest rates and payments that are significantly higher than they’d be with an FHA or other traditional loan. That increases the chance of falling behind on your payments and losing the property.
• Require 25% to 40% down. That’s a lot to lose if you default and end up in foreclosure.

Be careful if planning to get a mortgage with a 500 credit score. Most consumers would be far better off putting off a home purchase until their credit score, income, debts and savings are good enough to qualify them for a traditional mortgage. Credit Sesame’s educational content and credit-builder service can help you accomplish this goal sooner.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How to get a mortgage with a 500 credit score appeared first on Credit Sesame.

Imagine if a work colleague lies about you behind your back. Perhaps dishing dirt on you to your boss, landlord, bank and people who do business with you. Would you like to know what they are saying? Better yet, would you like the chance to do something about it?

What if that work colleague is, in fact, your credit report? Your credit report is used by lenders, employers and landlords as a tool to assess your creditworthiness and financial standing. It contains information about how you have handled debt in the past. Does your credit report tell the story of someone responsible and reliable? Is the information accurate? Unless you check, you cannot know.

Using credit monitoring can give you insight into how others see your creditworthiness. It also means you can catch and correct any errors, hopefully before they impact your credit score.

You never know when someone may check your credit

Your credit report is a comprehensive summary of your past and ongoing use of credit. Normally, you can get one free credit report per year from each of the three major credit bureaus. However, because of the economic impact of the COVID pandemic, the credit bureaus are allowing consumers to get one free credit report each week until the end of 2023.

Few people are going to request a credit report every week. You may check your credit when you know it is about to be checked for a specific reason, like when you are about to apply for a new loan or credit card.

However, your credit may be checked more often than you think, for example:

• When you apply for a new job, a potential employer may check your credit report to see how financially responsible you are
• Insurance companies in many states use credit history as a factor in setting premiums, both when you apply and when your policy is up for renewal
• Credit card companies base their interest rates on your credit history, and may raise your rate for new purchases if your credit score drops
• Some landlords use credit checks to screen tenants to see how good they are at making their payments on time

You may not know when your credit history is going to matter. Even if you knew when it is about to happen, you do not have time to do anything about errors. Credit monitoring is a longer-term strategy for ensuring information is accurate.

Many factors affect your credit score

You probably know that if you start missing payments, your credit score may drop. You credit score can change for other reasons.

• Carrying a high credit card balance
• Paying off a loan
• Closing an old credit card account
• Applying for new credit
• Opening new credit accounts
• Fraudulent activity

Fluctuations in credit scores are normal and often minor. Still, you risk having a significant change happen at the wrong time if there is a change in credit behavior or fraudulent activity on your account. This is where credit monitoring comes in.

What is credit monitoring?

Credit monitoring is a service designed to let you keep a close eye on your credit record without continually requesting credit reports.

Credit Sesame offers free credit monitoring that allows you to:

• Easily check your credit score
• See how much you owe on your credit accounts
• View your payment history
• Understand how much of your available credit is in use
• Help you compare the interest rates you’re being charged on various accounts
• Get timely alerts to changes in your credit status

Free credit monitoring from Credit Sesame includes a monthly report on your credit, plus alerts whenever there is a change in your credit status. The report contains the information others may use to decide your lending capacity or responsibility in financial matters. You can use the information to manage your credit more efficiently.

Use credit monitoring because …

You are more than your credit score

Monitoring your credit score can be useful. But you are more than your credit score. Credit monitoring helps you understand what’s good or bad about your credit behavior. In turn, that allows you to figure out what you can do to improve your credit score.

It gives you time to work on your credit

There are several actions you can take to improve your credit. These include clearing up mistakes on your credit report, getting current on payments, and lowering your credit utilization ratio.

Each of these tactics may take time. If you wait to check your credit just before applying for something, you may find a problem you don’t have time to address.

Credit monitoring helps you stay informed about your credit at all times. You can address problems as soon as they occur. This increases your chances of having your credit in good shape when needed.

It helps you spot unauthorized activity in your accounts

Most credit card theft involves the theft of credit card information rather than someone stealing your actual credit card.

There are many ways for thieves to get your card information without you knowing it. Credit monitoring can help you spot suspicious increases in your account balances sooner to limit the damage to your credit score.

It alerts you to unauthorized new accounts

Another way thieves can use your credit is to open a phony account in your name. This can make you liable for charges on that account, plus ruin your credit. Just opening the account may cause a hit to your credit score. As the account balance rises, your score may continue to decrease. Finally, your credit score could take an even more serious hit if account payments are missed.

