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Finance | Financial advice | Immigration | Banking | Accounting

Francis Vayalumkal
By Francis Vayalumkal

The nation's three largest credit bureaus unveiled a new credit scoring system that they say will make it easier for lenders to determine a borrower's credit risk and for consumers to more accurately gauge their financial health.

In a rare cooperative venture, Equifax, Experian and TransUnion came together to design the new system, called VantageScore, to simplify the credit-application process by providing an easy-to-understand, consistent score among the three firms. They say the score will better predict whether a consumer will make timely payments over the life of a loan.

Credit scores traditionally have been three-digit numbers that lenders used to evaluate the creditworthiness of borrowers. The scores reflect how much debt a consumer is carrying, how good they’ve been at paying back loans and how many credit applications they have outstanding. The agencies in the past each used their own proprietary formulas to generate their own scores, meaning that a lender dealing with a consumer’s application for a credit card or a mortgage might have to reconcile three widely different scores.

With the new system, a single methodology will be used to create the scores for all three credit bureaus.

VantageScore will compete with FICO, the scoring system created by Fair Isaac Corp. and used in about 75 percent of all mortgage applications. It will use a different set of calculations to produce scores, ranging from 501 to 990; the FICO scale goes from 300 to 850.

Although the credit bureaus are starting to sell VantageScore to lenders, the new scores won't be available to consumers for at least several weeks or months. Consumers can continue getting the individual credit-bureau scores as well as FICO scores.

Virtually no loan is granted today without a credit score -- a three-digit number based on payment history, outstanding debt, and the number and type of accounts. Lenders say these scores treat applicants more objectively and speed up the approval process, which is critical in today's credit-based economy.

The higher the score, the better the credit risk -- and the lower the interest rate to be charged. For FICO, most people score in the 600s and 700s, and anything above 700 is considered good financial health. VantageScore ratings will range from 501 to 990. The top end is slightly higher than scores currently in use.

In a separate statement, Experian said the new scores will be grouped on “the familiar academic scale.” Experian gave these groupings, with A and B being the best potential borrowers and D and F being the weakest:

A — 901-990
B — 801-900
C — 701-800
D — 601-700
F — 501-600

The different scoring scale might confuse consumers, who are still getting used to the FICO system, said Stephen Brobeck, executive director of the Consumer Federation of America. "This is complicated enough without a second scale," he said.

The credit bureaus said they developed VantageScore after lenders requested a more accurate system, one in which scores did not vary widely among credit bureaus. The score will be independently marketed and sold by each bureau through licensing agreements with VantageScore Solutions LLC, which is jointly owned by the three companies.

VantageScore represents an attempt by the credit bureaus "to develop a better mousetrap, to put more money in their pocket and prevent more from going out of it," to rival FICO, said Greg McBride, senior financial analyst for Bankrate Inc., whose Web site aggregates financial rate information.

Ron Totaro, vice president of Fair Isaac's Global Scoring Solutions, said the 17-year-old FICO score is "pretty ingrained and encoded in computer systems" of lenders, which will make it hard for financial institutions to switch. "It's very difficult to come up with a better mousetrap," he added.

Douglas G. Duncan, chief economist for the Mortgage Bankers Association, said VantageScore's success will depend on accuracy, price and product efficiency.

It is still unknown how the mortgage lending industry is going adopt the new changes and how long it will take for it to come into full effect. Let’s hope it’s a change for the better.

Tracking Credit Reports

You can get your credit report for free, once a year, from each of the three credit bureaus. To get your credit score, however, you have to pay extra. The price varies, from $5.95 for a simple report to $45 for all three.

To get your free report, go to or call 877-322-8228, or mail your request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Ga. 30348-5281.

You can get your credit score when you order your free report. Or, you can do that separately by visiting each credit bureau's Web site: , , . You also can order the FICO credit score at .

The new VantageScore won't be available to consumers for at least several weeks.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at

Finance | Financial advice | Immigration | Banking | Accounting

Nitesh Patel

Annuities can be a powerful investment vehicle, providing a tax-efficient means to accumulate assets, secure a source of guaranteed income for life, or the means to realize other financial goals. Unfortunately, some who would benefit most from owning an annuity shy away from them simply for lack of understanding. The truth is, when you look at the basic design of an annuity, it’s pretty simple. And, it may be just the thing to help make your retirement years more financially secure.

