Improving Your Credit

Some financial advice to help you protect your credit and improve your credit rating.

Financial Guides

Using your credit cards wisely is largely a matter of being informed – e.g., how much your card company is charging you for credit – and by following some simple tips for using the card.

Credit CARD Act of 2009

Known as the Credit CARD Act of 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 went into effect on February 22, 2010. The legislation strengthens consumer protection in the credit card market and is a comprehensive reform measure to protect credit card holders in the US against unfair interest rate hikes and hidden fees. Specifically, the legislation addresses:

  • Unfair Rate Increases
  • Unfair Fee Traps
  • Plain Sight /Plain Language Disclosures
  • Accountability of Credit Card Issuers
  • Protections for Students and Young People

Even with the new law in place, consumers should still be wary and shop around for the credit card that’s best for them.

Examine The Card’s Terms

To choose a credit card wisely, you must first review and understand the terms and features of the various cards. This can add up to very respectable savings over a period of time. In addition, you should also know how use your cards wisely to keep your costs to a minimum. The Financial Guide explains how to achieve these goals.

Chances are you have received offers in the mail asking if you would like to open credit card accounts. Frequently, these offers say that you have been “pre-approved” for the card, often with a very attractive interest rate (usually, a short-term “low-ball” rate) and with a line of credit purportedly set aside for your use (although few people ultimately qualify for the credit line in the promotional literature). Typically, these offers urge you to accept quickly, “before the offer expires.” However, before accepting a credit card offer, understand the card’s credit terms and compare costs of similar cards to get the terms and features you want.

Making an informed decision about a credit card is largely a matter of finding out what the actual cost of credit is under that card. Credit cards involve not only a “finance charge” – a charge for the convenience of borrowing – but usually other, less obvious charges as well.

Learn which credit terms and conditions apply. Each affects the overall cost of the credit you will be using. Due to the provisions of the Fair Credit and Charge Card Disclosure Act (1998), you can compare terms and fees before you agree to open a credit card or charge card (no interest) account. Be sure to consider and compare the terms listed below, which both direct-mail applications and pre-approved solicitations must reveal.

Which card is best for you may depend on how you plan to use it. If you plan to pay bills in full each month, the size of the annual fee or other fees, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will also be affected by the grace period.

Annual Percentage Rate

The “annual percentage rate,” or APR, is disclosed to you when you apply for a card, again when you open the account, and on each bill you receive. It is a measure of the cost of credit, expressed as a yearly rate.

The card issuer also must disclose the “periodic rate,” the rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing period.

Variable Rates

Some credit card plans allow the card issuer to change the annual percentage rate on your account when interest rates or other economic indicators (called indexes) change. Because the rate change is linked to the performance of the index, which may rise or fall, these plans are commonly called “variable rate” plans. Rate changes raise or lower the amount of the finance charge you pay on your account. If the credit card you are considering has a variable rate feature, the card issuer must tell you that the rate may vary and how the rate is determined, including which index is used and what additional amount (the “margin”) is added to the index to determine your new rate. You also must be told how much and how often your rate may change.

Grace Period

A grace period allows you to avoid the finance charge by paying your current balance in full before the due date shown on your statement. Knowing whether a credit card plan gives you a grace period and the length of this period is especially important if you plan to pay your account in full each month.

If there is no grace period, the card issuer will impose a finance charge from the date you use your credit card or from the date each credit card transaction is posted to your account. If your credit card allows a grace period, the card issuer must mail your bill at least 14 days before your payment is due. This policy ensures that you have enough time to make your payment by the due date.

Caution: The grace period is generally misleading. The period does not start when the statement is mailed and end when your check is received, as many consumers believe. In fact, it usually starts a few days before the statement is mailed and ends a few days after the payment is received, based on certain accounting dates adopted by the credit card company. Consequently, a 25-day grace period (a fairly common period) for paying the statement may water down to a much shorter period.

Annual Fees

More than nine out of 10 cards (95 percent) had no annual fee in 2011 up from 90 percent in 2010 according to BankRate.com, making it easier than ever to find a credit card with no annual fee. On credit cards that did carry annual fees, the fees ranged from $15 to $39.

Transaction Fees and Other Charges

A credit card also may involve other types of fees. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time (late fees), or when you go over your credit limit (over-limit fees). The Credit CARD Act of 2009 also addresses

The Credit CARD Act of 2009 specifically addresses late fees and over-limit fees in that card holders must be given at least 21 days from the time of mailing to pay their bill and all late fee “traps” such as weekend deadlines and due dates that change each month are eliminated. In addition, the law helps consumers avoid over-limit fees because issuing institutions must now obtain a consumer’s permission to process transactions that would place the account over the limit.

Balance transfer fees are incurred when balances are transferred from high interest credit cards to lower interest cards. Fees for balance transfers are typically based on a percentage of the amount being transferred (typically 3% or 5%), with limits on minimum or maximum fee amounts. Many credit card issuers offer zero percent interest on balance transfers for the first six to 12 months that revert to regular interests rates at the end of the promotion period.

Other types of fees can include foreign transaction fees, fees for receiving a copy of monthly statements, replacing lost cards, or for using the credit card as a source of funds for overdraft protection.

Balance Computation Method for the Finance Charge

If your plan has no grace period or if you expect to pay for purchases over time, it is important to know how the card issuer will calculate your finance charge. This charge will vary depending upon the method the card issuer uses to figure your balance. The method used can make a difference, sometimes a big difference, in how much finance charge you will pay-even when the APR is identical to that charged by another card issuer and the pattern of purchases and payments is the same.

Thanks to the Credit CARD Act of 2009, credit card issuers are now required to show consumers on their periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due, as well as the payment amount and total interest cost to pay off the existing balance in 36 months.

Average Daily Balance

The average daily balance method (including or excluding new purchases) gives you credit for your payment from the day the card issuer receives it. To compute the balance due, the card issuer totals the beginning balance for each day in the billing period and deducts any payments credited to your account that day. New purchases may or may not be added to the balance, depending on the plan, but cash advances typically are added. The resulting daily balances are added up for the billing cycle and the total is then divided by the number of days in the billing period to arrive at the “average daily balance.” This is the most common method used by credit card issuers.

Adjusted Balance

This balance is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases that you made during the billing period are not included. Under the adjusted balance method, you have until the end of the billing cycle to pay part of your balance and you avoid the interest charges on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. The adjusted balance method usually is the most advantageous to card users.

Previous Balance

As the name suggests, this balance is simply the amount that you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance. If you do not understand how the balance on your account is computed, ask the card issuer. (An explanation of how the balance was determined must appear on the billing statements the card issuer provides you and on applications and pre-approved solicitations the card issuer may send you.)

Considerations Other Than Cost

When shopping for a credit card, you probably will want to look at other factors besides cost, such as whether the credit limit is high enough to meet your needs, how widely the card is accepted, and what services and features are available under the plan. You may be interested, for example, in “affinity cards,” all-purpose credit cards that are sponsored by professional organizations, college alumni associations, and some members of the travel industry. Frequently, an affinity card issuer donates a portion of the annual fees or transaction charges to the sponsoring organization or allows you to qualify for free travel or other bonuses.

How Different Balance Computations Affect The Cost of Credit

“While the interest rate is a major factor in determining your interest cost, the method of computing the balance to which the interest rate is applied can also be significant. The following table shows how your interest cost can vary when the Average Daily Balance, Adjusted Balance and Previous Balance methods are used.”

Average Daily Balance
(including new purchases)

Average Daily Balance
(excluding new purchases)

Monthly rate

1-1/2%

1-1/2%

APR

18%

18%

Previous Balance

$400

$400

New and Purchases

$50 on the 18th day

$50 on the 18th day

Payments

$300 on 15th day (new balance = $100)

$300 on 15th day (new balance = $100)

Average Daily Balance

$270*

$250**

Finance Charge

$4.05 (1-1/2% of $270)

$3.75 (1-1/2% of $250)

* To figure average daily balance (including new purchases):

       ($400 x 15 days) + ($100 x 3 days) + ($150 x 12 days) divided by 30 days = $270

** To figure average daily balance (excluding new purchases):

       ($400 x 15 days) + ($100 x 15 days) divided by 30 days = $250

 

Adjusted Balance

Previous Balance

Monthly rate

1-1/2%

1-1/2%

APR

18%

18%

Previous Balance

$400

$400

Payments

$300

$300

Average Daily Balance

N/A

N/A

Finance Charge

$1.50 (1-1/2% of  $100)

$6.00 (1-1/2% of  $400)

 

As you can see, the finance charge varies based upon which balance is used and whether new purchases are included or excluded.

Rebate and Rewards Cards: Are They a Good Deal?

The use of rebate and rewards cards has grown rapidly. Costco for example sponsors a credit card (Costco Cash Rebate card) that give rebates on the cost of merchandise you buy with the card once you spend a certain amount. You usually get larger rebates on the sponsoring company’s products and lower rebates on other card charges. Credit card solicitations promise cash, frequent-flier miles or points that will buy everything from hotel rooms to gas.

Tip: You will get a good deal from a rebate card if you spend a lot, and if you pay your bill in full each month. If you carry a balance on the card, what you gain in rebates you will lose in the excessive interest charged by credit cards.

Use It Wisely

Here are some suggestions for the use of credit cards:

1. Pay bills promptly to keep finance charges as low as possible.

Tip: Keep copies of sales slips and promptly compare charges when your bills arrive.

2. Keep a list of your credit card account numbers, telephone numbers of each card issuer, and login information (if you pay your credit cards online) in a safe place in case your cards are lost or stolen.

3. Protect your credit cards and account numbers to prevent unauthorized use.

Tip: Draw a line through blank spaces above the total when you sign receipts. Rip up or retain carbons.

4. Deal only with reliable firms. Check with your local consumer protection agency or the Better Business Bureau (BBB) closest to where the business is located. Study the advertising offer carefully. Ask the company about its warranty, refund and exchange policies. If you cannot get the answers to your questions, or there are any doubtful claims, don’t buy.

5. Never Send Cash. Never give out your credit, debit charge card, or bank account number unless you have checked out the company or have done business with them before.

Tip: Try to pay by charge or credit card, so that you have record in the event of a dispute with the merchant.

How To Dispute Improper Charges

If there is a problem with your order, for instance if you were billed for the wrong amount, you never got the product, the goods arrived in damaged condition, or the merchandise or services were misrepresented, then try to resolve it by following these steps:

When you have charged your purchase, you are entitled to a response to your complaint within 30 days, and the problem must be resolved within two billing cycles (but not more than 90 days). If you used a debit card, you are entitled to a response within 10 days. However, if the financial institution that issued the card needs more time, it may take up to 45 days, provided it credits your account with the disputed amount until the dispute is resolved.

  1. Write immediately to the company from whom you ordered, explaining the problem and asking for a specific resolution. Be sure to include your name, address, and daytime phone number, your order or invoice number, copy of canceled check, or any other helpful information about your purchase. You generally have 60 days after receiving a bill to dispute charges. Pay any other charges on your bill that you are not disputing.
  2. If you charged your purchase to a charge or credit card account, or you arranged for the payment to be automatically withdrawn from a bank account, send a copy of your letter to the card issuer or bank.