You may be able to head off a lot of this trouble with credit monitoring. Receiving an alert whenever a new account is opened in your name allows you to freeze the account immediately.

We monitor our physical assets with doorbell cams, burglar alarms, computer protection software or a good old family dog. Perhaps now is a good time to help secure your credit data by adding a credit monitoring service.

If you enjoyed Use credit monitoring to avoid unpleasant surprises, you may like,

• Steps to take if you have a credit screw-up
• Credit repair versus credit building
• How to recover from messed-up credit

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Use credit monitoring to avoid unpleasant surprises appeared first on Credit Sesame.

Have you received a marketing promotion via snail mail, email, or phone call for a credit card? Chances are this is a credit card pre-approval offer, which means you’ve been prescreened for a specific credit card that you can apply for. Being pre-approved means you are likely to be approved, receive the card, and benefit from limited-time offers and rewards for signing up.

But if you haven’t received a pre-approved card offer, you can increase your odds of getting one by taking the right steps. Find out how to make yourself a more viable candidate to get a credit card pre-approval offer by reading this article.

Credit card pre-approval explained

You can try applying for any credit card you like. You are more likely to be successful if you have been pre-approved.

Credit card pre-approval usually refers to unsolicited credit card marketing promotions and offers you get by phone, email, or snail mail. These deals typically come from a credit card issuer, lender, or bank you already partner with, or from one of their affiliated partners.

What pre-approval really means is that you’ve been screened ahead of time and are likely a good candidate to ultimately be approved for that card. Being pre-approved indicates that your credit rating and payment history have been reviewed by the credit card company. In other words, they didn’t notice any red flags that would initially disqualify you from being worthy of having their card.

If you receive a credit card offer for which you’ve already automatically been “pre-approved,” the credit card issuer has already initially vetted you and determined you are a good candidate for the card. Lenders prescreen consumers by requesting a soft inquiry to check credit and determine who qualifies. It does not mean that you have actually been approved for a credit card though.

Credit card pre-approval benefits

“One of the benefits of getting pre-approved for a credit card is that there is no risk to your credit score. Before a credit company send you a pre-approval offer, they send out a soft inquiry to your current lender to access your credit profile,” says Lynne Martin, a real estate professional and investment advisor in Denver. “Unlike hard inquiries to your credit, this does not affect your credit score.”

Note that if you move forward with the application for a pre-approved card, this requires a hard inquiry and may have a small impact on your credit score.

However, an advantage of a successful application after receiving a pre-approved credit card offer is that it can help rebuild your credit profile if you have poor credit.

“Some credit card companies provide credit card pre-approval offers even to those with poor credit scores. These offers usually promise lower interest rates, which can help you pay off previous credit payments and rebuild your credit,” adds Martin.

Also, pre-approved credit card promotions often come with special offers and perks. These can include a zero-interest introductory period (during which you will be charged 0% APR), free balance transfers (enabling you to transfer the balance of a higher-interest credit card, saving you money otherwise spent on interest), and incentives like free airline miles or cashback perks.

What’s required to get pre-approved for a credit card

According to Carter Seuthe, CEO of Credit Summit, to qualify for a pre-approved credit card, you typically must already have at least one line of credit established – either a student loan, automobile loan, or another credit card, for example. This demonstrates to the credit card issuer that you’ve at least established a credit history.

“You must also have no bankruptcies attached to your name, as this will ruin your chances of getting pre-approved. And credit card companies have various credit score minimums they look for when screening an individual’s credit history – most likely a score of at least 600 or 620,” Seuthe explains.

Furthermore, you usually need a low debt-to-income (DTI) ratio. This is calculated by dividing all of your monthly debt payments by your gross monthly income. According to the Consumer Financial Protection Bureau, a DTI of 46% or less is preferred by many credit card issuers.

“Also, you must have very few or no derogatory remarks on your credit history, such as missed payments or accounts in collections,” says Dennis Shirshikov, a strategist at Awning.com and a professor of economics and finance at City University of New York.

How credit card pre-approval preparation may improve your odds

To up your odds of getting a credit card pre-approval promotion in your mailbox, inbox, or by phone, follow best practices.

First, visit Optoutprescreen.com and opt in (agree) to allow credit card issuers to send you credit card pre-approval offers. After doing so, you should receive prescreened credit offers with a higher chance of being approved after formally applying.

