Archive for Friday, August 5, 2005

Rate surfers shouldn’t go overboard

August 5, 2005


Q: My sister is always opening new "zero-interest" credit-card accounts and transferring her balances from her older, high-rate accounts. I would like to do the same, but I'm worried that frequently transferring balances and opening and closing accounts would hurt my credit score and make it harder for me to get a mortgage later this year. Would it?

A: No, transferring balances from high-interest-rate credit cards to lower-rate or even "zero-interest" cards won't damage your overall credit score - as long as you don't get too carried away.

Many lenders across the U.S. are offering new credit cards that don't accrue any finance charges for a year or even more. Millions of Americans are taking advantage of such programs by opening new accounts and transferring balances from their high-rate cards to save hundreds or even thousands of dollars a year in interest charges. Lenders call the practice "rate-surfing" or "credit-surfing."

Not long ago, frequently opening and closing accounts or transferring balances would have been considered a sign that the borrower might be having financial trouble. But rate-surfing has now become so commonplace that lenders have adjusted their credit-scoring systems to account for the phenomenon, which in turn protects the credit ratings of all those surfers out there.

If you decide to start rate-surfing, make sure you do it carefully. Though transferring balances from one card to another a few times a year won't hurt your credit score, doing it once or twice a month probably would - and will certainly raise the eyebrows of a mortgage lender when you apply for a home loan.

Also remember that your chances of getting a mortgage can be hurt if you have too much credit available, because the lender may worry that you could go on a borrowing spree that would make meeting your future home-loan payments too difficult. So, if you open one or two new accounts, don't vastly increase your overall credit limit, and make sure you keep your spending under control.

Q.: I finally got around to creating the type of living trust that you have written about, so my heirs won't have to go through expensive probate proceedings to inherit my home and other property after I die. The paralegal who did all the paperwork charged only $250, which I thought was a very good price, but also suggested that she draw up a separate "durable power of attorney for finances" for another $100. It seems to me that this would be an unnecessary expense. What do you think?

A.: As part of creating a living trust, you no doubt named a "successor trustee" to run the trust's affairs if you become incapacitated. But that power would only extend to your home and other items that you specifically placed inside the trust itself - the successor trustee wouldn't have any control over possessions that you purposely (or mistakenly) left outside the trust.

If you instead also give your preselected successor trustee a durable power of attorney for finances, he or she could then make decisions about all of your financial assets if you become incapacitated, regardless of whether the items were held inside the trust or outside of it.

Some people who create their own living trusts automatically also provide their successor trustee with a durable power of attorney form so the trustee can assume complete control of their finances if something bad happens. But others prefer to limit the trustee's power to items that are specifically left in the trust, so they give their power of attorney to someone else or don't fill out a form at all. It's a highly personal decision that deserves careful consideration.

- David W. Myers is a 20-year veteran of the newspaper and magazine business, having previously covered real estate for the Los Angeles Times and Investor's Business Daily.


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