In a nutshell, an annuity is a contract you purchase from an insurance company. You put money in (either a lump sum or periodic payments) and your dollars accumulate on a tax-deferred basis. This means you don’t pay taxes on your accumulated earnings until you start receiving payments, usually in retirement. 2 In addition, the insurance company agrees to pay you (and/or your beneficiary) guaranteed payments either for a specific period of time or for your lifetime. Annuities are said to be "self liquidating" because in the payout phase they pay a steady stream of income every month, a portion of which is earnings and a portion of which is a "tax-free" return of the money you put in.

While annuities come in a wide variety of choices, there are basically two types, immediate annuities, which start making payments as soon as you purchase the contract, and deferred annuities, which grow your assets over time, then start making payments sometime in the future.

With both immediate and deferred annuities, you decide how you want the money to be invested by selecting either a variable or fixed variety. With a variable annuity (available from registered representatives only), you control where the money is invested, typically in stock, bond or real estate funds, and you bear the investment risk. With a fixed annuity, the insurance company makes the investment choices and pays you a specified rate of return with a minimum guaranteed interest rate.

No matter what kind of annuity you choose, when the time comes for payments to begin, there are several basic options from which you can choose:

A specified period annuity provides payments for a specified number of years. If you die before the end of the period, payments continue to your beneficiary for the remainder of the period.

A straight life annuity provides payments for your entire lifetime. The downside is that payments stop when you die, regardless of how many (or few) payments you received.

The payments from a life and certain period annuity also last your entire lifetime. In addition, if you die before a "certain" number of years (usually 10 or 20), payments are guaranteed to continue to your beneficiary for the remainder of that period. For this assurance, you receive a slightly lower payment than offered by a straight life annuity.

An installment refund annuity also provides somewhat lower payments than those offered by a straight life annuity, but will total at least the amount of money you paid into the contract, regardless of when you die. Any "refund" is paid to your beneficiary.

A joint and survivor annuity provides an income for as long as either you or your designated survivor lives. You also can add a "certain period" to this payment option.

Before you buy an annuity, make sure you consider a number of factors that can vary from one annuity to the next. For example, are there contractual or income tax penalties for early withdrawals? How long do the surrender charges last? How much can you withdraw at any time without a surrender charge? You should ask:

What is the current interest rate and how often does it change?
What is the guaranteed minimum interest rate?
Are there “bail-out options” that permit you to cash in the annuity without withdrawal penalties (there may be tax penalties) for nursing home care or terminal illness?
What are the sales loads or administrative fees and how will they affect your return?
What additional charges are deducted from your investment?

Annuities are a popular investment choice, providing an important source of retirement income for many Americans. Carefully consider your options when purchasing an annuity.

For questions about a specific annuity product, contact the insurance company directly or ask your insurance representative. You can find general information about annuities and other investment products by going to the Northwestern Mutual Financial Network Web site at or by visiting the Insurance Information Institute’s Web site at

Because the insurance company solely backs annuity payments, the company’s financial strength is an important factor when buying an annuity or selecting a payment option.

2 Any investment gains taken from a non-qualified annuity (not held in a qualified pension plan, IRA, etc.) will be taxable as ordinary income and may be subject to an IRS 10% penalty if withdrawn before age 59 ˝.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

Finance | Financial advice | Immigration | Banking | Accounting


Families with special needs children or other family members should be aware of a federal law that any special needs child/adult that has more than $2,000 in his/her name loses much-needed government support programs eligibility under Supplemental Security Income (SSI), Medicaid and Medicare. One of the most common mistakes by families is putting funds for a child with special needs into a UGMA/UTMA account (Uniform Gifts to Minors Act/Uniform Transfers to Minors Act).

To make matters worse, even if the assets in a UGMA/UTMA account are liquidated, the funds will still be in the name of the special needs child and counted as income. If a UGMA/UTMA account has already been created for a minor with special needs, it is advised that the client contact a local attorney specializing in elder/disability law and discuss how these funds can be spent down appropriately or possibly transferred legally to a different account such as a Special Needs Trust before eligibility requirements can be applied.