“Try to have at least one credit card already in place with a big holder company. Larger companies already have your information and will be more likely to pre-approve you for many different opportunities,” suggests Seuthe.

Additionally, “check your three free credit reports, review what you see there, and dispute any accounts or remarks you don’t recognize or are in error to improve your chances of getting pre-approved,” Shirshikov advises.

Other recommended steps that can make you a more viable prospect for pre-approved credit card offers include:

• Improve your credit utilization. This means paying down your existing credit card balances and other debts. Only paying the minimum amount owed and carrying a balance from month to month can hurt your chances of being offered future credit.
• Pay your bills punctually. Late payments on credit cards and other accounts will significantly hamper your credit score and make you appear less creditworthy.
• Be smart about closing or opening credit card accounts. Don’t apply for new credit accounts too often or too close together, and avoid closing existing credit accounts. Also, avoid the trap of opening too many credit cards.
• Ask for an increase in your available credit from your existing credit card company.
• Aim for credit variety. In other words, it’s best to have different types of credit accounts, including credit cards as well as loans and lines of credit versus only credit cards.

Lastly, if you don’t want to wait to receive a pre-approved credit card offer, be proactive by visiting a particular credit card company’s website and searching for its pre-approval page/section. There, you will likely find promotions and offers available as well as the ability to answer screening questions that can get you pre-approved quickly.

If you found Credit card pre-approval preparation useful, you may enjoy,

• Credit Card Pre-Approval Gives You Better Odds of Approval but Should You Sign Up?
• Does Credit Card Pre-Approval Mean You Will be Approved?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Credit card pre-approval preparation appeared first on Credit Sesame.

You might feel angry, disappointed or embarrassed, but it’s not the end of the world. It’s important to understand that lenders tend to focus on different types of borrowers and turn down people who don’t fit their box. One company might reject you while another begs for your business. The roadmap below shows you how to get over rejection, choose the right lender and put your best foot forward.

Step 1: Read your adverse action notice

Your first step after being denied a loan is to read your “adverse action notice.” The Fair Credit Reporting Act and the Equal Credit Opportunity Act require lenders to issue this notice orally, electronically or in writing when they deny your credit application or offer less favorable terms like a lower loan amount.

By law, adverse action notices must contain this information:

• The name, address and phone number of the credit bureau (including a toll-free number for nationwide agencies) that supplied the report.
• A statement that the credit bureau doesn’t make underwriting decisions and can’t explain why the lender declined your application.
• Notice that you have the right to a free copy of the credit report used if you request it within 60 days.
• Notice of your right to dispute the accuracy or completeness of any information on the credit report.
• Your credit score, if a score was used.

The lender is also required by law to provide the specific reason(s) you were turned down for a loan or explain where to get that information (you must request it within 60 days).

Common reasons for loan denial

Once you understand the reason for your loan denial, you can address it. Here are the top reasons lenders deny credit:

• Poor credit history. If your track record with previous lenders features missed payments, charge-offs, collections or other blemishes, future lenders will be reluctant to trust you.
• Insufficient credit history. While having no history is better than bad history, it’s still a big hurdle to overcome. Lenders can’t predict your future behavior without some past behavior to analyze.
• High debt-to-income ratio. Your debt-to-income ratio (DTI) shows lenders how much of your income is available to repay a new loan. If you already owe more than you can safely repay, you may have difficulty borrowing additional funds.
• Spotty employment history. It takes income to pay bills, and if your earnings are inconsistent, lenders worry that you won’t be able to repay your loans. Lenders like to see stable, consistent, healthy income and not big gaps between jobs, frequent employer or industry changes or income that’s dropping.
• Incomplete or inaccurate application. Lenders can’t make a decision if you don’t complete the application and supply all requested documentation.

Don’t be discouraged. You can address these issues, improve your profile, and probably get loan approval.

Step 2: Fix what you can

Once you know why a lender turned you down, you can work to improve your chances.

Credit report errors

Review your credit report for accuracy and correct errors if needed. Contact the company that reported incorrectly or report the error to the credit reporting agency on its website. If your application is for a mortgage, your lender may be able to help you correct errors very quickly by using a rapid rescoring service.

Application issues

Go through your loan application and make sure that you provided complete and truthful information. Look at your debts. Many times, lenders take the balances and payments right off of your credit report. If the actual balances and payments are lower, document them for your lender. Make sure your income is also calculated correctly.