Government and Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

  • State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551

  • National Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Federal Credit Unions:

National Credit Union Administration
1775 Duke St # 4206
Alexandria, VA 22314-6115

  • Non-Member Federally Insured Banks:

Federal Deposit Insurance Corporation
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

  • Federally Insured Savings and Loans, and Federally Chartered State Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Other Credit Card Issuers (includes retail gasoline companies):

Bureau of Consumer Protection
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580

  • The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Criminal Investigations Service Center
Attn: Mail Fraud
222 S. Riverside Plaza Ste. 1250
Chicago Il 60606-6100
Tel. 877-876-2455

  • The Federal Trade Commission:

Does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Tel. (202) 326-2222

  • National Do Not Call Registry:

If you wish to have your name removed from telephone lists of marketing companies.

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

  • Direct Marketing Mail Opt-Out:

Consumers who do not wish to receive promotional mail at home

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

  • Low or No-Cost Credit Cards:

Bankrate.com lists banks charging no fees and low interest rates for credit cards. Visit the website: www.bankrate.com

How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating. This Financial Guide explains how, and gives you a look into the practices of lenders and credit bureaus.

Credit Evaluation Factors

When you apply for a loan, how is your application processed? In some cases, such as applying for a loan from your bank, it may as simple as going to the bank, giving brief information about why you need a loan, signing a loan contract and getting a check immediately. Other banks use loan committees – a group of bank employees who decide which applications to approve. Still others use sophisticated, complex computer analysis to evaluate applications.

Many creditors use credit scoring, in which point values are assigned to various credit characteristics. Those who get enough “points” get credit. Credit scoring can vary in complexity, according to the creditor’s policy.

Most creditors also have certain minimum requirements before they will consider an application. For instance, anyone who does not have a minimum annual income (perhaps $15,000) or who has been through bankruptcy may be summarily rejected.

Most credit-scoring systems are more complicated than our example, with ten to thirty or more pieces of data to be analyzed for each applicant. With a more complex scoring system, a clerk enters information from both the credit application and the credit report onto a computer system, and the system evaluates it and produces an acceptance or rejection letter. Smaller creditors using simpler credit scoring have loans evaluated by a loan officer who makes the decision.

By explaining what you need to make full use of your credit report, to determine your credit standing, and to maximize your chances for credit approval this Guide will help you to:

  • Better understand your credit report,
  • Know the meaning of jargon used in the credit industry, and
  • Find out exactly what you can do to improve your credit standing.

Age

If a lender’s credit experience shows that people in a certain age group have a better record of paying their bills than people of other ages, the lender may – legally – give a higher score to the better-paying age group.

However, the Equal Credit Opportunity Act (ECOA), a federal law intended to prevent discrimination in lending, does not allow lenders to discriminate against people age 62 or over. The ECOA requires creditors using a scoring system to give those aged 62 and older an age-factor score at least as high as that given to anyone under age 62.

Example: A lender gives the following age scores to applicants:

Age: # Points
18-25 2 points
25-35 6 points
35-45 4 points
45 or more 3 points
62 or more 6 points

To prevent discrimination against older people, the lender must give anyone age 62 or older at least 6 points for age, since 6 points is the highest score available to anyone under 62 (i.e., those aged 25-35).

Residence

Many creditors give a higher score to those who have lived at the same address for at least two years. Some lenders just give extra points for living in the same area for two years or more.

Creditors may take into account your geographic location in scoring your length of time at one address. If you live in a city, where people move more often, the length of time at your address will probably count less than if you live in the country.

If your address is a post office box, you may find yourself turned down for credit. Also, to fight fraud, some creditors screen out applicants whose addresses indicate commercial offices, mail drops, or prisons. Since post office boxes or rural delivery boxes are commonplace in rural areas, however, a lender may issue a card to that address while rejecting applicants with a P.O. Box in a large city.

People who own their homes earn a higher score than renters.

“Authorized User” Payment History

An authorized user is someone who has permission to use a credit card but is not legally liable for the bills. If you are an authorized user on someone’s account, the payment history will likely be reported in your credit file, but you will not be able to rely on it to help you build your own credit rating. Usually, it will neither help you nor hurt you when you apply for a loan.

Bank Card History

One of the best things you can have on a credit report is a bankcard-a Visa, MasterCard or Discover card that has been paid on time over a period. In a scoring system, a good bankcard reference usually carries more weight than a department store card or American Express card. Department store charge cards have lower credit limits and if used will typically have a higher debt to limit ratio, which has a negative impact on credit scores. In addition, American Express is a charge card. As such users must pay in full, the amount due when the monthly statement arrives. There is no minimum payment, interest rate, or spending limit, and while American Express reports the high balance to credit bureaus, it doesn’t impact FICO credit scores.

The reason a bankcard is a strong reference is that it shows a bank has trusted you with hundreds or even thousands of dollars on the basis of just your signature. Also, bankcards are more difficult to get than department store cards or travel and entertainment cards, so your qualifications must have been closely scrutinized when you applied.

Checking And Savings Accounts

People who have checking and savings accounts usually score better than those who do not. Some banks give you extra points if you have checking or savings accounts with them. Some banks also give discounts on loan rates when you hold other accounts with them.

Bankruptcy

Most lenders automatically reject anyone whose application or credit file indicates a bankruptcy. Chapter 13 in which (a debt reorganization plan under which all debts are eventually repaid) stays on credit reports until the debt is repaid plus an additional seven years. Chapter 7 (straight bankruptcy and partial or full liquidation of debts) remains on your credit files for ten years. Few creditors, however, draw any distinction between the two types, so you don’t get any “credit” for having repaid your bills using Chapter 13.

In addition to the bankruptcy itself remaining on your report for ten years, each separate account that was discharged through bankruptcy can be reported on your file for up to seven years.

“Charge-Offs”

Charge-offs, also called profit-and-loss accounts, are accounts that have been written off lenders’ books as “uncollectible.” If a charge-off account is not due to bankruptcy, the lender will usually turn it over to a collection agency, which will then attempt to collect. It then becomes a “collection account” (discussed below) for reporting purposes. Charge-off or collection accounts on a credit report are extremely negative.

Tip: If you pay the charge-off via the collection agency, make sure the lender updates the account as a “paid charge-off.”

Child Support

Delinquent child support frequently appears on credit reports. In 1984, Congress amended the federal Child Support Enforcement (CSE) legislation to require more routine reporting of delinquent payments. State child support enforcement agencies must report overdue child support to a credit bureau that requests such information, as long as the amount exceeds $1,000. CSE agencies can also report delinquencies of any amount on a voluntary basis.

Before a CSE agency reports your delinquent child support debts to a credit bureau, it must tell you that it is going to do so and provide you with information on how to dispute the delinquency.

Closed Accounts And Inactive Accounts

You may be surprised to find you are turned down for a loan because you have too much credit available. Accounts you no longer use, or have paid off, can count against you if they are listed as “open” on a credit report.

The act of paying off a revolving account does not, in itself, result in it’s being “closed” in the eyes of lenders. Further, some creditors do not report to credit bureaus the fact that accounts are closed.

Tip: If a closed account appears on your credit report as open, dispute the entry with the credit bureau. The Fair Reporting Act gives consumers the right to dispute any information in their credit file they believe inaccurate or incomplete. Explain to the credit bureau that you would like the report to reflect the account as closed. It is also a good idea to send a certified letter to the creditor requesting that the entry is corrected with all the credit bureaus to which it has been reported.

Tip: Every time you close an account, ask the creditor to report it as “closed by consumer” to all Credit Bureaus to which the account has previously been reported. Make this request in writing, and ask for written confirmation that it has been done. If you have trouble getting confirmation from customer service representatives, ask to speak with a credit manager. Be sure to comply with the lender’s procedures for closing the account, such as returning credit cards or unused credit line checks. Your cardholder agreement will have those instructions.

Jobs

Lenders generally give more “points” to applicants who have been at the same job for two years or more.

Tip: If you have changed jobs recently, indicate on your application whether you have stayed in the same field, since some lenders will consider the length of time in your field if the length of time in your job is not sufficient.

Self-employed people, who often have a hard time getting credit, might try contacting the lender before applying to find out what additional information can improve your chances. Some lenders ask for copies of your business license, tax returns for the past years, or checking account statements to verify your cash flow.

Collection Accounts And Charge-Offs

Collection accounts are those that have been sent to collections by the creditor – either to the creditor’s own collection department or an outside agency. Profit-and-loss accounts (also called charge-offs) are those the creditor decided could not be collected, and that were written off as a loss. Once a charge-off is sent to a collection agency or department, it turns into a collection account for reporting purposes. Collection accounts and profit-and-loss accounts are negative marks on credit reports.

Should you pay a collection account? On the one hand, unpaid collection accounts can prevent you from getting other credit. On the other, some creditors reject anyone whose credit files list collection accounts or charge-offs-whether or not they have been paid.

Collection accounts can legally remain on a report for seven years. They are reported to credit bureaus beginning on the date the collection agency received them from the creditor. Charge-offs (also called profit-and-loss accounts) are reported from the date they were charged off – the date the creditor decided the account was too far past due to get payment through normal channels and decided to close the account. Charged-off accounts are usually sent to a collection agency or the creditor’s own collection department.

The fact that delinquency (paying late) began before the account was placed for collection (or charged off) does not require the reporting date (the date the seven-year reporting begins) to be moved back, and the fact that payment was made after the account was placed for collection does not allow the date to be moved forward.

If you do not pay a collection account, the lender may sue you. If the lender gets a legal judgment against you, the judgment can remain on your credit report seven years or more from the date the case was decided.

In exchange for paying off a collection account, you may be able to negotiate with the creditor or collection agency the permanent removal of the negative information from your credit bureau files. Lenders are under no obligation to make such an agreement, however.

Cosigning An Account

You may be asked to cosign an account to allow someone else to obtain a loan. With cosigning, your payment history and assets are used to qualify the cosigner for the loan.

Tip: We recommend that you do not cosign a loan, whether for a family member, friend, or employee. Many have found that cosigning a loan only leads to trouble.

Bear in mind that cosigning a loan bears all the financial and legal consequences of taking out the loan yourself. When you cosign, you are signing a contract that makes you responsible for the entire debt. If the other cosigner does not pay or makes late payments, it will probably show up on your credit record. If the person for whom you cosigned does not pay the loan, the collection company will be entitled to try to collect from you.

If the cosigned loan is reported on your credit report, another lender will view the cosigned account as if it were your own debt. Further, if the information is correct, it will remain on your credit report for up to seven years.

Tip: If someone asks you to cosign a loan, suggest other alternatives such as a secured credit card by which they can build a credit history. If you are asked to cosign for someone whose income is not high enough to qualify for a loan, you are actually doing them a favor by refusing-they will be less likely to be overwhelmed by too-high debts. At any rate, consult with your lawyer before cosigning, since state laws regarding a cosigner’s liability vary.

Tip: If you have already cosigned for someone, and he or she is not making payments on time, consider making the payments yourself and asking the cosigner to pay you directly in order to protect your credit rating.

Credit Limits

A credit limit is the maximum amount available to you from a certain lender. For example, a credit card issuer may grant you a credit limit of $1,000, meaning that once you charge $1,000, you will not be allowed to incur additional charges until you pay off some of your debt.

