People who are responsibly using their credit cards in an attempt to raise their credit scores may be surprised to know that some of the cards that offer rewards may mean extra income to report when tax time comes around. For many people, it’s a very confusing issue, because some rewards are taxable while others are not.

Most people don’t pay attention to the frequent flyer miles that they have received from the companies that issued them their credit cards at tax time. This year, it’s different for many as they have received a 1099 from Citibank on the miles that they received when they opened a new account.

Are Frequent Flyer Miles from Credit Cards Taxable?

According to the Tax Institute at H&R Block, rewards that are considered rebates are not taxable. These include cash back and frequent flier miles that are used by many credit card companies as incentives for using the card. You have to spend money to get the reward, so it is not considered income.

When you receive the same reward as an incentive that does not cost money, however, it changes the reward to the interest income category. For instance, if you open a credit card account and receive the reward that is being offered as an incentive, you aren’t spending any money at all to receive it, so it can be considered interest income and you must report it to the IRS. The same is true if you receive something of value when you open a savings or checking account at your local bank.

People aren’t expected to report the value of every mug, pen or calendar they receive as a reward when they open an account, but the value of larger items should be reported as taxable income.

Citibank has issued 1099 forms to customers who received frequent flyer miles for opening credit cards and receiving the miles as a reward. Citibank has placed a value of $0.025 on each frequent flier mile.

The chairman of the Senate banking Subcommittee on Financial Institutions, Senator Sherrod Brown (D-Ohio) has asked the chief executive of Citibank, Vikram Pandit, to stop sending the 1099’s to customers who participated in the promotion the financial corporation ran to encourage to apply for new credit cards.

The answer to the question of whether Citibank is correctly reporting the frequent flyer miles to the IRS is reported as being answered by IRS spokeswoman Michelle Eldridge. “When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law” she said.

While the question of the tax liability of the frequent flyer as a reward given out to customers who were issued new credit cards by Citibank is confusing, Citibank has nonetheless sent out the 1099 forms. For customers who have received a 1099 in the mail, it’s important to understand that the amount on the form has been reported to the IRS as taxable income that you have earned.

Economists are forecasting an improved outlook for 2012, but don’t look for that news to help you get your credit score back to where it was before the recession helped you let it get bruised. The National Association for Business Economics released a new survey in January, 2012 that gave a rosy outlook to the economic growth continuing even though it’s growing slowly, at just barely over 2%.

Why It Won’t Help You Raise that Credit Score

Inflation and deflation are under control, according to the NABE, and businesses are still making money. About 80% have rising sales and profit margins. Yet, these promising numbers aren’t improving the paychecks that the employees of these businesses are taking home. Nor are the promising indicators causing businesses to consider hiring additional employees. In fact, the number of businesses that are planning on expanding their workforce in the near future is lower that last quarter. Instead, the businesses who responded to the survey are planning on investing the profits in new equipment.

For the millions of Americans who have been reading the financial news for some glimmer of hope that a better paying job, or any job at all was just around the corner, the news comes as a disappointment. For those who are lucky enough to have held on to their jobs through these past years of economic instability, the worry about a possible layoff and the lack of annual pay raises have caused them to tighten their belts and struggle to stick to an ever tightening budget.

For those who have lost their jobs in the past years, the hope to regain financial stability seems even further away. As the home budget was thrown off balance, many have been unable to keep up with their financial obligations and see proof of it every time that they see their dwindling credit score.

It’s surprising how quickly the credit score can drop significantly. In some cases, all it takes is a single late payment to make the difference between you having a high enough score to get the financing that you need to purchase a home and a score that puts you in a risk category.

That lower credit score makes another report that was released in January a cloud without a silver lining. According to housing economists at Capital Economics, it may soon be cheaper to own a home than to rent one. There are several factors that the economists take into consideration, including the fact that home prices have dropped approximately 33%. Mortgage rates continue to hover near historic lows. Together this means that the median mortgage payment on a home is about $700. Rents have risen at about 15%, bringing the median rent per month to approximately $700. If the trends continue, soon it will be even more advantageous to own your own home.

In past decades, a credit score of 650 would make a good candidate to get a loan to buy their own home. Now, unless you have a credit score of above 700 points, you may not have an easy time finding a mortgage that would allow you to take advantage of housing situation.