Employment issues

A spotty work history with gaps and changes raises red flags with lenders. There are a few acceptable reasons for such changes, for example being in school, switching to part-time after having a baby, moving for a spouse’s job, or changing careers after completing your education. You may be able to overcome job instability with a stellar credit history, conservative use of debt, or a healthy emergency fund. If you have had job changes in the last two years, try to tie them together to build a picture of steady work doing a similar job or working in the same industry.

Minimum credit score

If your credit score is the problem, you can (and should) work toward improving it over time. But you should also look for a lender with lower minimum credit score requirements. Check your credit score and ask lenders what their guidelines are before applying. Or seek out lenders that offer a loan prequalification without pulling your credit.

Debt to income

If your issue is debt-to-income, you can fix that by paying down debt, increasing your income (side gig?), or choosing a lender that allows higher ratios.

To calculate your DTI, add up your housing costs (mortgage payment or rent) and your monthly debt payments including credit card minimums, auto loans, student debt, etc. Don’t include living expenses like utilities or food. Divide that total by your monthly before-tax income. To approve you, a conservative lender won’t want your DTI over 36%, an average lender maxes out at 43% and a generous one at 50%.

Step 3: How to get a loan with bad credit or high DTI

Of course, you want to improve your financial management and credit score for future borrowing. But what if you need money now?

Consider non-prime lenders

There are lenders and credit card issuers that specialize in riskier borrowers. They might be willing to accept a lower credit score if your income is sufficient to afford the loan. Some personal loan companies are willing to accept credit scores as low as 580 for otherwise-qualified applicants. Shop carefully for non-prime loans because interest rates and terms vary wildly. Make sure you can afford the payments and that you have a plan for paying off the loan. Missing payments can drag your credit score even lower and get you into more financial trouble.

Pledge collateral

Loans backed by collateral that the lender can take are less risky to lenders. You may be able to get financing by pledging something valuable like real estate, a car, electronics or jewelry. Beware of auto title loans, however. They often have extremely high rates and your balance increases very quickly if you don’t repay it right away. You can even lose your vehicle.

Get a co-borrower or co-signer

If you have loved ones with good credit, you might be able to bring in a co-signer or co-borrower. Lenders consider all applicants’ income and debts, so another borrower can help if your income is low. And adding someone with better credit to the application could get you a better deal.

However, co-signing or co-borrowing can be extremely dangerous for your friend or family member. If you miss a payment, it will likely hurt their credit score. If you default on (don’t pay) your loan, your lender may pursue your loved one for payment, even into court if necessary. Co-signing also creates contingent liability for your cosigner, which means they might have to pay your debt. This can make it harder for them to get credit in the future. If your friend or relative is willing to take this on, cherish them and do not abuse their trust. Such a relationship is worth more than any amount you can borrow.

Does being declined for a loan hurt your credit score?

Being denied credit does not directly harm your credit score. Lenders do not report their underwriting decisions to credit bureaus.

That said, applying for credit triggers a “hard” inquiry when the lender pulls your credit report, and a hard inquiry causes your credit score to drop a few points. So-called “soft” inquiries happen when you check your own credit or prequalify for credit without applying. Soft inquiries don’t harm your credit score.

So, if you apply for loans everywhere and get denied repeatedly, you have a batch of hard inquiries. Statistically, consumers with at least six inquiries are eight times more likely to go bankrupt, so they raise red flags with lenders. It’s smart to prequalify for loans without a hard inquiry or ask lenders what their guidelines are before applying for credit.

How long do inquiries hurt your credit score? They remain on your credit report for two years but only impact your score for 12 months.

Understand that credit bureaus treat inquiries for auto loans and mortgages differently. That’s because you often don’t know what interest rate and terms you may be offered until you apply. And it’s common for consumers to apply with several lenders when shopping for financing. So as long as you do your shopping within a short timeframe (14 to 45 days depending on the scoring model version), your credit score reflects only one inquiry.

If you found Turned down for a loan? Here’s what to do next helpful, you may enjoy,

• Declined for a pre-approved loan: my fatal mistake
• When is a good time to take out a personal loan?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Turned down for a loan? Here’s what to do next appeared first on Credit Sesame.

63% of Americans live paycheck to paycheck. This can make financial management challenging.

Paying bills, funding retirement, creating an emergency fund and saving are important components of financial stability. Sometimes it can seem like you do not have sufficient funds to cover everything. Today’s expenses have to be covered, which may leave you short at the end of each month. If earning more is not an option, what can you do to ease the situation? Creating a budget is a good start.

What is a budget?