When creditors evaluate your application for credit, they ascertain whether, if you were to use all your available credit, you would be over your head. They usually consider these factors:

  • How close you are to your credit limits
  • The total credit you have available
  • The number of accounts you hold

Creditors may consider not only how much you currently owe, but also how much credit you have available. Having too much credit available can count against you. Also, being at or near the limit on your credit cards can count against you.

Obtaining Your Credit Reports

Credit reports are records of consumers’ bill-paying habits collected, stored and sold by credit bureaus. Credit reports are also called credit records, credit files, and credit histories.

The Fair Credit Reporting Act (FCRA) entitles each consumer to one free disclosure every 12 months. In addition, residents of California, colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, Minnesota, Montana, New Jersey, Puerto Rico, Vermont, or the US Virgin Islands, may be entitled to a second personal credit report at free or reduced price from each of the three major credit bureaus:

If you have been denied credit, employment, or insurance you can request that the credit bureau involved provide you with a free copy of your credit report, but you must request it promptly within 60 days. Request a copy through their websites or call the toll free telephone numbers provided.

Debt/Income Ratios

Some creditors look at your debt/income ratio how much you pay out each month compared to how much income you earn to determine whether you qualify for additional credit.

To find your debt/income ratio, total up your monthly payments on all bills. Do not include mortgage, utilities, doctor bills or other accounts that do not appear on your credit report: The creditor will not look at these. Then, divide your total payments by your monthly gross (before tax) income. What results is your debt to income ratio. If it is less than 28 percent, you should have no trouble getting a loan. If it falls between 28 and 35 percent, you have what is considered high debt, and you may find it difficult to obtain some loans.

If your debt/income ratio is 35 percent or more, you will probably not be able to get additional credit. More importantly, you are potentially in financial jeopardy. If you should incur unexpected expenses, get ill, lose your job, or get divorced, you could find yourself unable to meet your obligations. Consider seeking credit counseling through a local non-profit consumer credit counseling service. (Please see the listing at the end of this Guide.)

This summary provides general guidelines. Some large card issuers will accept debt ratios as high as 40-45 percent. Others compare your net (after-tax) income to your debts to determine your debt ratio.

Tip: If you keep your debt ratio below 28 percent, you can consider yourself successful at managing your debt and maintaining a good credit rating.

Department Store Accounts

Department store cards do not provide as strong a reference on credit reports as bankcards. Not only are they easier to obtain, but the credit limits are low, and the “high credit” (the most you have ever charged) are low. Furthermore, you can use them only at the issuing store. Nevertheless, a timely paid department store card can help you develop a good credit history.

Disputing Errors In Your Credit File

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.

ECOA Designation Codes

The Equal Credit Opportunity Act (ECOA) requires creditors who report information about accounts to report it in the names of all people with a relationship to the account, including cosigners or authorized users. To help lenders identify your legal liability on all your credit accounts, credit bureaus add a code to each account, termed the ECOA code.

Each credit bureau lists ECOA codes differently, but these are the basic categories:

  • Individual: You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history.
  • Joint: You and someone else – often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history.
  • Co-signer, secondarily liable: You signed loan documents for someone else to help them qualify for a loan.
  • Co-signer, primarily liable: You took out an account for yourself, but someone else co-signed for the loan to ensure payment.
  • Authorized user: You can use the account and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history.
  • Undesignated: No status was reported by the creditor reporting the account information.

Fair Credit Reporting Act (FCRA)

This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The Fair Credit Reporting Act gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.

The Fair and Accurate Credit Transactions Act of 2003 (FACT or FACT Act)

The Fair and Accurate Credit Transactions Act of 2003 (FACT or FACT Act) and is an amendment to the Fair Credit Reporting Act of 1970 and went into effect in December 2003. It was amended most recently in 2010 to include the provisions of the Consumer Financial Protection Act of 2010 (CFPA), which became effective on July 21, 2011, and the Red Flag Program Clarification Act of 2010.

Consumers can now request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). In addition, the act also contains provisions relating to identity theft and fraud alerts, truncated credit and debit card numbers on non-manual receipts, and securely disposing of records containing consumer credit card information.

Finance Company Credit Cards

Many systems actually score against people with one or more finance company accounts on their credit reports, since it appears to them that you had a hard time getting credit from traditional sources.

There is a difference between “captive” finance tradelines and “regular” finance trade-lines. Captive finance tradelines are offered through auto financing sources such as GMAC or Ford Credit and are generally not considered negative.

Fraud

“Application fraud” is when a thief uses your credit information to apply for credit in your name. Wrongdoers use your name, Social Security number, address and, perhaps, credit references to apply for credit. They can get much of this information from public sources (e.g., Who’s Who Directories), from someone who has access to credit files (e.g., employees of car dealerships, department stores, or credit bureaus), from personal checks, or from stolen wallets. Credit thieves may be aided by “credit doctors” who are paid hundreds of dollars for finding a good credit record for the thief to use.

Another form of application fraud involves the interception of pre-approved credit card offers in the mail. The thief fills out the application and either changes the address or steals the credit card out of your mailbox when it arrives at your address.

You won’t find out about application fraud until months after it occurs-usually only after you get dunning notices from collection agencies, or when you get a copy of your credit report and see the debts run up by the thief.

Tip: If you find a bill that you do not believe belongs to you on your credit report, check it out immediately. First, contact the creditor to find out if they have an account in your name. Ask to see a copy of the original application if they say you do.

Income/Income Per Dependent

Be sure to list gross (before tax), not net (after tax), income on your loan application, unless the application asks for net income. Include income from a part-time job, public assistance or child support. The lender cannot discriminate against individuals with these sources of income in scoring an application. A creditor is permitted to determine whether that source of income is reliable.

Some banks may approve loans for incomes as low as $10,000 per year. Others require higher income for some loans. Some banks will divide your income by the number of your dependents to determine your “income per dependent.” If so, the application will ask how many dependents you have.

Inquiries

Inquiries, which appear at the end of your credit report, tell you who has seen it recently. They are very important when you apply for credit. Lenders almost always look at how many inquiries you have when evaluating your application. Consumers with “too many inquiries” are often turned down, due to a concern that they are applying for too much credit at one time, that they are on a spending spree, or that there is potential fraud.

Generally, a bankcard issuer wants no more than six inquiries in the past six months on an applicant’s file. However, there is no set number for excessive inquiries, and every lender sets its own policy.

Tip: Apply only for credit you really want, and wait for a response on each application before applying elsewhere.

Lenders generally do not look at the sources of inquiries in counting them against the applicant. Thus, if you are applying for a car loan, you may think that only inquiries from car dealers will count against you, but in actuality all inquiries reported by credit bureaus are counted. If you have been shopping for a car loan and have several inquiries from auto dealers on your file, those inquiries could hurt your chances of getting a credit card. Or, if you have been trying to get a mortgage, you could find yourself unable to get a major credit card for several months because your credit report lists a number of inquiries from mortgage lenders

Tip: Auto dealers often look at customers’ credit files without their knowledge or permission. If you go to a dealership to test drive a car, the salesperson will often pull up your credit file, and use the information in deciding how to “sell” you. It is important to tell the salesperson that you do not want your credit file accessed unless you give permission.

The consumer credit laws do not cover inquiries, so once they are on your file there is nothing you can do to have them removed. It is always worth trying to challenge inquiries with the credit bureau, but be aware that many credit bureaus refuse to investigate them. If you have too many inquiries, you may simply have to wait six months before applying for more credit. Inquiries generally stay on credit reports for two years.

Some credit bureaus list inquiries by code, rather than by the name of the company. The Fair Credit Reporting Act requires that a credit bureau explains all information on your report that you do not understand, so request names for all the coded companies listed under the inquiries section.

If an inquiry is coded “PRM” or “PSC,” or has the word “promotional” next to it, then a lender has paid the credit bureau to screen suitable prospects for a “pre-approved” mailing. The lender supplies the bureau with a list of names and addresses and a set of credit criteria and asks the bureau to determine which candidates meet their criteria. The lender then receives from the credit bureau a list of the names that meet the qualifications, and those consumers receive a “pre-screened” or “pre-approved” credit offer.

Inquiries noted as “csmr” or “consumer” indicate you have seen your own credit file.

It is the policy of the major credit bureaus not to include promotional or consumer inquiries when transmitting the file to a lender, so review of your own file or pre-screening will not hurt your chances of getting credit.

Joint Accounts

Joint accounts are those in which two or more people-usually spouses or members of a family have equal responsibility for paying the bills. A joint account helps each person on the account build a credit history, but also has its pitfalls. If one person on a joint account does not pay the bills on time (and that payment history is reported to a credit bureau), the other party will likely find his or her credit history damaged.

Joint accounts can be a problem in a divorce. Responsibility for paying off joint accounts is often assigned in the divorce decree or agreement. But regardless of how the judge allocates those bills, both spouses are legally responsible in the eyes of creditors.

If any joint accounts remain open during or after the divorce and one spouse runs up bills and doesn’t pay them, both spouses’ credit histories will be harmed, since both are legally liable under the credit contract (spelled out in the card agreement or other papers). In addition, creditors have the right to try to collect from either spouse.

Tip: Close out all joint accounts as soon as possible after you know a divorce will occur. Do not wait for a final decree.

Late Payments

Recent late payments – within the past six months or one year – are especially damaging to your credit record. Just one payment more than thirty days late in the past year can hurt your chances of getting credit. Late payments on bankcard accounts are usually the most damaging since bankcards are such an important reference.

Tip: Be sure to get the minimum payment in the mail on time each month. As far as your payment rating (R-l, R-2 or I-l, I-2, etc.), it makes no difference whether your monthly payment is the minimum or a large payment. Just the minimum on time will keep your rating in good shape.

There’s one exception: If you are near your credit limits on most or all of your accounts, you may be considered a poor credit risk whether or not you pay on time. See the section on “Credit Limits for further discussion.

Length Of Credit History

Many people with no credit history find it nearly impossible to get a major credit card or, to a lesser extent, other credit. Scoring systems are not designed with the first-time credit user in mind.

Bankcard issuers generally want to see at least a year’s worth of timely payments on other accounts before issuing a card.

If you do not have a credit record, you may have to smart small. You may want to start by getting a gasoline card. Chevron reports payments to the credit bureau monthly, while most other oil company cards do not. And get a few department store cards.

Your best option for establishing a positive credit history may be a secured Visa or MasterCard. These credit cards are offered through bankcard issuers who have customers put up several hundred dollars in collateral in exchange for a card with a small credit limit. As you use the card, your bill-paying behavior is reported to a credit bureau and your credit history improves.

Military Service People

Those in the military may find it difficult to get credit because they have a low income, move frequently, or do not have sufficient credit history. In addition, the fact that their wages cannot be garnished makes some creditors hesitate.

Tip: One of the main reasons people in the military cannot get credit cards is the fraud associated with APO boxes. If you are in the military, live overseas, and are applying for a credit card, list your stateside address, your parents’ address, or a P.O. box, instead of an APO.

If you are having trouble getting a credit card because of a lack of credit history, you may want to try a secured credit card.

Mortgages

Most mortgages that are 90 days or more delinquent must now be reported to credit bureaus. Some mortgage companies elect to report all mortgages to credit bureaus. This policy is a plus for homeowners since a mortgage can be a sign of stability to a lender.

