Even if you have good credit, card issuers can change your rate and terms at will.
Liz Pulliam Weston, Money Talk
May 3, 2009

Dear Liz: I just received a letter from my credit card issuer hiking my 8.9% fixed rate to a variable rate of 14.65%. I've had the card for more than 12 years, have never been late and have a near-perfect credit score. Are there any fixed-rate cards out there anymore?

Answer: There's no such thing as a true fixed rate in the credit card world. Card issuers have long been able to change your rate and terms at will, and lately they've been doing so with a vengeance.

Regulations will go into effect next year that limit issuers' ability to raise rates on your pre-existing balances unless you pay late. Congress is considering more restrictions, including one that would prevent issuers from advertising fixed rates unless the rate is actually fixed for some period of time.

The good news is that you don't have to wait. If your credit scores are high, plenty of other card issuers want your business. You can transfer your balance to a lower-rate card and then pay it off.

As you've learned, carrying a balance these days is a fool's game. Use your good credit as a tool to help you get free of the credit card industry's clutches, and you'll be well ahead.

Cashing out IRA will trigger taxes

Dear Liz: I am 74 and retired. Due to the economy I would like to cash out my retirement accounts. I have an individual retirement account, a Simple IRA and an annuity. Only other income is Social Security. How badly would this affect me?

Answer: That depends. How much do you love paying unnecessary taxes?

Cashing out any retirement account, other than a Roth IRA, typically triggers a significant income tax bill. Cashing in an annuity may also trigger surrender charges that can be substantial.

If you took too much risk with your investments, you can shift to safer options inside your retirement accounts. You would be smart to consult a fee-only financial planner first, so you can construct a portfolio that acknowledges your tolerance for risk while still giving you enough money to live on for the rest of your life.

Line of credit still safe if bank fails

Dear Liz: My wife and I maintain a largely untapped home equity line of credit as a source of emergency funds in the event of a job loss, medical needs, etc. With so many financial institutions seemingly on the verge of bankruptcy, what happens to our ability to draw on our line of credit should the bank go under?

Answer: Your line of credit is one of the bank's assets. If your bank fails, the bank that takes over would add your loan to its books.

That said, the new bank may have different standards for how much of your equity you can borrow and may cut back or freeze your line of credit. That could happen even if your bank doesn't fail, since many lenders are reducing their risk exposure by cutting back on lines of credit, particularly in areas where home prices are falling rapidly.

You're probably safe, for now, if the balance you owe on your mortgage plus your home equity credit limit total less than 60% of your home's current value. If your "loan-to-value" exceeds that limit, however, you would be smart to look for alternative sources of emergency funds. The best: cash in the bank.

Postdated checks are a bad idea

Dear Liz: How can a bank honor a postdated check prior to the date that is written on it, and still claim to have integrity as well as accountability?

Answer: Banks are supposed to cash your checks for the amount written and from the right account. Expecting them to pay attention to your dating games is asking too much.

For those who don't know, a postdated check is one that's written with a future date on it, under the idea that the bearer will either wait to cash the check or the bank will wait to process it.

But neither the bearer not the bank is under any obligation to do so, so don't write checks you can't cover. If you want to pay debts at some future date, use your bank's online bill pay service and set the payments to go out when you want.

Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com. Distributed by No More Red Inc.

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