A budget is a written plan that helps you decide how to spend your money each month. It helps you understand how money flows in and out of your finances and includes:

• How much you earn.
• What your money is spent on.
• What you really need to spend money on.
• Where you might be able to cut spending.

A budget can be for any period of time, but it helps to use your pay cycle and regular expenses as the basis, whether this is weekly, every two weeks or monthly. Creating a budget and sticking to it can help ensure you don’t run out of funds before your next paycheck is deposited and may even mean you can save for a rainy day.

Who needs a budget?

Budgeting is a good idea for anyone who struggles to get by on their paycheck. Careful money management is a worthy goal for everyone and just low-income individuals. High-income earners may also benefit from budgeting as almost half earning $100,000 or more per year live paycheck to paycheck.

A budget can help you develop good money habits for life. If you come up short at the end of every month when paying your bills or you cannot meet your savings goals, a budget can help show you where your money is going and where you might be able to cut back.

For example, suppose you spent $500 last month on dining out and $400 on groceries, but couldn’t afford a $100 power bill and a $100 water bill that were due at the end of the month. If you didn’t keep track of your expenses, then you might not realize why you came up $200 short.

A budget, if followed, can show you where you can cut expenses so that you can pay all of your bills. Cut your dining out budget to $300, and the power and water bills can be paid. All of this, however, is contingent on prices not rising drastically or using much more electricity or water next month.

But you may have bigger problems than not having a budget. If your earnings aren’t as high as your expenses — even if you’re only paying for necessities — then there may be no room in your budget to cut expenses more. You may be among the 37.9 million Americans, or 11.6% of the population, that lives in poverty.

But whether you have a low or high income, starting a budget can help you manage your expenses and improve your money habits.

Creating a budget is also about saving

Only 44% of U.S. adults have enough money saved to cover a $1,000 emergency, according to one survey. A carefully management budget, even if you are on a low income, allows you to save for things that you may not think about on a daily basis. For example,

• Any emergency
• Buying or fixing a car
• Security deposit on an apartment
• Down payment on a home
• Unexpected medical expenses
• Travel
• New clothes
• Christmas gifts
• College
• Retirement
• Insurance premiums
• Home repairs
• Home additions
• Wedding

Although these are not regular expenses, they are life expenses and you can expect to fund some or many of them at some point. They’re big enough that you may need to save for months or years to cover them. The point of an emergency fund is that it is for an emergency; you don’t know it’s going to happen and you don’t need the funds until suddenly you do. Of course, some are “nice to have” rather than essential, such as home additions and travel.

A budget can help you decide how much and where to spend your money for regular expenses and how much you can set aside for emergencies and other financial goals.

How to start creating a budget

Budgeting apps and budget calendars are available online for free or for a few dollars. You can also create one on a computer or write one down on paper. There is no one way that works for everyone.

Document your income and then write down your expenses. Subtract your expenses from your income. If the number you end up with is less than zero, you are spending more than you make. Look at your budget line by line to see where you can cut spending.

Income includes paychecks and any other money you get, such as child support. Expenses include everything you spend money on including:

• Rent or mortgage
• Utilities
• Car insurance
• Food
• Gas
• Entertainment
• Clothes
• School supplies
• Money for family
• Credit card bills
• Unplanned expenses such as car repairs or medical bills

You can create a budget any time, but then you need to check how you are doing against your budget. When you first start spending to your budget, you may find it useful to write down what you spend every day. You may find that the discipline of writing it down deters you from spending $4 on a latte every morning. Try taking a coffee from home each day instead.

What a budget may teach you

Plan to have funds left over each month and put the funds towards an emergency fund, savings or retirement fund. If you are confident in your budgeting and reliably have funds available at the end of each month, you may want to transfer that amount to your savings account each month automatically. Make it a rule that your saved funds are not to be used for everyday expenses.

With a documented budget, you may make fewer impulse purchases or spend less on your credit card. This is because your spending is top of mind and you are more aware of truly unnecessary purchases. Of course, you can still have fun, just budget for it. After a few months of budgeting, you may have saved enough to reward yourself with a treat of some kind. You will have earned it, quite literally.

If you liked Creating a budget to improve your financial situation, you may also like:

• How Close to the Financial Brink Are You?
• Budget Calendar: Worth Buying or Build One for Free?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Creating a budget to improve your financial situation appeared first on Credit Sesame.

Getting your first credit card is a big step in life. It can make paying for things convenient, and can be seen as a true sign of adulthood.