Tip: Never pay your mortgage late. If your mortgage has a grace period (e.g., “Payment due January 1. After January 10, late charges will be assessed.”), do not take this to mean you can pay between January 1 and January 10. If you pay after the first due date, your payment will probably be considered late, and the late payment will appear on your credit report.

Name/Alias

If you have a common name, or are a Jr. or Sr., you may find other people’s information on your credit report. The credit bureaus say that there is not much they can do to prevent this mistake from occurring, so if you find this to be a problem, monitor your credit report carefully. Certainly, you should check it before you apply for a major loan or mortgage.

An alias is another name for you on your credit report. It may be another name under which you have applied for credit (a nickname, or a variation of your name, for example) or it may be a name of someone else. It is possible, if an alias appears on your credit report, that actual fraud was involved. Someone else may have applied for credit using your qualifications and the name they used may have been entered as an alias.

If you find an alias on your credit report, and it does not belong to you, contact the credit bureau immediately to have it removed.

Negative Information

Negative information on a credit report is any information that may cause you to be turned down for credit or reduce your chances for loan approval. Negative information includes late payments, legal judgments, collection accounts, liens, and charge-offs.

There is no way to remove negative information that is correct. If you paid any accounts that were charged-off, sent to collections, or for which the lender obtained a judgment against you, make sure these accounts are noted as paid. If any of these accounts remains unpaid, you are almost certain to be rejected for other loans. An unpaid collection account or judgment sends up a red flag to other creditors that the company to whom you owe the money could take further legal action against you, endangering your ability to pay other bills. Please see the section on “Collection Accounts” for further information.

Do not be taken in by companies that, for a fee, offer to “fix bad credit” or “remove negative information” from credit reports. If it is possible to fix your bad credit, you can do it yourself, as long as you have the right information. You do not need to pay a fee to one of these companies to fix your credit problems.

Number Of Credit Accounts

Creditors want to see that you are able to handle credit over a period of time, and good credit references on your credit report help prove this ability. However, do not carry too much credit. Generally, if you have four or more bankcards, you are risking being turned down for “too many bankcards.”

Over The Limit

Going over the limit on your credit cards will often count against you.

Payments

It does not matter if you pay your balance in full each month or just make minimum payments, as far as your payment rating is concerned, as long as you make at least your minimum monthly payment on time each month.

While making only the minimum payments does not affect your payment record, you may have trouble getting credit if you are carrying high balances on most of your accounts.

Previous Company Experience

Having had a previous loan with the lender to which you are applying can improve your chances of getting another loan there.

Recent Loans

Just as creditors do not want to see too many recent inquiries on a credit file, they do not want to see a number of recently opened loans, especially if you are new to credit.

Revolving Credit

Revolving credit means a line of credit. You are approved to borrow up to a certain limit, and you can draw upon all or part of that credit line whenever you choose. Your payments vary depending on the amount you have borrowed.

Installment credit is a fixed amount of credit you borrow and agree to pay back on a fixed schedule. Your payments are the same each month.

Revolving credit is a better reference than installment credit because applications for revolving credit are often scrutinized more carefully.

Putting An Explanation In Your Credit File

The Fair Credit Reporting Act states that if you dispute information on your credit file that you believe to be inaccurate or incomplete, you can ask the credit bureau to investigate the problem. If the credit bureau’s investigation does not resolve the dispute, you can file a brief statement explaining the nature of the dispute. Your statement becomes a permanent part of your file and will remain on the report as long as the negative information is reported. The credit bureau may limit your statement to one hundred words or less, but must help you summarize it if you ask them to do so.

Some credit bureaus also allow you to add a statement to your file explaining circumstances that led to the reporting of negative information to your file. For instance, if you fell behind on your bills for several months due to illness or a job lay-off, you may be able to add a short 100-word statement explaining the problem. If you do add a statement to your file, make it brief and factual. In general, if you provide a consumer statement that contains medical information related to service providers or medical procedures, then you expressly consent to include this information in every credit report issued for you.

Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information while others just cause more confusion.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

It is vital that you understand every piece of information on your credit report in order that you be able to identify possible errors or omissions.

Government and Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions and may be a good resource in the event you believe that there is incorrect information on your credit report. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that particular credit card issuer.

  • State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551

  • National Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Federal Credit Unions:

National Credit Union Administration
1775 Duke St #4206
Alexandria, VA 22314-6115

  • Non-Member Federally Insured Banks:

Federal Deposit Insurance Corporation
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

  • Federally Insured Savings and Loans, and Federally Chartered State Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Other Credit Card Issuers (includes retail gasoline companies):

Bureau of Consumer Protection
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580

  • The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Criminal Investigations Service Center
Attn: Mail Fraud
222 S. Riverside Plaza Ste. 1250
Chicago Il 60606-6100
Tel. 877-876-2455

  • The Federal Trade Commission:

Does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Tel. (202) 326-2222

  • National Do Not Call Registry:

If you wish to have your name removed from telephone lists of marketing companies.

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

  • Direct Marketing Mail Opt-Out:

Consumers who do not wish to receive promotional mail at home

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

  • Low or No-Cost Credit Cards:

Bankrate.com lists banks charging no fees and low interest rates for credit cards. Visit the website: www.bankrate.com

Many merchants engraft their own rules to your use of a credit card, usually without the right to do so. What are you required to do and what can you rightfully refuse to do? The Financial Guide explains your rights.

Do sales clerks ask you to write your phone number or address on a credit card slip? Have you been told that “store policy” requires a $25 minimum for credit card use? Have you been charged an extra 3 percent just for using a major credit card? When you pay by personal check, does the clerk ask for two forms of identification and then write your credit card number on your check?

These practices violate your privacy, expose you to potential credit fraud and may be illegal in some cases. We will tell you how to say “no” to a merchant who engages in these impermissible credit card practices:

  • Writes your personal information on a bank credit card sales slip
  • Imposes a minimum sales amount for credit card purchases
  • Charges extra for payment by credit card
  • Writes your credit card number on your personal check

Personal Information

Merchants may ask you to provide a phone number, home address, or other personal information on credit card sales slips. This practice not only violates your privacy, but American Express, MasterCard, and Visa prohibit requiring it as a condition of sale.

There is no need for merchants to obtain phone numbers or other personal information from customers. Once they have correctly processed the bank card transaction (gotten an authorization number and made sure the signatures match), they are guaranteed to receive payment.

Tip: If you don’t want to provide personal information on a credit card sales slip, you can refuse to do so. The merchant has no right to refuse you the sale (although unknowledgeable clerks may have no authority to vary from store policy).

Further, if you refuse to present identification, such as a driver’s license, the merchant may not refuse to make a credit card sale under Visa, MasterCard, and Amex rules.

Tip: If you exceed your credit limit, the card-issuing bank absorbs the loss, so there is no need for the merchant to contact you. Thus, there’s no reason to provide your personal information.

Minimum Charge Requirements

Some stores require consumers to spend at least $20 (or some other minimum) to pay for purchases by credit card. They engage in this practice because they and their banks do not want the expense of processing a credit card transaction involving a small amount of money.

This practice defeats one of the major purposes of credit cards-convenience-and may force credit card users to spend more than they want to. In addition, minimum charge requirements vary from merchant to merchant, and there are no regulations requiring disclosure of these minimum purchase levels.

Visa’s and MasterCard’s regulations prohibit minimum charge amounts. American Express’s regulations do not explicitly prohibit minimum charges, but its policy is to discourage any merchant practices that create a “barrier to acceptance.” Amex does prohibit “discrimination” against the Amex card, however, so if a merchant has no minimum charge for Visa and MasterCard, the merchant may not discriminate against Amex by imposing a minimum charge.

Tip: If a store requires a minimum purchase for Visa or MasterCard, point out to the store manager that the practice is prohibited by the card companies.

Extra Charge For Using A Credit Card

Some merchants seek to impose a service fee for all credit card purchases.

When a merchant gives a credit card slip to the credit card company or bank for processing, a percentage of each purchase-usually 1.5 to 5 percent of the purchase amount is deducted. This “merchant discount fee” helps pay for the bank’s services and for the credit card system. By charging extra for credit card use, the merchant passes the discount fee on to customers.

Visa and MasterCard prohibit surcharges, and American Express discourages them. Amex does prohibit “discrimination” against the Amex card, however, so if a merchant accepts Visa and MasterCard (and cannot impose a surcharge under those companies’ rules), the merchant may not discriminate against Amex by imposing a surcharge.

Tip: Any merchant that accepts American Express cards and also accepts Visa and/or MasterCard may not charge consumers a surcharge on Amex purchases.

Surcharges invite numerous abuses by retailers, including bait-and-switch tactics. There are no laws on how and when surcharges must be disclosed, making it difficult to figure out the total price of an item. Travelers often find it difficult to get out-of-state checks accepted, and should not be penalized for using credit cards. Further, credit card acceptance usually produces higher sales for merchants, offsetting the cost of processing credit card transactions.

Note that a cash discount is legal and permitted under all credit card companies rules. A cash discount offers a lower price for cash than credit; for example, many gasoline stations offer cash discounts. While this may merely be a loophole, it is permitted. In addition, there are a few state governmental agencies, including state tax offices and motor vehicle departments that are permitted to charge surcharges due to state laws that do not permit them to pay discount fees. However, retail merchants may not impose surcharges.

ID When Paying By Check

Merchants often ask for two forms of identification before accepting a personal check as payment for a purchase: a driver’s license and a major credit card. Merchants also believe consumers with credit cards are less likely to bounce checks. This is a misconception: nearly 90 percent of all bounced checks result from arithmetic error, not fraud.

When merchants write your credit card number on your personal check, they are subjecting you to possible fraud.

  • Anyone who sees the check sees your name, address, telephone number, and credit card number.
  • Further, several states use an individual’s Social Security number as the only identifying number on a driver’s license. Once a thief has your Social Security number, along with the other information on the check, he or she can get your credit report, and even apply for credit in your name.
  • Someone can use your credit card number to order merchandise by phone or through the mail by requesting the merchandise be sent to a post office box or an address other than your own.
  • Someone might use your personal information to apply for credit in your name, then run up bills on your account without paying them, of course. People who are victims of so-called application fraud do not find out until months or even years later when they begin receiving letters from creditors, by which time the damage has been done to their credit histories.

Although Visa, MasterCard and American Express do not have the authority to prohibit the practice of writing credit card numbers on checks, the three card companies do prohibit merchants from charging a credit card account to cover a bounced check.

Tip: If a merchant asks for your credit card number, ask why he or she needs to record it, since, due to the above prohibition, nothing can be done with it.

Tip: There is probably no harm in allowing a merchant to see that you carry a major credit card, and even to note on the check whether it is Visa, MasterCard, or American Express. For your own safety, this is the only credit card-related information you should allow to be recorded. You should not allow the merchant to record the credit card number.

If the sale is refused, ask to speak with the store manager. Explain the risks of fraud, and point out that the rules of the three major credit card companies prohibit charging a credit card to cover a bounced check. You might also point out that, if there is a problem, merchants usually have all the information they need to locate the customer written right on the check: name, address, phone number and driver’s license number. Also, merchants will not be able to use the credit card number to locate the consumer.