Many online services offer free credit reports for people who are concerned about their credit score or want to make sure that they are not victims of identity theft. Each of the three credit bureaus, TransUnion, Experian and Equifax are required by federal law to offer you a free report once every 12 months upon your request. If you make the request online and are asked for your credit card number, you may be on the wrong site.  Annual Credit Report is the only federal government authorized source for your free report.

If you have already taken advantage of the free reports, you are still entitled to get your credit score without paying a fee if you have been denied a loan or if you apply for a credit card and are not approved for the best interest rate. The lender is required to give you the score because of federal regulations.

Free Credit Report Offers

Free credit reports can be obtained from other places, but when you read the fine print, you’ll see that you are only eligible to receive the free report if you sign up for other services that they offer. When ever you go online to order something that is promoted as being free and they ask you for your credit card information, it’s time to back out and make sure that you know exactly what you will be committing yourself to in order to take advantage of the offer.

Credit monitoring can cost over $100 a year. Many people feel that this is a small price to pay to alert them to any problems with their credit report that could affect their ability to get a loan, insurance or even a job. The credit monitoring that they pay for will also quickly flag activity in the event that someone is trying to use their personal information to steal their identity.

There are two places that offer free credit monitoring. Credit Sesame and Credit Karma both offer to monitor your credit files and let you know if there are any changes that you should be aware of.  Once registered, you will be notified by email if there are inquiries of your credit, if a new account is open or if anyone has reported that a late payment has been made to any of your credit accounts.

Credit Sesame checks your credit report from Experian on a daily basis. At the time you register to use the free service, you will be asked a series of questions, including your social security number and household income. They will also ask you to answer some marketing questions.

Credit Karma is the first company that will offer free credit monitoring by checking your TransUnion file on a daily basis. They require less information than Credit Sesame does. You only have to provide the last four digits of your social security number instead of the whole number. They also don’t need the information about your household income.

The free service by these two companies don’t monitor credit reports from all three credit bureaus every day like other credit monitoring services do, only TransUnion and Experian, depending on the service you register with.

When things start going wrong with your finances, the situation can escalate very quickly. Miss a single payment and as soon as it’s reported to one of the credit reporting agencies, your credit score takes a hit. This can mean that the rate of interest that you pay goes up on every revolving line of credit that you have, and in some cases, your minimum monthly payment will go up, too. Not only is your monthly budget put under even more stress when this happens, the overall debt that you carry is increased because of the additional interest. Although it’s best that you seek budget and credit counseling before you reach this stage of the vicious cycle, it’s not too late to seek help if you didn’t foresee your financial hardship and your credit has already been damaged.

Budget and Credit Counseling Can Help You Build Your Credit Score

A session with a reputable credit counseling service can give you the tools that you need to put your monthly budget back within your control. For many people, it’s only guidance on how to move it from notes jotted down on paper every month to a computer spreadsheet that will allow you to easily make adjustments in income and expenses so that you can immediately see where you stand for the month. That way, each time you are able to cut down on an expense, you can add additional funds to a credit payment to bring down the balance and quickly see that you stay within your income. If an emergency adds an extra expense, you can try to whittle some money from your other budgeted items, like entertainment and clothing, and make sure that the income always covers the planned expenditures.

A credit counselor can also help you identify how you can build a savings plan into your monthly budget so that if an emergency comes up again, you’ll be able to cover the expense without missing a credit payment that will do further damage to your credit score. It’s funny how we get so used to paying a monthly bill that we don’t even stop to think if we are getting a good value from the service that we are using. A great example of this would be insurance. Many of us automatically renew our policies and never think to compare quotes from other companies unless it’s pointed out to us.

The fresh eyes on our financial plan can be invaluable when it comes to guidance to tighten our belts and work to improve our credit scores. It may mean that we may have to reduce the number of cable channels we pay for, go to a smaller cell phone plan or even quit stopping for coffee on the way to work in the morning. Little things that add up to a lot of money each month are often more habit than necessity, but we fail to see them when we are going over our budgets.

As we cut down on the extras and concentrate on paying down the principal on our open lines of revolving credit, our credit scores will gradually go back up and at the same time, our over all debt will be reduced. As the tools we’ve learned about in budget and credit counseling sessions bring about results it can motivate us to find new ways to plan for a stable financial future.

It’s getting harder and harder for many Americans to make all of the credit payments on time, but sometimes even if you do everything right, making those payments isn’t helping your debt situation, but can mean that your overall debt is only getting bigger. Make sure that your careful attention and struggle to keep your credit score in good shape isn’t derailed by the mistakes of others in a way that will cost you money.