How you use your first credit card can set the stage for your financial future. It’s up to you to decide which path you’ll take. Will you pay your credit card bill on time and in full each month to avoid paying interest, and build your credit history and grow your credit scores? Or will you pay the bill late and start other bad habits that damage your credit scores?

The higher your credit scores, the more likely you are to qualify for loans with the best terms and lowest interest rates. Buying a home or car may be easier and cheaper if you have good credit habits. A good credit score can also make it easier to rent a home, get a cell phone plan or start utilities without paying a deposit.

If your credit score is excellent, you are likely get asked by credit card companies to open a high-end card that has a great rewards program.

Here are some of the best ways to use that first, shiny card to create good lifelong habits:

Pick a card that meets your goals

Your first credit card may not have all of the benefits you want, but remember that credit is a lifelong habit. If you’re looking for incredible credit card benefits such as award miles and concierge services, it may take years and perhaps a hefty annual fee before you qualify.

It can pay off to shop for your first credit card and not accept the first offer that arrives in your email or mailbox. Find the best interest rate available. If you ever have too much debt on a few credit cards, look for a card with a 0% introductory APR period so you can consolidate those debts and pay them off without interest. 

Using your first credit card right from the start

The training wheels for your first credit card can be a few small charges that you know you can pay off completely when the bill arrives in about a month.

A small, recurring charge such as a subscription to a streaming service is a good start to learning how credit cards work, and is an affordable way to get a monthly credit card bill.

Pay on time

Paying all of your bills on time is the best way to improve your credit score, and your credit card bill is a regular bill that the credit reporting agencies will check to see if you pay it on time each month. Payment history accounts for 35% of a FICO credit score.

Lenders like responsible borrowers. Starting a history of on-time payments with your first credit card shows how responsible you are. Late payments stay on a credit report for seven years and hurt a credit score.

Pay balance in full each month

Making the minimum credit card bill payment on time can improve your payment history, but a better way is to pay off the balance completely each month. This helps you avoid interest charges and falling into debt, and keeps your credit utilization ratio low.

Keep a low credit utilization ratio

A credit utilization ratio is the amount of credit you’re using compared with the amount of credit you can access. A low ratio is seen by creditors as a sign that you have good control of your money and aren’t using too much of your available credit. Credit utilization accounts for about 30% of a FICO credit score.

The ratio is calculated by dividing your balance by the card’s limit and multiplying by 100 to get a percentage. If you have a $2,000 balance and your credit limit is $10,000, your utilization ratio is 20%. Keeping the ratio under 30% is a good goal, and under 10% for the best chance of improving your score

Here are some ways to lower credit utilization:

• Pay down credit card balances.
• Keep card balances down
• Ask for an increase in your credit limit.
• Do not spend up to any new credit limit

Keep accounts open

It’s tempting to close a credit card after paying off a high balance. You may never want to see that card again. But it can help your credit score by showing a long history of responsible credit management, including paying off a credit card balance. Length of credit history accounts for 15% of a FICO score.

However, you may want to close an account if the card’s terms aren’t beneficial to your finances and credit. If you want to keep a longtime card open but it has an annual fee, ask the lender if the card can be downgraded to one without a fee.

Watch out for fraud

Checking your credit reports for free at least once a year is a good way to protect your credit card from fraud and identity theft. It also helps find fraud in other areas, such as with your daily banking accounts and investments.

Check your reports for fraudulent activity such as new accounts in your name that you didn’t open. Also look for simple errors such as misspelled names and wrong addresses.

Credit Sesame has free credit monitoring with real-time alerts for important changes made to your TransUnion credit report.

Don’t open a bunch of cards at once

Don’t open multiple credit accounts at around the same time, which can make you look more risky to lenders. Hard inquiries done by lenders when you apply for credit cards hurt your credit score a little every time one is initiated.

Stick with one credit card for a while and space out new credit applications by at least six months per card.

If you liked Using your first credit card to create lifelong habits, you may also enjoy:

• How to Recover From Messed-Up Credit
• Reduce Digital Clutter and Safeguard Your Financial Information
• What Kind of Credit Card User Are You?

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Using your first credit card to create lifelong habits appeared first on Credit Sesame.

Knowing which tax records to keep, and for how long, can help keep your life uncluttered. More importantly, it can help if the IRS decides to audit your tax returns.

Keeping your tax records for three years or so is a good way to prove that your tax returns are accurate if the Internal Revenue Service asks for them. Well-organized records can also make filing your taxes easier and help you from losing sleep over where they are and if you can find them when needed.

