Renting an apartment with bad credit is not easy

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Dear Liz: My wife and I sold our house and have to move out by the end of the month, but we can’t find a place to live because of our bad credit. If we don’t move, we will lose the sale and still have to pay the real estate agent his commission. We applied to about 65 landlords and each of them checked our credit, which caused our scores to drop even further. We live on social security checks of $1,367 a month. We are in our 70s and not in good health and we don’t need this stress. To help!

Responnse: Having a guaranteed income is appealing to a homeowner, but the fact that you have credit issues would concern many. Landlords are worried that you are mismanaging your money and not being able to pay the rent.

However, not all landlords do a credit check. If you avoid large apartment complexes run by professional management companies, you may find that individual “mom and pop” landlords are more willing to be flexible – particularly if your credit issues were a temporary issue and have been resolved by selling your home. You may be able to close the deal by offering to pay several months’ rent up front, perhaps from the proceeds of your sale, said attorney Stephen Elias, author of “The Foreclosure Survival Guide.”

You can start your search for friendly landlords by asking your real estate agent for references or checking rental listings on Craigslist for listings that appear to be made by individuals rather than management companies.

Another option is to have someone co-sign the lease with you. The co-signer’s good credit might help you get the place, but if you don’t pay your rent, the co-signer’s credit will suffer.

Dear Liz: As the parent of a freshman in college, I rushed and closed one of my son’s 529 college savings plans, thinking I would use the money to pay his expenses for the whole year. Turns out I would have withdrawn $6,000 too much in 2010 because I was only billed for a period of room and board. Can I prepay the 2010 supplement for 2011 room, board, and tuition as a valid college expense to avoid any 2010 tax on supplemental funds? If not, do you have any suggestions for avoiding 2010 taxes?

Responnse: Withdrawals from a 529 plan are trickier than many people realize. They are only tax-exempt to the extent that you pay qualified college expenses in the same calendar year that you take the distribution – and other tax breaks are not used.

Eligible expenses include tuition, fees, books, supplies, equipment, and additional expenses for recipients with “special needs.” Eligible expenses do not include insurance, fees for sports or other activities, transportation costs or the purchase of a computer, unless required by the school.

If you withdraw too much, you must pay income tax and a 10% federal penalty on the portion of the excess withdrawal income. (For example, if your account totaled $10,000 and $6,000 was income while $4,000 was your original contributions, you would pay the penalty on 60% of any excess withdrawals.)

There’s another way to get hit. If you intended to use an education tax credit, such as the Hope or Lifetime Learning credit, you will need to deduct from your eligible expenses the amount used to generate the credit. Let’s say you used $5,000 in tuition to generate a $1,000 lifetime learning credit. This $5,000 should be deducted from your total eligible expenses, which would further reduce the amount of your 529 withdrawal that is tax-free. You would not have to pay the penalty on the excess withdrawal created by the tax credit adjustment, but you would have to pay tax on any income.

Now for the good news: you’re allowed to prepay next year’s expenses to help increase your total eligible expenses. If less than 60 days have passed since the withdrawal, you will also be permitted to carry over the excess distribution to a new 529 account.

Fortunately, you discovered the problem before the end of the year. If you hadn’t discovered the problem until you started preparing your tax return next spring, as many people do, it would be too late and you’d be stuck with the extra tax and penalty.

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 can be sent to 3940 Laurel Canyon., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at https://www.asklizweston.com. Distributed by No More Red Inc.

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