The notation of a single late payment can knock up to 50 points off of you credit score. Depending on where you were on the scale that lenders use to determine your financial responsibility, late payments could mean all the difference in other areas of your life. It could cause the interest rates to go up on your open lines of revolving credit. If you are applying for a mortgage loan, the lower credit score could mean that the chances for the home of your dreams have been lessened because you have lost status. It could mean that your auto insurance rates will go up, and in some cases, it can be the tipping point of whether you can secure the new job you are seeking.

If the Credit Bureau Doesn’t Help

What happens when your credit score has been lowered because a lender made a mistake and reported one or more late payments that you know weren’t late? Be aware that not all companies report the late payment to the reporting agencies on a timely basis. You may have to dig back through several months of financial records to find the documentation that you will need. Before you contact the agency that issued the report with the faulty information which led to the lower credit score, you need your paperwork in order before you can ask them for debt help by investigating the error and correcting it.

Although the credit reporting agency is required to investigate and correct any errors that appear on the report, in some cases their investigation fails to identify the mistake and the lender will continue to report a delinquency that never occurred.

You may have the proof that the payment was made in a timely manner, and you may have submitted this proof to the reporting agency, but if a mistake was made in the bookkeeping department of the lender, you may find yourself in a frustrating situation.

The credit reporting agencies point to the fact that they are overwhelmed with fraudulent disputes, which means that the time spent investigating the individual dispute is less than it should be. One of the reasons they give is that less-than-reputable credit repair agencies file the disputes against late payments to try to game the system.

If your dispute of an incorrect piece of information has been rejected by the credit reporting agency, it’s time to take advantage of a consumer right that went into effect in 2010. This allows you to go back to the company that reported the incorrect information.

You have to submit a letter to the creditor who sent the information to the reporting  agency that includes your name and the account number. Fully describe the transaction that you are disputing by noting the date of the charge and identifying the transaction along with the reason that you are disputing this. Back up your claims with copies of the canceled check or electronic banking records.

Make sure that you mail your dispute and the documentation to the correct address. It may not be the same one as you send your monthly payment to. The address should be in the small print on your monthly statement, but if it’s not, check the company website. If no special address is listed for complaints, sent it to any address for the company, but keep proof that the letter was sent.

The law requires that the company conduct a reasonable investigation and let you know the outcome within 30 days. Then, they must notify the reporting agency of their error and the reporting agency will correct your credit report. You should then see a quick rebound to your credit score.

It seems like most debit cards will be safe from the monthly carrying fee that was imposed by some banks during the third quarter of 2011. Consumer outrage caused such a backlash that the financial institutions have had second thoughts and rescinded the new debit card fees.

The second biggest bank in the United States, Bank of America, announced in September that it would start charging a $5.00 monthly fee to their clients who use their debit cards after the first of the year. As they disclosed that the new debit card fees would be waived for customers who had premium accounts or held large balances in their accounts, the customers who did not qualify for the waivers became enraged.  To many, it seemed that only consumers with lesser amounts of money would have to carry the burden of having to make up the profits that the bank lost because of federal limits on “swipe fees”. The backlash caused the Bank of America to step back from the proposed monthly fee and announced that they were no longer considering adding the new debit card fee for usage.

Are Debit Cards Losing Favor?

Before the new federal regulations on “swipe fees” limited the amount that the financial institutions were able to charge at the point of sales, banks encouraged their customers to use the bank debit cards because of the profits they were able to glean each time a consumer pull the piece of plastic from their wallet to make a purchase. With the banks charging the merchant an average of 44 cents each time the customer paid with the debit card, the fees amounted to millions of dollars a year in profits for the larger banks. On October 1^st, the new regulations limited the transaction fee to only 24 cents per swipe, and much of the profits, amounting to billions of dollars across the industry, were lost.

According to financial analysts, financial institutions hoped that they could get some of the profits back by charging new debit card fees and by making the use of credit cards more popular. In many cases, the additional fees on the cards would make it seem like the credit cards were cheaper to use. Banks make more money when credit cards are used than when debit cards are used, monthly usage fees or not.

Bank of America was not the only bank that had plans for the debit card. According to news reports, Regions, Sun Trust and Wells Fargo all canceled plans to add new debit card fees or to test the feasibility of adding carrying fees to the cards as angry consumers threatened to close their accounts and switch to other financial institutions.