This doesn’t mean you have to keep your tax records forever.

What records should you keep?

Start by keeping copies of your tax returns, which can come in handy if the IRS says you didn’t file a return for a particular year.

To avoid problems at a potential audit somewhere down the road, you should keep any documents that support the income, credits or deductions you claimed on your return. These can include:

• Receipts for any itemized deductions
• Bills you’ve paid
• Canceled checks
• Legal papers such as property documents
• Brokerage statements
• Loan agreements
• Travel mileage logs
• Job hunting expenses
• Lottery tickets
• Medical and dental account statements
• Theft or loss documents
• Employment documents, such as W-2 forms
• 1099-B or 1099-INT tax documents from banks, brokerages and other investment firms
• 1099-G form detailing unemployment benefits received

If you don’t have paper documents, then you may have electronic records through your brokerage firm, tax software you use, or from other companies you do business with. 

How long to keep tax records

The IRS recommends keeping all the records you used to prepare your tax return for at least three years from the date the return was filed if no fraud was committed and all income was reported. Three years is also recommended if you filed a claim for a credit or refund after your return was filed.

Generally, the IRS can include returns filed within the last three years in an audit. If a substantial error is found it may add additional years, though it usually doesn’t go back more than six years.

It uses these timelines because they’re the limits to how long the IRS can asses a tax someone owes. Six years is allowed if you haven’t reported income that should have been reported and it’s more than 25% of your gross income shown on the return, or it’s a foreign asset of more than $5,000.

Some notable exceptions to these timelines make it wise to keep certain tax documents longer than three years.

Keep tax records forever if:

• You filed a fraudulent return.
• You didn’t file a return each year.
• You bought property and need to show the amount you originally paid for it. 

Keep tax records for 7 years:

• You filed a claim for a loss from worthless securities or a bad debt.
• Tax forms for retirement accounts such as IRAs that have been closed for seven years.

Keeping tax records longer than the IRS requires

Even though the IRS may not require you to keep some documents longer than three years, you may want to keep them longer because some creditors and insurance companies may require them. 

Consequences of poor record keeping

One of the worst consequences of not maintaining proper records is when facing an IRS audit. If old tax records could help prove your case and you don’t have them, you may have to pay higher taxes. The burden of proof is on you to show that your tax returns are accurate, including keeping receipts and other records.

If your tax returns are wrong, potential tax penalties include:

• Pay back unpaid taxes, plus interest and penalties, up to 25% of the tax owed.
• A prison term, though this is unlikely because the IRS prefers to collect money owed.
• Charged with tax evasion if you intentionally lie on a return or try to deceive the IRS. The maximum penalty is imprisonment of up to five years and $100,000 in fines.
• Your account is given to a collections agency.
• You can’t get a passport or renew one through the United States if you owe the IRS $59,000 or more.

Limitations on refund claims

Another consequence of poor record keeping is that the period of limitations, as the IRS calls it, applies to refund requests just as to tax assessments. 

Suppose you file a claim or credit for a refund. In that case, you generally have three years from the date you filed the original return (or the due date for filing if you filed before that date) or two years from the date the tax was paid, whichever is later, to file an amended claim for the credit or refund.

For overpayment from a bad debt deduction or a loss from worthless securities, seven years are allowed from when the return was due to file a claim.

Benefits of staying organized

Keeping your tax documents organized can make tax time less stressful, allowing you to complete your tax returns on time accurately. You should also be able to avoid an audit, provided you do not underreport income or commit fraud. If problems are found with your return by the IRS, you could end up paying back taxes, penalties and interest, which can be avoided by filing accurate returns on time.

Maybe best of all, keeping your tax records organized may allow you a more restful night of sleep. 

If you liked Why proper tax records are important, you may also like:

• Tax fiction vs. tax facts
• How to avoid tax identity theft
• The ultimate budget cuts checklist

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Why proper tax records are important appeared first on Credit Sesame.

Tax preparation is the annual chore that almost everybody hates. It is no surprise that many of us put it off until the last minute. But 2023’s filing deadline is April 18, which is looming large. What can you do if you’re not ready?

Are you due a tax preparation extension?

If you live in an area that’s been affected by a natural disaster, you may be entitled to delay filing your return by months. For example, those affected by such FEMA-designated events in Alabama, California and Georgia have their filing deadlines extended to Oct. 16. Victims in Mississippi get until Jul. 31 while those in New York can file as late as May 15. Visit this IRS webpage for the full list and more details.

