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credit & debt

My Card Issuer Spies on Me

Some companies check your report so frequently that they can raise your rate if you're late on another card.

I recently received my credit report and was astonished to find that my AT&T Universal MasterCard had 21 account-review inquiries from the card issuer, almost monthly for two years. I have had this card since 1991 without late payments or credit problems. Is the number of inquiries unusual? Will it affect my credit score? -- James L. Schultz, via e-mail

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Make room for Big Brother. It's common practice for card issuers -- in your case, Citibank -- to keep tabs on their account holders every month. "We use the information to increase or decrease a credit line, or to make customers a balance-transfer offer," says Citigroup spokesman Samuel Wang.

But the motives of card issuers aren't always so benign. Some check your report frequently so that they can raise your interest rate if you're late with a payment on another card, a practice called universal default. Citibank called a halt to universal default in March, just before congressional hearings in which senators grilled bank executives about credit-card fees. But Citibank will still review your credit record when adjusting your credit limits and other terms.

The good news is that those account reviews won't affect your credit score. When prospective lenders pull your credit report, they see a version that's limited to inquiries made when you actually apply for a loan, a mortgage or other credit. Those applications can affect your credit score if it looks as if you're taking on too many new obligations.

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When you check your own credit report, you'll see many other types of inquiries, such as account reviews by your lenders, potential employers and even yourself. But those inquiries don't affect your credit score, either.

Whither interest rates?

I am considering putting some extra cash in a money-market fund, a short-term bond fund, a high-yield fund or a medium-term bond fund. But I'm concerned about loss of capital if interest rates rise. I also wonder how long I can expect money funds to yield 5% or so, when they have paid much less in the past. What should I do? -- Ron Ostmann, Cincinnati

Yes, money funds have paid less in the past. For example, rates fell below 1% earlier this decade. But they've also paid a lot more. In 1981, the typical money fund returned about 17%.

Don't look for either extreme anytime soon. Returns on money-market funds are linked to moves in short-term interest rates. The Federal Reserve has left those rates unchanged for 11 consecutive months, and this could continue. If inflation accelerates, the Fed is likely to boost rates; if the economy weakens, the Fed could cut short-term rates.

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Long-term interest rates, which are determined by investors buying and selling in the bond market, have been unusually stable over the past couple of years, and we don't expect any big moves. But with long-term rates as low as they are, there is a lot more risk of rates rising (and bond prices falling) than there is of rates falling (and bonds appreciating).

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So money-market funds make a lot of sense for cash you can't afford to lose. The only risk is that your income will decline if the Fed cuts short-term rates. If you want to boost your yield without taking on too much additional risk, consider Fidelity Floating Rate High Income (symbol FFRHX), which invests in adjustable-rate bank loans (see The 25 Best Mutual Funds). The fund recently yielded 6.4%.

Stock screens on the Web

Is there a Web site for stock screening that uses Benjamin Graham's value-investing rules? -- R.R., via e-mail

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Benjamin Graham, the father of securities analysis, outlined his stock-picking strategies in The Intelligent Investor, published in 1949, and those strategies have been widely disseminated -- including on the Internet -- ever since.

Graham advocated buying a stock at a price well below the company's intrinsic value. His goal was to get a dollar of assets for less than 50 cents. That discount gives investors a margin of safety, which insulates them from the whims of the market.

Plenty of Web sites have screens based on Graham's methods. For example, he prized companies with net cash holdings (cash minus outstanding debt) equal to at least 50% of their stock-market value. Nasdaq's Web site offers a free Graham screener that selects Nasdaq-traded stocks that pass the test.

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Morningstar.com offers a customized screen that applies a broader array of Graham's criteria. The screen is part of Morningstar's premium membership, which costs $16.95 per month or $145 for one year. Or, for less than $20, buy The Intelligent Investor and create your own Graham-inspired screens at Kiplinger.com or Yahoo Finance.

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A word of caution: Graham's criteria can lead you to stocks that are value traps, meaning the shares are cheap for good reason and unlikely to appreciate. Screens are a good place to start, but don't buy without doing your research.

Gifts and Medicaid

My dad would like to give me $32,000 worth of stock as a gift. If he goes into a nursing home, will I have to forfeit the stock to pay his bills? -- D.D., via e-mail

You wouldn't specifically have to give up the stock, but you might have to come up with extra money to help pay Dad's nursing-home costs if he needs care and can't pay for it himself.

If your father goes into a nursing home and spends virtually all of his assets, then Medicaid could end up covering the costs. If that happens, however, his gift to you might make a difference. Under stricter laws enacted in 2006, giving away money within five years of applying for Medicaid can delay an individual's eligibility.

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Let's say your father transfers $32,000 to you and ends up applying for Medicaid within the next five years. And let's assume that the average nursing-home stay in his state costs $6,000 per month. He wouldn't be eligible for Medicaid benefits for the first 5.3 months after applying ($32,000 divided by $6,000).

Because he can apply for Medicaid only after exhausting most of his other assets, you would need to find some other way to pay for his care. The state can't force you to give back the gift, but he'll still have to come up with the money before Medicaid kicks in.

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Medicaid rules and nursing-home costs vary widely, and some states are still operating under old eligibility rules, which aren't as strict. Check with your state's Medicaid agency.

Give to the max

I recently left my previous employer, where I had already contributed $4,000 to a 401(k) for 2007. I began working as a self-employed independent contractor, and I estimate that my income from contracting alone will be $130,000 this year. In addition to the $4,000 in my 401(k), what is the total amount I can contribute this year to my SEP IRA? Can my wife and I still contribute to our Roth IRAs after I max out my SEP? -- Jason Lee, Irvine, Cal.

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The answer on the Roth IRAs is easy. You and your wife can each contribute up to $4,000 to a Roth IRA in 2007 ($5,000 if you're 50 or older), regardless of your other contributions to retirement savings, as long as you meet the income limits. To contribute to a Roth, your adjusted gross income on a joint return must be below $166,000 in 2007 (or $114,000 for single individuals).

And your 401(k) contributions won't affect your SEP IRA limits because SEPs are considered employer contributions, says Bob Scharin, senior tax analyst at Thomson Tax & Accounting. You can contribute up to 20% of your business income (defined as business income minus half of your self-employment tax) to a SEP, up to a maximum of $45,000 in 2007, even if you've invested in a 401(k).

Black marks linger

I know I shouldn't close old credit accounts that are in good standing because they can help my credit history. But what happens if I close an account that wasn't in good standing? Will that still appear on my credit record? -- J.E.L., Silver Spring, Md.

You can't erase the black mark just by closing the account. Closed accounts stay on your credit report for ten years, and any negative information will remain for seven years before it's automatically purged by the credit bureau.

And you're right to keep old accounts open if they're in good standing. A closed account "isn't quite as meaningful as an open account in predicting risk," says Maxine Sweet, of the credit bureau Experian. Even better, says Sweet, is to manage your current accounts well by not missing payments and keeping your balances well under your credit limit.

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