Many store clerks are simply unaware of the potential crimes associated with the use of personal information written on checks.

Cards Other Than The “Big Three”

Other cards may not provide cardholders with any of the protections described above. However, purchases made with other cards are covered in all states that have laws prohibiting the practices described here.

Tip: Cardholders who experience the practices discussed here should complain to store managers and encourage the card company to change its policies.

How To Complain

When merchants violate the policies described here, report them to Visa, MasterCard, and American Express.

  • Visa USA
    Consumer Relations
    P.O. Box 8999
    San Francisco, CA 94128
    +1-800-VISA-911 (customer assistance)
  • MasterCard Worldwide
    Public Relations
    2000 Purchase Street
    Purchase, NY 10577
    Call collect from anywhere globally: +1-636-722-7111 or toll-free from the United States: +1-800-627-8372 (+1 800 MASTERCARD)
  • American Express
    Customer Service
    PO Box 297812
    Ft. Lauderdale, FL 33329-7812
    1-800-528-4800 (US) or 1-336-393-1111 (International Collect)

In your letter, give the name and location of the merchant and a copy of a credit card sales slip. The sales slip is needed by Visa and MasterCard to track down the offending merchant. American Express provides cardmembers with a toll-free number to call if they have difficulty with a merchant. Make sure you have the complete details about the merchant and the problem before you call.

If a merchant is uncooperative, take your business elsewhere.

States That Prohibit Recording Of Personal Information

The following states prohibit merchants from recording certain personal information in connection with credit card transactions:

  • California
  • Delaware
  • Georgia
  • Kansas
  • Maryland
  • Massachusetts
  • Minnesota
  • Nevada
  • New Jersey
  • New York
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Washington, DC
  • Wisconsin

States That Prohibit Credit Card Surcharges

The following states prohibit merchants from adding surcharges to credit card transactions

  • California
  • Colorado
  • Connecticut
  • Florida
  • Kansas
  • Maine
  • Massachusetts
  • New York
  • Oklahoma
  • Texas

States That Prohibit Recording A Credit Card Number On A Check

The following states prohibit merchants from recording your credit card number on your check:

  • California
  • Delaware
  • Florida
  • Georgia
  • Illinois
  • Iowa
  • Kansas
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Nevada
  • New Hampshire
  • New Jersey
  • New York
  • North Dakota
  • Ohio
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Tennessee
  • Virginia
  • Washington, DC
  • Washington
  • Wisconsin

Government and Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

  • State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551

  • National Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Federal Credit Unions:

National Credit Union Administration
1775 Duke St # 4206
Alexandria, VA 22314-6115

  • Non-Member Federally Insured Banks:

Federal Deposit Insurance Corporation
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

  • Federally Insured Savings and Loans, and Federally Chartered State Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Other Credit Card Issuers (includes retail gasoline companies):

Bureau of Consumer Protection
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580

  • The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Criminal Investigations Service Center
Attn: Mail Fraud
222 S. Riverside Plaza Ste. 1250
Chicago IL 60606-6100
Tel. 877-876-2455

  • The Federal Trade Commission:

Does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Tel. (202) 326-2222

  • National Do Not Call Registry:

If you wish to have your name removed from telephone lists of marketing companies.

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

  • Direct Marketing Mail Opt-Out:

Consumers who do not wish to receive promotional mail at home

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

  • Low or No-Cost Credit Cards:

Bankrate.com lists banks charging no fees and low interest rates for credit cards. Visit the website: www.bankrate.com

Federal law grants consumers several rights relating to their credit card transactions, against the card companies and in the case of a dispute with a merchant. This Financial Guide discusses these important rights in depth.

You have numerous rights related to your use of a credit card. These include (1) prompt credit for payment, (2) refunds of credit balances, (3) resolution of errors, (4) removal of unauthorized charges, (5) resolution of disputes, (6) prompt shipment, (7) refusal of delivery, (8) withholding of payment in case of dispute, (9) protection against offensive junk mail/junk calls.

Prompt Credit For Payment

A card issuer must credit your account on the day it receives your payment, unless the payment is not made according to the creditor’s requirements or the delay in crediting to your account does not result in a charge.

Tip: To avoid delays that could result in finance charges, follow the card issuer’s instructions about where to send payments. Payments sent to other locations could delay getting credit for your payment for up to five days. If you lose your payment envelope, look on the billing statement for the address for payments or call the card issuer.

Refunds Of Credit Balances

When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund (if the amount exceeds $1.00). To obtain a refund, write the card issuer. The card issuer must send you the refund within seven business days of receiving your request.

Resolution Of Errors

The Fair Credit Billing Act provides specific rules that the card issuer must follow for promptly correcting billing errors. The card issuer will give you a statement describing these rules when you open the credit card account and, after that, at least once a year. Many card issuers print a summary of your rights on each bill they send you.

Billing errors include:

  • a charge for something you didn’t buy
  • a purchase by someone not authorized to use your card
  • an amount on your bill that is different from the actual amount you paid
  • a charge for something that you did not accept on delivery
  • a charge for something that was not delivered according to the agreement
  • arithmetic errors
  • payments not credited to your account

When you find an error you must notify the card issuer in writing within 60 days after the first bill containing the error was mailed to you. Some companies may accept e-mail; others will require that you put your dispute in writing. Be sure to include your name and account number, a description of the billing error and the date and amount of the charge you dispute.

During the period that the card issuer is investigating the error, you do not have to pay the amount in question. For further information visit Consumer Information.

Removal Of Unauthorized Charges

Under the Truth in Lending Act, if your credit card is used without your authorization, you are only held liable for up to $50 per card. If you report the loss before the card is used, federal law says the card issuer cannot hold you responsible for any unauthorized charges.

If a thief uses your card before you report it missing, the most you will owe for unauthorized charges is $50. This is true even if a thief is able to use your credit card at an automated teller machine (ATM) to access your credit card account.

To minimize your liability, report the loss of your card as soon as possible. Most companies have toll-free numbers printed on their statements and 24-hour service to report lost or stolen cards.

Resolution Of Disputes

If you have a problem with merchandise or services that you charged to a credit card, and you have made a good faith effort to work out the problem with the seller, you have the right to withhold from the card issuer payment for the merchandise or services. Check with your credit card company regarding their policies.

If you do not achieve satisfaction through the seller or credit card company, you can file a small claims court action-an informal legal proceeding that can be used to settle disputes. Check your local telephone book under your municipal, county, or state government headings for small claims court listings.

In addition, you have the following rights:

You have the right to have mail and phone order purchases shipped when promised, or to cancel for a full and prompt refund. If no shipping date is stated, your right to cancel begins 30 days after your order and payment are received by the merchant. If you cancel, the seller has one billing cycle to tell the card issuer to credit your account.

There are two exceptions to the 30-day shipment rule: (1) If a company doesn’t promise a shipping time, and you are applying for credit to pay for your purchase, the company has 50 days after receiving your order to ship. (2) Spaced deliveries, such as magazine subscriptions (except for first shipment); items that continue until you cancel (e.g. book or record clubs, etc.); C.O.D. (cash on delivery) orders; services; and seeds or growing plants are not covered.

You have the right to a full refund–because of shipping delay–within seven working days (or one billing cycle) after the seller receives your request to cancel.

You may refuse a delivery of damaged or spoiled items.

Tip: If there is obvious damage to a package you receive in the mail, and if you decide not to accept the package, write “REFUSED” on the wrapper (at time of delivery) and return it unopened to the seller. No new postage is needed, unless the package came by insured, registered, certified or C.O.D. mail and you signed for it.

Tip: If you are ordering something to be delivered by C.O.D., make your check out to the seller, not the post office. That way, you may contact your bank and stop the check if there is an immediate problem with merchandise.

When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund (if the amount exceeds $1.00). To obtain a refund, write the card issuer. The card issuer must send you the refund within seven business days of receiving your request.

Prompt Shipment

You have the right to have mail and phone order purchases shipped when promised, or to cancel for a full and prompt refund. If no shipping date is stated, your right to cancel begins 30 days after your order and payment are received by the merchant. You can choose to wait longer for your order, or cancel and get a prompt refund. If you cancel, and your order was paid by charge or credit card, the seller has one billing cycle to tell the card issuer to credit your account.

There are two exceptions to the 30-day shipment rule: (1) If a company doesn’t promise a shipping time, and you are applying for credit to pay for your purchase, the company has 50 days after receiving your order to ship. (2) Spaced deliveries, such as magazine subscriptions (except for first shipment); items which continue until you cancel (e.g. book or record clubs, etc.); C.O.D. (cash on delivery) orders; services; and seeds or growing plants are not covered.

You have the right to a full refund-because of shipping delay-within seven working days (or one billing cycle) after the seller receives your request to cancel.

Refusal Of Delivery

You may refuse a delivery of damaged or spoiled items.

Withholding Of Payment In Case Of Dispute

You need not pay a disputed amount while your dispute is being reviewed by the card issuer.

If you receive something C.O.D., you have the right to stop payment on a check made out to a seller, but not one made out to the Post Office, if there is something wrong with the order.

Tip: If you are ordering something to be delivered by C.O.D., make your check out to the seller, not the post office. That way, you may contact your bank and stop the check if there is an immediate problem with merchandise.

Protection Against Offensive Junk Mail/Junk Calls

You have the right to tell commercial telephone and direct mail marketers to stop calling you. If you wish to have your name removed from telephone lists of marketing companies contact the federal Do Not Call Registry:

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

Consumers who do not wish to receive promotional mail at home should contact:

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

If companies you now do business with also removes your name, you can contact them directly to have your name reinstated. If the marketer violates the do-not-call list, the first step is to file a complaint with the FTC (Federal Trade Commission). You can also file a lawsuit against the telemarketer, but only if there is a “pattern and practice” of violations. You also have to have suffered actual damages of more than $50,000 and be able to prove both of these things.

Tip: If you receive unordered merchandise in the mail, consider it a gift and don’t feel pressure to pay for it.

Government and Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

  • State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551

  • National Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Federal Credit Unions:

National Credit Union Administration
1775 Duke St # 4206
Alexandria, VA 22314-6115

  • Non-Member Federally Insured Banks:

Federal Deposit Insurance Corporation
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

  • Federally Insured Savings and Loans, and Federally Chartered State Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Other Credit Card Issuers (includes retail gasoline companies):

Bureau of Consumer Protection
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580

  • The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Criminal Investigations Service Center
Attn: Mail Fraud
222 S. Riverside Plaza Ste. 1250
Chicago Il 60606-6100
Tel. 877-876-2455

  • The Federal Trade Commission:

Does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Tel. (202) 326-2222

  • National Do Not Call Registry:

If you wish to have your name removed from telephone lists of marketing companies.

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

  • Direct Marketing Mail Opt-Out:

Consumers who do not wish to receive promotional mail at home

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

  • Low or No-Cost Credit Cards:

Bankrate.com lists banks charging no fees and low interest rates for credit cards. Visit the website: www.bankrate.com

If, like thousands of others, you are having trouble paying your debts, it is important to take action. Doing nothing can lead to much larger problems in the future-even bigger debts, such as the loss of assets such as your house, and a bad credit record. This Financial Guide suggests how you can help improve your relationships with creditors, reduce your debts, better manage your money and get a fresh start.