Alternatively, you can apply for a general extension. This gives you extra time (until Oct. 16) for tax preparation. But it does not give you extra time to pay the taxes you owe. You must estimate those and pay them in time for the Apr. 18 deadline. Otherwise, you might incur penalties and interest charges.

Sprint for the line

Extensions are fine but they just postpone the inevitable. You might prefer to lace up your running shoes and make a sprint for the line.

The good news is that there’s help available. The IRS has hired 5,000 more people to support taxpayers through its call centers. But even that number may not be enough to handle call volumes at this time of year. So start with the IRS’s website, which is regularly updated with helpful advice.

Even if you don’t use a reputable tax professional, you stand a good chance of being able to file by yourself.

Use the IRS’s free software for your tax preparation

If your adjusted gross income is below $73,000, you can use the IRS’s free Guided Tax Preparation online service. You answer a series of simple questions and the app does the math. It may even help with your state taxes.

If you earn too much for that free app, the IRS can still help with its Free Fillable Forms service. You download a PDF guide but you don’t get active guidance. You fill in the standard IRS forms online, allowing you to create a paper filing or to file online. Unfortunately, this does not help with state taxes.

If your affairs are complicated, the private sector can help. Use one of the paid-for tax preparation apps that are downloadable or ask a reputable tax professional to do the work for you. Just take care when choosing one.

Special free help for the elderly and disadvantaged

The IRS has two programs that can help those most likely to struggle with tax preparation, Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA). IRS partners provide these free services, which are often not-for-profits, across the country and one-on-one assistance is on hand from volunteers who are or were tax professionals.

The volunteers have met or exceeded the IRS’s standards for tax law training. They are bound by the same rules of confidentiality as any tax professional. The IRS says, “Each filing season, tens of thousands of dedicated VITA/TCE volunteers prepare millions of federal and state returns.”

Eligibility and finding your local service

You are eligible for TCE if you are 60 years or older. And it will likely be delivered by the American Association of Retired Persons (AARP) Foundation’s Tax-Aide program. To find your nearest AARP TCE Tax-Aide center between January and April use the AARP Site Locator Tool or call 888-227-7669.

Individuals eligible for help under the VITA program must:

• Earn under $60,000 annually (adjusted gross income, AGI)
• Or have a disability OR
• Or have limited English-language skills

Use the VITA Locator Tool or call 800-906-9887 to find your nearest service.

The standard deduction shortcut

The standard imaginary depiction of tax preparation is of somebody hunched over a dining table trying to sort through boxes of receipts as they struggle to itemize their deductions. But things have moved on since then.

In the 2019 tax year, a whopping 87.3% of taxpayers claimed the standard deduction, making wading through a year’s worth of receipts to itemize deductions unnecessary. Why the change? Because the standard deduction is much more generous now than it once was.

In the 2022 tax year (filing now), the standard deductions are:

• $25,900 married couples filing jointly
• $12,950 single taxpayers and married individuals filing separately
• $19,400 heads of households

If your itemized deductions do not add up to the sum in that list that applies to you, there’s no point in itemizing. Indeed, if you stand to save only a small sum by itemizing, you may decide to forego that amount to avoid the headache, especially if you are late preparing your taxes.

Preparing for tax preparation

Before you complete and file your tax return, you must pull together a small pile of documents. These include:

• Last year’s tax return for your adjusted gross income
• Your Social Security number and the ones for your spouse and any dependents who need one and who appear on your return
• Paperwork showing any Social Security benefits and unemployment compensation you received during the year
• Income receipts from rental, real estate, royalties, partnerships, S corporation and trusts
• W-2 forms from all employers showing your annual wages
• Form 1099-INT showing interest you’ve received during the period
• Refunds, credits or offsets received for state and local taxes (Form 1099-G)
• Dividends and distributions received from retirement and other plans (Form 1099-DIV or Form 1099-R)

If you are an Affordable Care Act (ACA) filer, you also need Form 1095-A, your health insurance marketplace statement, and possibly Form 8962 if you claim a premium tax credit.

That may sound like a lot of paperwork, but many taxpayers have uncomplicated finances and do not need all the forms. Whatever the requirements, do not delay if you have not yet started tax preparation for 2022.

If you found 2022 tax preparation and filing: Are you ready? useful, you may enjoy,

• Tax deductions 101: Common deductions and credits that can save you money
• Do you need to file a tax return?
• 10 Ways to Make Next Tax Season Less Stressful

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post 2022 tax preparation and filing: Are you ready? appeared first on Credit Sesame.