Now that the plans for the monthly fee on the popular debit cards seem to have been put to rest, consumers should still be wary of other attempts by banks to recoup the profits that have been lost. Pay special attention to any changes to the fees that are already in place at your bank. Check the amount you are asked to agree to pay when you use your debit card for cash at an ATM machine. Carefully read any notice of changes of fees that are charged for your online transactions and make sure that the requirements for minimum balances in your bank accounts to avoid fees do not change.

The consumer who regularly checks their credit score may be surprised that the credit score can change so quickly. Furthermore, if all three of the reports are requested at the same time, another surprise may be in store. The 3 digits that represent your credit worthiness may not be the same on all three of the reports.

Each of the credit bureaus uses a different system for computing the credit score they provide, even though they all work from the same information. This means that each agency will show a different number.

If the difference of the score being reported is significant, go over every item on each report to make sure that the information is accurate. If there are any errors, contact the agency you received the report from and request that they correct the information. Under the federal Fair Credit Reporting Act, they are obligated to investigate and correct the information that you dispute.

How Your Credit Score Ranks

The success you will have when you apply for a new line of credit depends a lot on your credit score, so most experts advise you to know that number before you fill out your application. But how do you judge whether the number that they come up with is considered good or bad? A lot of times it just comes down to what type of credit you are applying for.

A credit score can range from the 300 range up to approximately 900. While you are considered a better financial risk with a high score, most people fall between 600 and 800.

If you are applying for a mortgage, an acceptable score would be anything above 660.  By Freddie Mac standards, you would be considered an uncertain candidate if the score was between 620 and 660. The mortgage lender may feel that they would have to do a complete review of the credit history. It’s very difficult for people to get home loans for low credit scores, for example, below 620 points.

A credit card company will look at your credit history along with your credit score. If you have made your revolving payments on time, it would improve your chances of getting your credit application approved even with a low credit score.

Companies who approve auto loans have different criteria that they use in addition to the credit score when they are considering approval of financing for a vehicle. They will consider the debt to income ratio of the applicant. The time that the borrower has worked at the same place of employment will also be considered. In addition, the amount that the car buyer is willing to put down upon purchase of the vehicle may also make a difference on whether or not the car loan will be improved.

If the application for credit involves a fee, let the lender know what your credit score is before you apply. There is no sense in paying the paperwork fees for an application that will automatically be denied. Sometimes you may be surprised and find that the way that they calculate the risk may make your chances for approval higher.

As part of your personal financial responsibility, you keep track of the information on your credit report by requesting a free report from each of the three credit reporting agencies each year. As you verify all of the information that is show to make sure that no errors have been made and that no one has stolen your identity, you may wonder just how your credit history compares to others.

It is hard to know if the information on your credit report shows you as a person who is financially responsible. You just have to hope that your credit scores and payment history do not work against you when you apply for a new loan, a new job, or even a new place to live.

Interpretation of Your Credit Report

Lenders determine the risk that they will face when they approve a loan or line of revolving credit, and the ways that different types of lenders interpret the information that is on your credit report may differ, depending on the type of loan or credit you are asking for. Although there is no specific guidelines that are set in stone, you can get a good idea from your credit score.

Excellent score – If your credit score falls between 760-849, congratulations. You fall in the group of highest scores. You should be able to find approval for most loans and secure them at the best interest rate that the lender is able to offer.

Great score – If your credit report shows a credit score of between 700 and 759, you should still expect to be able to secure a loan with a good interest rate.

Good score – 660 to 699 is considered a good credit score and you should not be denied a loan or penalized with an escalated interest rate. There is a lot of room for improvement, but you should feel confident of success when seeking a loan with a good interest rate.

Fair score – Expect to pay a higher interest rate on lines of credit or approved loans if your score is between 620 and 659. You may find that in some cases certain lenders won’t approve certain types of loans, but if you shop around and compare rates you should be able to find a place that will approve your application, but will charge a bit more interest to balance their risk.

Poor score – Once your credit score drops below 620 you can expect to start running into difficulties securing a loan or a line of credit. If you are willing to find a lender who is willing to take the risk, expect to be charged very high interest rates.

If the credit score is below 580, you may not qualify for credit at all. It is time to get down to business and work to get the score back up.

Examining your credit report carefully should give you an explanation of why your credit score is what it is. If your history shows that you manage a variety of credit responsibly, you will have a higher score. If your history is dotted with late payments, actions by collections agencies and even court judgments against you, your score will be lower.