How can you tell when you have too much debt? What if bill collectors are not calling yet, but you are having difficulty paying monthly bills? If these problems seem familiar, you should take action.

  • Have you run several credit cards up to the limit?
  • Do you frequently make only the minimum monthly payments on your credit cards?
  • Do you apply for almost any credit card you are offered-without checking out the terms?
  • Have you used the cash advance feature from one card to pay the minimum payment on another?
  • Do you use cash advances (or use a credit card) for living expenses such as food, rent, or utilities?
  • Are you unaware of what your total debt is?
  • Are you unaware of how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you are paying?

If you find any of these statements apply to you, you may need to learn more about managing debt before you try to reestablish credit.

Getting Started

Here are some specific steps you can take if you are in financial trouble:

1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

2. Contact your creditors. Let your creditors know that you are having difficulty making your payments. Tell them why you are having trouble–perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

Tip: Most automobile financing agreements permit your creditor to repossess your car any time you are in default, with no advance notice. If your car is repossessed you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. Do not wait until you are in default. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.

3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.

Tip: Try self-budgeting before taking more extreme measures.

4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.

5. Pay down debts using savings. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense.

Tip: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.

6. Find out if you are eligible for social services. Government assistance includes unemployment compensation, Temporary Assistance for Needy Families (TANF) formerly Aid to Families with Dependent Children (AFDC), food stamps, now known as Supplemental Nutrition Assistance Program (SNAP), low-income energy assistance, Medicaid, and Social Security (including disability). Other resources may be available from churches and community groups.

7. Try to consolidate your debts. There are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage.

Caution: Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

Caution: Second mortgages greatly increase the risk that you may lose your home.

8. Prepare a financial plan. A financial plan can alleviate financial worries about the future and ensure that you will meet your financial goals whether they relate to retirement, asset acquisition, education, or just vacations.

Credit Counseling Agencies

If you are unable to make satisfactory arrangements with your creditors, there are organizations to help you accomplish this. For instance, National Foundation for Consumer Credit (NFCC) member agencies provide education and counseling to families and individuals. For consumers who want individual help, counselors with professional backgrounds in money management and counseling are available to provide support.

To promote high standards, the NFCC has developed a certification program for these counselors known as Certified Consumer Credit Counselors (CCCS). A counselor will work with you to develop a budget to maintain your basic living expenses and outline options for addressing your total financial situation.

If creditors are pressing you, a CCCS counselor can also negotiate with these creditors to repay your debts through a financial management plan. Under this plan, creditors often agree to reduce payments or drop interest and finance charges and waive late fees and over-the-limit fees. After starting the plan, you will deposit money with CCCS each month to cover these new negotiated payment amounts. Then CCCS will distribute this money to your creditors to repay your debts.

With more than 1,100 locations nationwide, CCCS agencies are available to nearly all consumers. Supported mainly by contributions from community organizations, financial institutions, and merchants, CCCS provides services free or at a low cost to individuals seeking help. To contact a CCCS office for confidential help call 1 (800) 388-2227, 24 hours a day, for an office near you or visit their website: NFCC

Personal Bankruptcy

Bankruptcy is a legal proceeding that is intended to give people who cannot pay their bills a fresh start.

Tip: A decision to file for bankruptcy is a serious step, which should be taken only if it is the best way to deal with financial problems.

There are two types of bankruptcy available to most individuals:

  • Chapter 13 bankruptcy allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car. Reorganizations may allow debtors to pay off or cure a default over a period of three to five years, rather than surrender property.
  • Chapter 7 or “straight bankruptcy” involves liquidation of all assets that are not exempt in your state. The exempt property may include items such as work-related tools and basic household furnishings, among others. Some of your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every eight years.

Both types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property), and stop foreclosures, repossessions, garnishments, utility shut-offs and debt collection activities. Both types also provide exemptions that permit most individual debtors to keep most of their assets, though these “exemption” amounts vary greatly from state to state.

Bankruptcy cannot clean up a bad credit record and will be part of this record for up to ten years. Thus, filing bankruptcy will make it more difficult to get a mortgage to buy a house. It usually does not wipe out child support, alimony, fines, taxes, and some student loan obligations. Also, under Chapter 13, unless you have an acceptable plan to catch up on your debt, bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it. Bankruptcy cases must be filed in federal court.

Tip: Be cautious when choosing a bankruptcy lawyer. Some of the less reputable lawyers make easy money by handling hundreds of bankruptcy cases without adequately considering individual needs and alternative solutions. Get recommendations from people you know and trust, and from employee assistance programs.

Some public-funded legal services programs handle bankruptcy cases without charging attorney fees. Or these programs may provide referrals to private bankruptcy lawyers. Keep in mind that the fees of these attorneys may vary widely.

Scams And Pitfalls

Consumers with credit problems have paid millions of dollars to firms that claim they can remove negative information, clean up credit reports, and allow consumers to get credit no matter how bad the credit history.

These credit repair clinics charge consumers anywhere from $50 to $2,000 and often use questionable methods. Most clinics make misleading promises to consumers, and charge high fees for doing what you could do yourself–or simply take your money and do nothing at all.

Tip: Do not confuse the for-profit credit repair clinics discussed here with the non-profit Consumer Credit Counseling Services (CCCS) we discussed before.

Here are some common promises made by credit clinics and the reasons consumers should beware of such claims:

“Based on little-known loopholes in Federal credit laws, we can show you how to clean up your credit report!”

These “loopholes” are merely the provisions of the Fair Credit Reporting Act (FCRA), under which you have the right to challenge information in your credit report you believe incorrect. We discussed these provisions earlier in the section on “What To Do If You Have A Bad Credit Report.” Credit repair clinics often flood credit bureaus with requests to check whether or not all negative data is correct. Credit clinics hope creditors will not be able to verify the information in a reasonable time period, causing the negative information to have to be dropped under the FCRA. Some credit clinics even tell consumers to challenge neutral information (e.g., name and address), hoping to distort file data so that the old, negative file will no longer be identifiable when a creditor asks for a consumer’s file. Creditors and credit bureaus have become familiar with such tactics, and they have sought to use the provision of the FCRA that allows them to dismiss “frivolous” disputes of file information and to refuse to respond to repeated disputes of the same data.

“We can show you how to remove negative information from your file-including judgments.”

Some clinics tell consumers to pay off any bills outstanding with the creditor in exchange for removal of negative information. Or, they may tell a consumer who has an account in collections to pay part of the balance with a check. The check is to carry a disclaimer saying that, by cashing the check, the creditor agrees to remove the account from collections and remove any negative information about the account from its files. Creditors are under no obligation to agree to such measures, and the fees paid to clinics for such advice is wasted.

“We can get you a major credit card-even if you’ve been through bankruptcy!”

What you are not told is that you will have to “secure” the card first. Most credit cards are unsecured; that is, you are not pledging any of your assets as collateral for any credit you may use. A card is secured when a consumer puts a deposit in the bank and gets a bankcard with a credit limit based on a percentage of that deposit. While a secured card can be an excellent tool for rebuilding credit, why should you pay the credit clinic just to provide an application and deposit slip?

Often for-profit or non-credential counseling organizations make promises that they cannot or do not keep. Be especially careful when asked for a large sum of money in advance.

Tip: Several states have enacted laws to protect consumers against the deceptive practices of many credit clinics. These state laws generally require credit clinics to inform consumers of their rights under the FCRA; be bonded (hold a type of insurance to protect consumers who may sue) if they accept payment in advance of services; accurately represent what they can and cannot do; and offer a cancellation period before any contract for services the consumer may sign takes effect. Check with your state attorney general’s office to determine if there are any regulations for credit clinics in your state.

Tip: To check an organization’s reputation, contact your state Attorney General, consumer protection agency, or Better Business Bureau.

*   *   *   *

A Final Word: Don’t lose hope, even if you despair of ever recovering financially. You can regain financial health if you act responsibly. The options presented here can put you on the road to financial recovery. Professional financial guidance can get you off to the right start.

Government and Non-Profit Agencies

The following agencies are responsible for enforcing federal laws that govern credit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

  • State Member Banks of the Reserve System:

Consumer & Community Affairs
Board of Governors of the Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D.C. 20551

  • National Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Federal Credit Unions:

National Credit Union Administration
1775 Duke St # 4206
Alexandria, VA 22314-6115

  • Non-Member Federally Insured Banks:

Federal Deposit Insurance Corporation
Consumer Response Center
1100 Walnut St, Box #11
Kansas City, MO 64106

  • Federally Insured Savings and Loans, and Federally Chartered State Banks:

Comptroller of the Currency
Customer Assistance Group
1301 McKinney Street
Suite 3450
Houston, TX 77010
Tel. (800) 613-6743

  • Other Credit Card Issuers (includes retail gasoline companies):

Bureau of Consumer Protection
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580

  • The U.S. Postal Inspection Service:

This office covers mail fraud, sexually offensive materials, solicitations that look like government materials but are not. If you suspect such violations, contact your local Postmaster or Postal Inspector or:

Criminal Investigations Service Center
Attn: Mail Fraud
222 S. Riverside Plaza Ste 1250
Chicago Il 60606-6100
Tel. 877-876-2455

  • The Federal Trade Commission:

Does not handle individual complaints, but reporting failure to deliver, late delivery, unordered merchandise, misrepresentation or fraud helps uncover widespread abuses that the FTC might take action to stop.

Division of Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
Tel. (202) 326-2222

  • National Do Not Call Registry:

If you wish to have your name removed from telephone lists of marketing companies.

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

  • Direct Marketing Mail Opt-Out:

Consumers who do not wish to receive promotional mail at home

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

  • Low or No-Cost Credit Cards:

Bankrate.com lists banks charging no fees and low interest rates for credit cards. Visit the website: www.bankrate.com

Frequently Asked Questions

Which are the best credit cards?

Finding the best credit card is mostly a matter of comparison shopping, but before you accept a credit card offer, make sure you understand the card’s credit terms. For instance, what is the annual percentage rate? Is there a grace period? How much is the annual fee? Once you have the answers to these and other answers, then you can compare several cards at once and figure out which card meets your particular needs and which one offers you a better deal.

Tip: Figuring out which card is best for you is not always obvious because it really depends on how you plan to use the card. For example, if you plan to pay your bills in full each month, fees and the length of the grace period may be more important than the periodic and annual percentage rate. If you anticipate using your credit cards to pay for purchases over a period of time, then the annual percentage rate (APR) and the balance computation method are important terms to consider. In either case, keep in mind that your costs will be affected by whether or not there is a grace period.

When it comes to shopping around for a credit card there are a few terms you should know and understand. These include:

Annual percentage rate. The annual percentage rate or APR is a measure of the cost of credit expressed as a yearly rate.

Periodic rate. The card issuer also must disclose the periodic rate applied to your outstanding account balance to figure the finance charge for each billing period.

Variable rate. If the credit card you are considering has a variable rate feature, the card issuer must tell you that the rate may vary and how the rate is determined. You also must be told how much and how often your rate may change.

