Why autopay may not be the reason your credit score is falling

Dear Liz: My credit scores have been slipping every few months for about a year. The credit bureau says the drop is tied to a late payment on a credit card balance. My card is set up for automatic monthly payment of the full balance. Someone told me that if the card’s due date falls on a weekend or holiday and the bank is closed, the payment goes through a day or two later and the credit agency treats it as late, which hurts my score. My banker suggested I arrange to pay three days before the due date. Would that solve the problem?

Answer: Let’s hope your banker wasn’t the source of that odd explanation about weekend due dates wrecking credit scores.

If you have autopay arranged with the credit card issuer, the payment will generally process on the next business day when the due date lands on a weekend or holiday. That is not considered late. If you instead use your bank’s bill-pay service to send recurring payments, the payment usually moves to the nearest business day before the weekend or holiday.

Even if a payment were delayed beyond the due date, the card issuer would not report it as late to the credit bureaus until it was 30 days or more overdue. A payment that is only a few days behind could result in a late fee, but it would not affect your credit scores.

The fact that your scores have been declining steadily suggests a more serious ongoing issue, possibly identity theft. If someone opened a credit card in your name and then failed to pay it, those missed payments over many months could steadily pull your scores down.

Your banker should have advised you to obtain free copies of all three of your credit reports from AnnualCreditReport.com. Enter that address directly into your browser and be cautious of sites trying to sell credit monitoring or other products. If a site asks for a credit card, it is not the correct one.

Check for accounts you do not recognize. If you find any, file a report with the Federal Trade Commission and get an identity theft affidavit. You can use that affidavit to make a police report. You should also dispute the account with the three major credit bureaus. While you are on their websites, place a freeze on your credit.

You can find more information on the FTC’s IdentityTheft.gov site and at Identity Theft Resource Center, www.idtheftcenter.org.

Dear Liz: My wife and I are in our 70s and take required minimum distributions from IRAs. We use our RMDs to make charitable gifts. We have also thought about a donor-advised fund. Which option offers the biggest tax benefit?

Answer: In most cases, the greatest tax advantage comes from qualified charitable distributions, which allow people age 70½ and older to send money directly from their IRAs to charities. QCDs can satisfy required minimum distributions without increasing adjusted gross income. That can reduce the taxation of Social Security benefits and may help avoid or lower income-related Medicare premium surcharges.

QCDs must go directly from your IRA custodian to the charity. A check issued by the custodian and made payable to the charity can qualify even if you hand-deliver it. It is not a QCD if you receive the money first and then donate it yourself.

Donor-advised funds work differently. You contribute cash or securities to the fund and may be eligible for a tax deduction if you itemize. The assets can grow tax-free until you recommend grants to qualifying charities, even years later.

You cannot make QCDs to donor-advised funds, but they can still be useful if you want to bundle several years of charitable giving at once or donate appreciated securities. Giving those investments directly, rather than selling them first, can help you avoid capital gains taxes.

For yearly charitable giving from IRAs, though, QCDs are generally the better choice. Speak with your tax professional to make sure your donations satisfy the QCD rules.

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