Use the information on your credit report to help you take the steps that you need to portray yourself as a financially stable person who can make good decision about money.

Are your eyes popping out as you see the post-holiday credit card bills? Your overwhelming bills could be a result of some lavish holiday shopping, or a little financial mismanagement. Therefore, here are a few tips for personal debt consolidation as a part of debt management plan to eliminate your financial woes at the beginning of 2012.

1. When you are planning to pay off your debts, then your primary task will be to prepare a list of the debt that you owe to the creditors currently. Make sure that you create a list in descending order of the interest rate so that you can promptly consolidate the high interest debts.
2. If you have multiple high interest credit card debts, then you can transfer your balance to a low interest credit card to make it affordable to pay off. You can avail yourself of the introductory or teaser offers on a card to take advantage of the zero percent interest rate on it.  But make sure that you pay down your debts quickly before the introductory rates end. If you are unable to pay off your balance during the introductory period, then the interest rate bounces back to the similar level to what you had been paying before you opted for a 0% balance transfer.
3. When you are working on consolidating your debts, then you can avoid using your credit card so that you do not incur more debt.  Your post-holiday credit card statement might be a reason for your current stress, but instead of being panic-stricken, you should strategically plan to eliminate your financial blues.
4. Make sure that you prepare a budget so that you can save more to pay off your debts. Budgeting helps to track your expenses to eliminate your financial woes. When you save money through budgeting, then you can diligently work towards paying off your debts.

There are three ways to consolidate your credit card debt:

1. Home Equity Loan: You can take out a low interest home equity loan to pay off the debts. Instead of making multiple credit card payments, you can simply make a single monthly affordable payment.
2. You can apply for a low interest personal loan from the bank to utilize the money to pay off the debts. But if you have a low credit score, then you might require a co-signer with a good credit report in order to get an affordable interest rate loan.
3. If you have a poor credit score, you can apply for a secured loan in order to get a low interest rate loan. The interest on this loan will be low as the lenders will provide you a loan against collateral. But if you default on this payment, then you might lose possession of your assets.

What is good for the budget is good for the family, in ways that you may not have ever considered. You may be able to scrape by every month and manage to just barely get all of your bills paid, but what is it doing to your home life? The stress of financial worries can impact your entire family. Not only are you distracted more easily and more likely to snap at another person, the stress could be influencing your decision making on a particular project. This type of stress and anxiety over money issues is known as financial stress.

Credit Counseling Can Improve Your Relationships

If you find yourself in a situation where every time the phone rings you are afraid it may be the bank informing you that you are overdrawn, the anxiety will, sooner or later, spill over into your relationships with your family and friends. This financial stress could even impact how well you are able to do your job.

You know that each late payment is costing you more money, but right now you are juggling everything to keep up. The pressure may be causing you bouts of indigestion. It could be causing arguments over money at home. You may worry that your creditors may try to contact you at work because you have been avoiding speaking to them on the home phone or your cell. What will happen if your boss or coworkers find out that you are in financial trouble? Will it affect your credibility and perhaps interfere with the promotion you are seeking? Will you face the risk of losing your job because of collection calls coming in at the office?

Money stress is hard on you emotionally and could cause physical problems down the road. This can be especially true if you are trying to keep your financial problems hidden from those who are near to you. All of this financial stress could lead you to make poor economic decisions that will only lead you further into debt.

Take the steps to dig yourself out of the financial hole. One option is to seek credit counseling. Just sharing the stress caused by financial difficulty should ease a little of the financial strain that your physical and emotional health may be suffering.

As you work with your counselor, you can track where your money goes and take steps to change some of your spending habits. You can also build a budget that is manageable with respect to your present needs. These are easy to manage actions that can help relieve your financial stress.

Credit counseling can often make you aware of simple steps that can change your whole financial outlook. Perhaps payment schedules need to be adjusted so that they better match up to the pay periods of your job. If the family members communicate mostly with cell phones, is it really necessary to continue paying for the home phone that you rarely touch unless you are dusting it? Did you forget to cancel that free package for your cable TV service when the introductory offer was over?

There are a lot of simple ways to cut expenses, but a person who is suffering from financial stress may not be in a position to recognize them. In addition to the worries about money, the tension in the home or workplace may be escalating to the point where it is hard to focus on anything but your financial predicament. Take steps at the first sign of difficulty to save yourself and your family from the heartache that could result by looking for a qualified and reputable credit counseling service.