Grace period. The grace period allows you to avoid the finance charge by paying your current balance in full before the due date shown on your statement. Knowing whether a credit card plan gives you a grace period is especially important if you plan to pay your account in full each month. And, thanks to the Credit CARD Act of 2009, if the credit card has a grace period finance charges for the month cannot be assessed unless you receive the monthly statement 21 days before the financing charges begin.

If there is no grace period, the card issuer will impose a finance charge from the date you use your credit card or from the date each transaction is posted to your account.

Annual membership. Most credit card issuers used to charge annual membership fees, but this is no longer the case. There are plenty of cards out there with no annual or other participation fees. For those card issuers that do impose annual fees, they typically range from $18 to $95. The annual fee for an American Express Platinum Card is $450.

Other costs. A credit card also may involve other types of costs such as balance transfer fees and fees for cash advances, or late fees.

If someone steals my credit card, how much am I liable for?

Under the Truth in Lending Act, if your credit card is used without your authorization, you are only held liable for up to $50 per card. If you report the loss before the card is used, federal law says the card issuer cannot hold you responsible for any unauthorized charges.

If a thief uses your card before you report it missing, the most you will owe for unauthorized charges is $50. This is true even if a thief is able to use your credit card at an automated teller machine (ATM) to access your credit card account.

To minimize your liability, report the loss of your card as soon as possible. Most companies have toll-free numbers printed on their statements and 24-hour service to report lost or stolen cards.

Are rebate and rewards credit cards a good deal?

The use of rebate and rewards cards has grown rapidly. Costco for example sponsors a credit card (Costco Cash Rebate card) that give rebates on the cost of merchandise you buy with the card once you spend a certain amount. You usually get larger rebates on the sponsoring company’s products and lower rebates on other card charges. Credit card solicitations promise cash, frequent-flier miles or points that will buy everything from hotel rooms to gas.

Tip: You’ll get a good deal from a rebate card if you spend a lot, and if you pay your bill in full each month. If you carry a balance on the card, what you gain in rebates you will lose in the excessive interest charged by credit cards.

What is the difference between the average daily balance, adjusted balance and previous balance?

Average Daily Balance (including or excluding new purchases). The average daily balance method gives you credit for your payment from the day the card issuer receives it. To compute the balance due, the card issuer totals the beginning balance for each day in the billing period and deducts any payments credited to your account that day. New purchases may or may not be added to the balance, depending on the plan, but cash advances typically are added. The resulting daily balances are added up for the billing cycle and the total is then divided by the number of days in the billing period to arrive at the “average daily balance.” This is the most common method used by credit card issuers.

Adjusted Balance. This balance is computed by subtracting the payments you made and any credits you received during the present billing period from the balance you owed at the end of the previous billing period. New purchases that you made during the billing period are not included. Under the adjusted balance method, you have until the end of the billing cycle to pay part of your balance and you avoid the interest charges on that portion. Some creditors exclude prior, unpaid finance charges from the previous balance. The adjusted balance method usually is the most advantageous to card users.

Previous Balance. As the name suggests, this balance is simply the amount you owed at the end of the previous billing period. Payments, credits, or new purchases made during the current billing period are not taken into account. Some creditors also exclude unpaid finance charges in computing this balance.

What can I do if I am dissatisfied with a credit card purchase?

If you have a problem with merchandise or services that you charged to a credit card, and you have made a good faith effort to work out the problem with the seller, you have the right to withhold from the card issuer payment for the merchandise or services. Check with your credit card company regarding their policies.

If you do not achieve satisfaction through the seller or credit card company, you can file a small claims court action-an informal legal proceeding that can be used to settle disputes. Check your local telephone book under your municipal, county, or state government headings for small claims court listings.

In addition, you have the following rights:

You have the right to have mail and phone order purchases shipped when promised, or to cancel for a full and prompt refund. If no shipping date is stated, your right to cancel begins 30 days after your order and payment are received by the merchant. If you cancel, the seller has one billing cycle to tell the card issuer to credit your account.

There are two exceptions to the 30-day shipment rule: (1) If a company doesn’t promise a shipping time, and you are applying for credit to pay for your purchase, the company has 50 days after receiving your order to ship. (2) Spaced deliveries, such as magazine subscriptions (except for the first shipment); items that continue until you cancel (e.g. book or record clubs, etc.); C.O.D. (cash on delivery) orders; services; and seeds or growing plants are not covered.

You have the right to a full refund–because of shipping delay–within seven working days (or one billing cycle) after the seller receives your request to cancel.

You may refuse a delivery of damaged or spoiled items.

Tip: If there is obvious damage to a package you receive in the mail, and if you decide not to accept the package, write “REFUSED” on the wrapper (at time of delivery) and return it unopened to the seller. No new postage is needed, unless the package came by insured, registered, certified or C.O.D. mail and you signed for it.

Tip: If you are ordering something to be delivered by C.O.D., make your check out to the seller, not the post office. That way, you may contact your bank and stop the check if there is an immediate problem with merchandise.

When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund (if the amount exceeds $1.00). To obtain a refund, write the card issuer. The card issuer must send you the refund within seven business days of receiving your request.

What can I do if there is a mistake on my credit card bill?

The Fair Credit Billing Act provides specific rules that the card issuer must follow for promptly correcting billing errors. The card issuer will give you a statement describing these rules when you open the credit card account and, after that, at least once a year. Many card issuers print a summary of your rights on each bill they send you.

Billing errors include:

  • a charge for something you didn’t buy
  • a purchase by someone not authorized to use your card
  • an amount on your bill that is different from the actual amount you paid
  • a charge for something that you did not accept on delivery
  • a charge for something that was not delivered according to the agreement
  • arithmetic errors
  • payments not credited to your account

When you find an error you must notify the card issuer in writing within 60 days after the first bill containing the error was mailed to you. Some companies may accept e-mail; others will require that you put your dispute in writing. Be sure to include your name and account number, a description of the billing error and the date and amount of the charge you dispute.

The card issuer, in turn, must look into the problem and either correct the error or explain to you why the bill is correct. If there is an error, you will not have to pay interest charges on the disputed amount. Your account must be corrected. If there is no error, the credit card company must send you an explanation and a statement of what you owe.

During the period that the card issuer is investigating the error, you do not have to pay the amount in question. For further information visit Consumer Information.

How can I get the most benefit from my credit cards?

Here are some suggestions for the use of credit cards:

    1. Pay bills promptly to keep finance charges as low as possible.

Tip: Keep copies of sales slips and promptly compare charges when your bills arrive

    1. Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your cards are lost or stolen.
    2. Protect your credit cards and account numbers to prevent unauthorized use.

Tip: Draw a line through blank spaces above the total when you sign receipts. Rip up or retain carbons.

    1. Deal only with reliable firms. Check with your local consumer protection agency or the Better Business Bureau (BBB) closest to where the business is located. Study the advertising offer carefully and always ask the company about its refund and exchange policies as well as product warranties offered.

Tip: Pay by money order, check, charge or credit card so you have a record of your purchase.

  1. Never send cash. Keep the ad you responded to and a copy of the order form. If there is no order form, make your own notes with the company’s name, address, phone number, date, amount, the item you purchased, and any delivery date that may have been promised.
  2. Never give out your credit, debit, charge card or bank account numbers unless you’ve checked out the company or have done business with it before.

What restrictions and limitations can a merchant impose before accepting my credit card?

Some merchant practices violate your privacy and expose you to potential credit fraud, and are therefore illegal in many states.

To protect your privacy, say “no” to a merchant who engages in these impermissible credit card practices:

  • Writes your credit card number on your personal check
  • Writes your personal information on a bank credit card sales slip
  • Imposes a minimum sales amount for credit card purchases
  • Charges extra for payment by credit card.

Note: Giving a discount for cash payments is allowed.

How can I stop junk mail or telemarketing calls?

You have the right to tell commercial telephone and direct mail marketers to stop calling you. If you wish to have your name removed from telephone lists of marketing companies contact the federal Do Not Call Registry:

National Do Not Call Registry
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
website: www.donotcall.gov

Consumers who do not wish to receive promotional mail at home should contact:

Direct Marketing Association
1120 Avenue of the Americas
NY, NY New York, NY 10036-6700
Tel. 212.768.7277
website: www.DMAChoice.org

If companies you now do business with also removes your name, you can contact them directly to have your name reinstated. If the marketer violates the do-not-call list, the first step is to file a complaint with the FTC (Federal Trade Commission). You can also file a lawsuit against the telemarketer, but only if there is a “pattern and practice” of violations. You also have to have suffered actual damages of more than $50,000 and be able to prove both of these things.

Tip: If you receive unordered merchandise in the mail, consider it a gift and don’t feel pressure to pay for it.

How can I check my credit report?

Mistakes on credit reports occur more frequently than you might think. And whether those mistakes are there because they’re caused by stolen or unauthorized use of credit cards, other individuals with the same name, or a creditor reporting something in the wrong way, it’s important to check your credit report on a regular basis.

By law, and at your request, you are entitled to one free credit report from each of the three major credit bureaus listed below once every 12 months. To check your report or obtain a copy do not contact the three nationwide consumer reporting companies individually. Instead, visit www.annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form is available at www.ftc.gov/credit.

AnnualCreditReport.com is a centralized service for consumers to request free annual credit reports. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order one report at a time from each of the three companies.

In addition, federal law states that you’re entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, but you must submit a request for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company.

You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft. Otherwise, a consumer reporting company may charge you up to $11.00 for another copy of your report within a 12-month period. Residents of California, Colorado, Connecticut, Georgia, Maine, Maryland, Massachusetts, Minnesota, Montana, New Jersey, Puerto Rico, Vermont, or the US Virgin Islands, may be entitled to a free or reduced price personal credit report from each of the three major credit bureaus, which are listed below:

What if there is an error on my credit report?

By law (under the Fair Credit Reporting Act) you have the right to correct inaccurate information in your credit file. You must dispute your report directly to the credit reporting agency.

Notify the credit reporting company, in writing, what information you think is inaccurate. Include copies (do not send originals) of documents that support your position. Provide your complete name and address and clearly identify each item in your report you dispute and state the facts and explain why you dispute the information. You must also request that the item is removed or corrected.

Credit reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the credit reporting company, it must investigate, review the relevant information, and report the results back to the credit reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit reporting companies so they can correct the information in your file.

Tip: Send your dispute by certified mail, return receipt requested, and keep copies of your dispute letter and enclosures. By doing so, you can document what the credit reporting agency received.

When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. This free report does not count as your annual free report. If an item is changed or deleted, the credit reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The credit reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you request it, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the credit reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the credit reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

While the investigation is going on, be sure to tell the creditor or another information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a credit reporting company, it must include a notice of your dispute. And if you are correct — that is, if the information is found to be inaccurate — the information provider may not report it again.

Tip: If you are divorced and suffering the consequences of a credit rating damaged during the marriage, you may be able to obtain relief if the bad credit rating was your spouse’s fault and you can prove it. According to the Equal Credit Opportunity Act, a lender must consider any evidence you have that shows your spouse—not you—was the irresponsible one.

How can I build a credit history so that I can establish credit?

It may take some time to establish your first credit account if you have no reported credit history. This problem affects mainly (1) young people, (2) older people who have never used credit, and (3) divorced or widowed women who shared credit accounts reported only in the husband’s name.

Here are some steps you can take:

    • Check with a credit bureau to find out what is in your credit report.

