I have a long credit history and have never been late paying a bill, but my credit score seems too low -- in the mid 600s. How can that be? And what's the fastest way to boost my score? --M.W., Statesboro, Ga.
Yours is one of the most common complaints from consumers, says Craig Watts, of FICO, which creates credit scores that most lenders use. In cases such as yours, the reason for the lower score is often high balances on credit cards. That may create a high "credit-utilization ratio," which is the total of your credit-card balances divided by the total of your card limits.
About one-third of your FICO score is based on your utilization ratio. It's how much you've charged that counts, regardless of whether you pay your balance in full each month. To boost your score, try to keep credit-card balances to 20% or less of your credit limits.
Paying down your balances can improve your score -- and the sooner, the better. FICO's Score Simulator (at www.myfico.com) offers an example in which someone with a FICO score of 707 could raise it by as much as 70 points by paying off the balances -- or most of them -- over the next 24 months. You can also improve your score by increasing your available credit: "If you have never missed a payment and are a good customer, consider asking your creditors to increase your credit limit," says Maxine Sweet, of credit bureau Experian.
By the same token, closing an unused account will lower your available credit and hurt your utilization ratio -- particularly if the card had a high limit and you were carrying a low balance, says Steven Katz, of credit bureau TransUnion. If your card company starts to charge an annual fee, it may be worthwhile to close the account and take a temporary hit. But try not to open or close accounts or make dramatic changes in the way you use credit three to six months before you apply for a mortgage or other loan. Correcting mistakes in your credit report can improve your score, too -- especially if you report the errors to the credit bureau online. You can get a free credit report from each of the three credit bureaus every 12 months at www.annualcreditreport.com.
When COBRA runs out
I've had health insurance through COBRA since I lost my job nearly 18 months ago. My eligibility is about to end, and I still don't have a job with benefits. I have preexisting conditions and don't think I can qualify for a policy on my own. Is there any chance that Congress will extend COBRA? If not, what can I do? --H.J., Overland Park, Kan.
Congress is unlikely to extend eligibility beyond 18 months for people who lose their job. But despite your preexisting conditions, you may qualify for an individual policy if your condition is well managed. To get price quotes from several insurers in your area, contact eHealthInsurance.com (or call 800-977-8860), or find a health-insurance agent in your area at www.nahu.org. An agent can help you gather letters from your doctors and other key records that could help you qualify for coverage.
If you don't qualify for coverage, you have another option: The Health Insurance Portability and Accountability Act (HIPAA) allows people who exhaust their COBRA eligibility to buy certain policies regardless of health as long as they don't have a gap in coverage longer than 63 days. This coverage doesn't come cheap, though. Some states limit HIPAA policies to 145% of the cost of a standard health-insurance policy, but others permit insurers to charge up to 300% of the standard cost.
Twenty states have Health Insurance Premium Payment programs, which help low-income people pay private health-insurance premiums. For details about your state's HIPAA rules and premium-assistance programs, go to www.coverageforall.org or contact your state insurance department (you can find links to the state departments at www.naic.org).
How to tap college savings
My daughter will be starting college this fall and the tuition bill is due soon. What is the best way to coordinate our 529 savings plan with the new college tax credit? --H.H., San Francisco
Before you tap your 529 plan to pay this semester's tuition bill, see whether you can take advantage of the American Opportunity credit, which provides a tax credit of up to $2,500 each year for eligible college costs paid in 2009 and 2010. You can't double dip on tax breaks, so you won't get this one if you pay all the college bills with money you saved in a tax-favored college-savings plan, such as a 529 plan or a Coverdell education-savings account.
The American Opportunity credit temporarily replaces the Hope credit, but the income limits are much higher -- your adjusted gross income must be less than $90,000 if you're single or $180,000 if you're married filing jointly. If you qualify, you can deduct from your tax bill 100% of the first $2,000 you pay for eligible expenses, plus 25% of the next $2,000 of eligible expenses. Money you spend on tuition, fees and books in the first four years of college can count toward the credit. Most families won't have a problem spending $4,000 on college expenses to capture the full American Opportunity credit, then using 529 money for any remaining portion of the tuition bill, plus room and board. You can even use the 529 money to buy a computer and pay for Internet access for your college student in 2010.
I am a Medicare recipient, and I've spent enough on prescription drugs this year to reach the coverage gap. What do I need to do to get my $250 rebate promised under the new health-care law? --Andrew Manning, Tampa, Fla.
Nothing. Uncle Sam already knows whether you've reached the Medicare Part D "doughnut hole" -- and therefore qualify for the rebate. When you do, the government will automatically send you the money.
In 2010, the doughnut hole starts after your prescription-drug expenses total $2,830 for the year (including both your share and the insurer's share of the costs). At that point, you generally have to pay for all of your drugs yourself until total drug costs for the year reach $6,440. But the health-care-reform law provides a $250 rebate check to all beneficiaries once they fall into the coverage gap this year. The Explanation of Benefits notice that your drug plan mails to you each month when you fill a prescription will alert you when you've entered the gap.
The first wave of rebate checks was mailed on June 10. More checks will be mailed monthly throughout the year -- you should expect to receive yours within 45 days of falling into the gap. You'll receive only one rebate check for the year, and it is tax-free. For more information and updates on the new law, see our Health Care Reform Special Report.