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Tight credit environment calls for careful oversight

—Jason Alderman

As anyone who’s applied for a new loan lately knows, if you don’t have a gold-plated credit history, you may have a tough time borrowing. And even many twenty-four-karat consumers are being turned down. Lenders have responded to their own difficulty accessing credit—as well as increasing customer defaults—by tightening lending standards.

Now more than ever you need to closely monitor your credit scores and avoid behaviors that might trigger higher interest rates, cancelled accounts, or reduced credit limits, any of which can lower scores.

A few precautions:

Check credit reports and scores. The three major credit bureaus (Equifax, Experian, and TransUnion) track your credit history and compile credit reports showing a snapshot of your credit behavior. They also use the information to create three-digit credit scores that help lenders (and potential landlords and employers) determine if you’re a good credit risk.

It’s vital to know what information appears in your credit reports, since errors, omissions, and fraudulent activities could seriously impact your score. In a recent Visa Inc. cardholder survey, nearly half said they check their score once a year or more and eighteen percent every few years. But alarmingly, thirty percent have never checked their credit score. That’s the financial equivalent of driving with your eyes shut.

You can order one free credit report per year from each bureau at You can also purchase copies of your credit scores for about $15 each at

You can also estimate your score using the free FICO Score Estimator at What’s My Score, a financial literacy program run by Visa ( The site also features tips on repairing damaged or unestablished credit scores.

Know what credit scores measure. The Visa survey also uncovered some misconceptions about factors impacting your credit score: Although the vast majority correctly identified bill payment history, current level of debt, and interest rates on current debt as measurable factors, around a quarter incorrectly believed that race, gender, and national origin also play a role.

Basically, five factors determine your credit score: payment history, amount owed, length of credit history, newly opened credit accounts, and types of credit used. Scores take into consideration both positive and negative information in each category, but may weigh the factors differently depending on your individual circumstances.

Read your mail. Account terms, including interest rates, credit limits, and payment deadlines are subject to change, pending notification. So always read any correspondence from lenders or retailers where you have accounts, even if it looks like junk mail. To be safe, you can check your monthly statements or call each lender to verify terms.

A few additional tips:

•Pay bills on time.

•Pay at least the minimum amount due on credit cards and other loans.

If you can’t make a payment, contact the lender before you’re past due to work out a compromise.

•Don’t use more than thirty percent of any one card’s available credit, or thirty percent of your overall available credit from all cards.

•Be cautious about opening or closing accounts. Some experts recommend occasionally charging small amounts to older, unused accounts so they’ll remain open, thereby not reducing your total available credit.

•Unpaid medical bills can get lost in the shuffle, so track all bills and check your insurance statements carefully for errors or underpayments.

It’s essential to know where your credit stands today so you can correct any mishaps before they impact your ability to borrow at favorable terms tomorrow.


IRS begins 2009 filing season with steps to help financially distressed taxpayers

The Internal Revenue Service kicked off the 2009 tax filing season by announcing a number of new steps to help financially-distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations.

IRS Commissioner Doug Shulman encouraged taxpayers to take advantage of several new tax credits and deductions this filing season and announced a major enhancement to the Free File program that will allow nearly all taxpayers to e-file for free and accelerate their refunds.

“With so many people facing financial difficulties, we want taxpayers to get all the tax credits they’re entitled to as quickly as they can,” Shulman said. “In addition, we are creating new protections to help people trying to meet their tax obligations. The IRS will do everything it can to help during these tough times.”

Help for people with tax issues

The IRS is taking several additional steps to help people who owe back taxes.

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many Americans citizens today,” Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

With many people facing additional financial difficulties, the IRS is taking additional steps to work with taxpayers who owe taxes. On a wide range of situations, IRS employees have flexibility to work with struggling taxpayers to assist them with their situation. Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements, or possibly defer collection action.

The IRS reminds taxpayers who are behind on tax payments and need assistance to contact the phone numbers listed on their IRS correspondence. There could be additional help available for these taxpayers facing unusual hardship situations.

Among the areas where the IRS can provide assistance:

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals in existing installment agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.

Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.

Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.

Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.

Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

Taxpayers with financial problems who discover they can’t pay when they file their 2008 tax returns also have options available. has a list of “What If?” scenarios that deal with payment and other financial problems. These scenarios, in question-and-answer format, provide information on specific actions taxpayers can take. Taxpayers unable to pay in full can likewise contact the IRS to discuss additional options to pay.

Maximizing refunds and speeding refund delivery

This filing season, there are several steps taxpayers can take to maximize their refunds and speed the delivery of money from the IRS.

Taxpayers should look into the numerous tax breaks available and take every credit, deduction, and exclusion for which they qualify. People who had less income in 2008 could find they qualify for credits for which they previously did not qualify. And there are several new benefits this year:

First-Time Homebuyer Credit: Those who bought a main home recently or are considering buying one may qualify. This unique credit of up to $7,500 works much like a fifteen-year interest-free loan. has more details and answers to common questions.

The Recovery Rebate Credit: This credit is figured like last year’s Economic Stimulus Payment except that Recovery Rebate Credit amounts are based on tax year 2008 instead of 2007. Most people already received their full benefit in the form of the Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, for example, he or she did not get an Economic Stimulus Payment, had a child in 2008, or had a change in income level. If you receive this credit, it will be included in your refund and not be issued as a separate payment. See the Form 1040 Instructions, Fact Sheet 2009-3 or the information center on for details.

Standard Deduction for Real Estate Taxes: Taxpayers can claim an additional standard deduction, based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.

Mortgage Workouts and Foreclosures: For most homeowners, these are now tax-free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million. The limit is $1 million for a married person filing a separate return. See Form 982 and its instructions for details., the official IRS website, has more information on these and other popular credits, such as the child tax credit, the Earned Income Tax Credit, and alternative fuel vehicle credit.

E-file, e-pay and direct deposit

This year, electronic filing options will speed the payment of refunds to millions of taxpayers. Taxpayers who e-file and choose direct deposit for their refunds, for example, will get their refunds in as few as ten days. That compares to approximately six weeks for people who file a paper return and get an old-fashioned paper check.

This year, taxpayers began filing electronically on January 16.

The IRS in 2009 is again offering free tax preparation and filing through the Free File program. Anyone with an adjusted gross income up to $56,000 can use the standard Free File options this year—that is approximately ninety-eight million Americans.

But this year, the IRS and its partners are offering a new Free File option that opens up Free File to virtually everyone, even those whose incomes exceed $56,000.

This new Free File option consists of twenty-four electronic forms that taxpayers fill in online. This option does not include an “interview” process like the other Free File offerings, but it may be just the right thing for those with simple returns or those who use electronic software to prepare the return but file using paper forms.

Both the electronic-forms option and the previously available Free File offerings are available only through the website.





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