Please take note that using UGMA/UTMA assets to fund a Section 529 plan will not be effective in removing the assets from the minor's name because the participant of the Section 529 account will still be the custodian of the UGMA/UTMA. Parents and guardians for special needs children have to pay close attention to the rules. Parents should talk to grandparents and family members who may possibly want to leave funds to the special needs child in their wills and estate that the monies are placed in a special needs trust. This way, the funds are outside the child’s estate and ownership. Careful planning and consideration will prevent much stress at a later time.


To avoid triggering disqualification from government agencies long before special needs children reaches the age of majority (usually 18 or 21 in most states), any educational monetary gifts for the special needs child being made should go to either a Section 529 plan or a Special Needs Trust. (Note: a Section 529 plan can be opened under parents/grandparents' names and Special Needs Trust can be opened under the name of the trustee (parent, guardian, nonprofit or individual professional trustee). In addition, families need to check for other beneficiary (ies) distribution(s) in 401(k), IRAs and insurance policies where a direct, automatic distribution to the special needs child can cause immediate disqualification from government programs. Should you have any concerns or questions speak to an attorney who specializes in this area.

Dr. Ram P. Ramcharran can be reached at

Finance | Financial advice | Immigration | Banking | Accounting

Kamlesh Patel
CRUNCHING ‘EM NUMBERS: Do you need more time to file your 2005 tax return?

Are you running out of time to file your 2005 tax return? Don’t panic! There’s still time to get an automatic extension of the deadline. This year, the automatic extension period has been changed from four months to six months. The six-month extension replaces the prior two-step process that required taxpayers to obtain first a four-month automatic filing extension. Then if additional time was needed, a second request explaining the need for more time had to be sent to the IRS.

Remember that even with an extension, you still have to pay any taxes you owe by April 17, 2006. The extension gives you more time to file your return, but not more time to pay. You’ll be charged interest on any tax liability not paid by the original due date. And you may owe an additional penalty if you’ve significantly underpaid your taxes.

You can obtain an automatic extension in any of the following four ways:

File a paper copy of Form 4868.
File electronically using the IRS e-file system on your own computer.
File using e-file by telephone.
Have your tax preparer e-file on your behalf.

Whichever method you use, you must apply for the extension by April 17 or the due date of your return. You’ll then have until October 16, 2006, to file your 2005 tax return.

Special rules apply to individuals serving in a combat zone and certain others outside the U.S. Contact our office for more information about these rules or if you need help filing for an extension.

Does this april 3 deadline apply to you?

If you reached age 70˝ last year, April 3, 2006 could be an important deadline. That’s the last day you can take your 2005 required minimum distribution (RMD) from your traditional IRAs. If you miss that deadline, the penalty could be a 50 percent excise tax on the amount you should have withdrawn.

Here’s how the rules work. Once you reach age 70˝, you must start taking annual distributions from your traditional IRAs. Normally, these distributions must occur by Dec. 31 of each year. But a special rule lets you defer the first distribution until April 1 of the year after you reach age 70˝. That deadline is April 3 this year because April 1 falls on a Saturday. So if you turned 70˝ last year, April 3 is the deadline for your 2005 distribution. Be aware that you’ll still need to take your 2006 RMD before the end of this year.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally, you should start planning for RMDs several years before you reach age 70˝. But whether you’re planning in advance or looking at a distribution on April 3, contact our office for more detailed advice.

The RMD rules don’t apply to Roth IRAs. Unless you’re still working, this deadline also applies to your other retirement accounts.

Don’t overlook valuable tax credits

Tax credits are one of the most powerful ways to lower your income tax bill. A tax credit reduces your taxes dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket. For example, a tax deduction of $1,000 will lower your tax bill by $280 if you are in the 28 percent tax bracket. A $1,000 tax credit will lower your tax bill by $1,000. Here are some of the most common tax credits; most are subject to income limits.

Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $1,000 per child.

Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.

Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the Hope credit, up to $1,650 per student can be claimed for tuition and fees paid during the first two years of post-secondary education. Under the lifetime learning credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.

Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status.

Adoption credit. A credit of up to $10,960 per child is available for qualified adoption expenses.

Business credits. There are a number of credits that are specifically available to businesses.

Don’t overlook valuable credits that could reduce your taxes. For details on the credits for which you might qualify, call us.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail or

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