Tip: If you have had credit before under a different name or in a different location and it is not reported in your file, ask the credit bureau to include it. Although credit bureaus are not required to add new accounts to your file, many will do so for a fee.

Tip: If you currently share a credit account with your spouse, ask the creditor to report it under both names

    • When contacting your creditor or credit bureau, do so in writing and include relevant information, such as account numbers, to speed the process. As with all important business communications, keep a copy of what you send.
    • Build a credit history by applying for credit with a local business, such as a department store, or borrow a small amount from your credit union or the bank where you have checking and savings accounts. A local bank or department store may approve your credit application even if you do not meet the standards of larger creditors.
    • If you are rejected for credit, find out why. There may be reasons other than lack of credit history. Your income may not meet the creditor’s minimum requirement or you may not have worked at your current job long enough.

Tip: Wait at least six months before making each new application. Credit bureaus record each inquiry about you. Some creditors may deny your application based on your having too many credit inquiries.

Tip: If you still cannot get credit, ask someone with an established credit history to act as your co-signer. Then, once you have repaid the debt, try again to get credit on your own. Alternatively, you may wish to consider a secured credit card.

Who can see my credit file?

The Fair Credit Reporting Act allows access to your credit file only by the following: those authorized in writing by you, creditors to whom you are applying for credit, insurers, potential employers, and those who have a “legitimate business purpose related to a business transaction involving you” including, landlords, a state or local child support enforcement agency, insurance companies, employers and potential employers (but only with your consent), companies with which you have a credit account for account monitoring purposes, those considering your application for a government license or benefit if the agency is required to consider your financial status.

In addition, government agencies can obtain identifying information about you. This is limited to your name, current and former addresses, and current and former places of employment.

Every time someone requests a copy of your credit report, it is noted as an “inquiry” on your credit file. You are entitled to know who has requested your credit file within the past six months (or two years if for employment purposes). This information is provided when you order a copy of your credit report.

Tip: In addition to checking on the information in your report, review who has seen your file. Credit bureaus must establish procedures to keep anyone without a legitimate business purpose from obtaining your report, but unauthorized access to credit files does sometimes occur.

How can I decipher my credit report?

Your credit report is divided into four sections: identifying information, credit history, public records, and inquiries.

Identifying information is information used to identify you such as your maiden and married name(s), social security number, current and previous addresses, date of birth, telephone numbers, driver’s license numbers, employer, and spouse’s name.

Credit history is made up of your accounts, which are sometimes called tradelines. There are two types of credit accounts, revolving, which includes items such as credit cards, and installment, which includes car loans and mortgages. Each account listed includes the name of the creditor and the account number, when you opened your account, what kind of account it is, the payment amount, the status of the account (open, closed, paid, active), the balance if it’s a loan, and how well you have paid the account (never late, 30 days late, etc.).

Public records lists financially related data such as bankruptcies, judgments and tax liens that would adversely affect your credit.

The last section, inquiries, is a list of everyone who has asked to see your credit report–everyone from credit card companies you applied to for a new card or banks for a new car loan and creditors interested in pre-qualifying you for a credit card.

It is vital that you understand every piece of information on your credit report in order that you be able to identify possible errors or omissions.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

In addition to the account information, credit reports often contain symbols and codes that look like “Greek” to the average consumer. Fortunately, every credit bureau report also includes a key explaining each code.

Equal Credit Opportunity Act (ECOA) Codes

The Equal Credit Opportunity Act (ECOA) requires creditors who report information about accounts to report it in the names of all people with a relationship to the account, including co-signers or authorized users. To help lenders identify your legal liability on all your credit accounts, credit bureaus add a code to each account, termed the ECOA code. Credit bureaus may list the ECOA codes differently, but the basic categories are as follows:

Individual. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history.

Joint. You and someone else — often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history. You and someone else — often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history. You and someone else — often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history.

Co-signer. You signed loan documents for someone else, to help them qualify for a loan. Also referred to as “On Behalf of” (secured credit for another individual other than spouse).

Co-signer, primarily liable: You took out an account for yourself, but someone else co-signed for the loan to ensure payment. Also known as “Maker” (account for which subject is liable but a co-maker is liable if maker defaults.)

Authorized user. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history. Officially referred to as “Business/Commercial” and identifies that the company reported in the name fields is contractually liable for the account.

Undesignated. No status was reported by the creditor reporting the account information and is not used on accounts opened after 06/1977.

How can I tell whether I have too much debt?

If you answer yes to any one of the following questions, you should take action:

  • Have you run several credit cards up to the limit?
  • Do you frequently make only the minimum monthly payments?
  • Do you apply for almost any credit card you are offered–without checking out the terms?
  • Have you used the cash advance feature from one card to pay the minimum payment on another?
  • Do you use cash advances (or a credit card) for living expenses such as food, rent, or utilities?
  • Are you unable to say what your total debt is?
  • Are you unable to say how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you have been paying?

If you find several of these statements describe your credit habits, it may be that you need to take steps to manage your debt before bill collectors start calling and your credit history is endangered.

What steps should I take if I get into financial trouble?

Here are some specific steps you can take if you are in financial trouble.

    1. Review each debt that creditors claim you owe to make certain you really owe it, and that the amount is correct.
    2. Contact your creditors to let them know you’re having difficulty making your payments. Tell them why you’re having trouble. Try to work out an acceptable payment schedule with your creditors.

Tip: Do not wait until your account is turned over to a debt collector. At that point, the creditor has given up on you. As soon as you find that you cannot make your payments, contact your creditors to try to work out a reduced payment plan.

    1. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and healthcare) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
    2. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and expensive entertainment. Consider taking public transportation rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Consider substituting a debit card for your credit cards.
    3. Use your savings and other assets to pay down debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense.

Tip: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.

Tip: If you are unable to make satisfactory arrangements with your creditors, there are organizations to help you with your financial situation. For instance, Consumer Credit Counseling Service (CCCS) agencies, which are local, nonprofit organizations affiliated with the National Foundation for Consumer Credit (NFCC), provide education and counseling to families and individuals.

To contact a CCCS office for confidential help, look in your telephone directory white pages, or call 1-800-431-8157 for an office near you. To contact the National Foundation for Consumer Credit Counseling and connect with an NFCC Certified Consumer Credit Counselor call 800-388-2227.

Tip: Some people with debt problems have found that Debtors Anonymous, General Service Office, PO Box 920888, Needham, MA 02492-0009, 1-800-421-2383 has provided helpful service.

Personal bankruptcy, a serious step, should be considered only if other means have been exhausted, and only if it is the best way to deal with financial problems. A skilled and trusted bankruptcy lawyer should be consulted.

What can I do if I am being hounded by a debt collector?

If you fall behind in paying your creditors, or an error is made on your accounts, you may be contacted by a “debt collector.” The Fair Debt Collection Practices Act prohibits certain practices by debt collectors.

What to do: To stop a debt collector from calling you, write a letter to the collection agency telling them to stop. Once the agency receives your letter, it may not contact you again except to say there will be no further contact. Another exception is that the agency may notify you if the debt collector or the creditor intends to take some specific action.

If you believe a debt collector has violated the law by harassing you, you have the right to sue a collector in a state or federal court within one year from the date you believe the law was violated. The following practices are specifically prohibited.

Harassment, Oppression, or Abuse. For example, debt collectors may not:

  • Use threats of violence or harm against the person, property, or reputation
  • Publish a list of consumers who refuse to pay their debts (except to a credit bureau)
  • Use obscene or profane language
  • Repeatedly use the telephone to annoy someone
  • Telephone people without identifying themselves
  • Advertise your debt

False Statements. For example, debt collectors may not:

  • Give false credit information about you to anyone
  • Send you anything that looks like an official document from a court or government agency when it is not
  • Use a false name
  • Falsely imply that they are attorneys or government representatives
  • Falsely imply that you have committed a crime
  • Falsely represent that they operate or work for a credit bureau
  • Lie about the amount of your debt
  • Lie about the involvement of an attorney in collecting a debt
  • Indicate that papers being sent to you are legal forms when they are not
  • Indicate that papers being sent to you are not legal forms when they are
  • Tell you that you will be arrested if you do not pay your debt
  • Tell you they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so
  • Tell you that actions, such as a lawsuit, will be taken against you, which legally may not be taken, or which they do not intend to take

Unfair Practices. For example, collectors may not:

  • Collect any amount greater than your debt, unless allowed by law
  • Deposit a post-dated check prematurely
  • Make you accept collect calls or pay for telegrams
  • Take or threaten to take your property unless this can be done legally
  • Contact you by postcard

What are my rights against banks, creditors and debt collectors?

You have the following rights:

  • Banks. If you have a complaint about a bank in connection with any of the Federal credit laws or if you think any part of your business with a bank has been handled in an unfair or deceptive way write the nearest office of the Federal Trade Commission or Consumer & Community Affairs, Board of Governors of the Federal Reserve System, 20th & Constitution Avenue, N.W. Washington, D.C. 20551.
  • Credit Clinics. File a complaint with the Better Business Bureau, your state attorney general’s office, and the Federal Trade Commission (FTC).
  • Debt Collectors. Report any problems you have with a debt collector to your state Attorney General’s office and the Federal Trade Commission.
  • Other Institutions. The Federal Trade Commission enforces a number of federal laws involving consumer credit, including the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Fair Credit Billing Act, and the Fair Debt Collection Practices Act.

You may also take legal action against a creditor. If you decide to bring a lawsuit, here are the penalties a creditor must pay if you win:

  • Truth in Lending and Consumer Leasing Acts. If any creditor fails to disclose information required under these Acts, or gives inaccurate information, or does not comply with the rules about credit cards or the right to cancel certain home-secured loans, you as an individual may sue for actual damages-any money loss you suffer. In addition, you can sue for twice the finance charge in the case of certain credit disclosures, or, if a lease is concerned, 25 percent of total monthly payments. You may also be entitled to reimbursement for court costs and attorney’s fees.
  • Equal Credit Opportunity Act. If you think you can prove that a creditor has discriminated against you for any reason prohibited by the Act, you as an individual may sue for actual damages plus punitive damages of up to $10,000.
  • Violations by Debt Collectors. You have the right to sue a collector for violations under the Fair Debt Collection Practices Act in a state or federal court within one year from the date you believe the law was violated. If you win, you may recover money for the damages you suffered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector’s net worth, whichever is less.
  • Fair Credit Billing Act. A creditor who breaks the rules for the correction of billing errors automatically loses the amount owed on the item in question and any finance charges on it, up to a combined total of $50- even if the bill was correct.
  • Fair Credit Reporting Act. You may sue any credit reporting agency or creditor for breaking the rules about who may see your credit records or for not correcting errors in your file. A person who obtains a credit report without proper authorization or an employee of a credit reporting agency who gives a credit report to unauthorized persons may be fined up to $5,000 or imprisoned for one year, or both.

How will a divorce or separation affect my credit?

Here are some tips for handling the credit aspects of divorce, both in the planning stages and afterward.

Cancel All Joint Accounts. First, it is important to cancel all joint accounts immediately once you know you are going to obtain a divorce.

Creditors have the right to seek payment from either party on a joint credit card or other credit account, no matter which party actually incurred the bill. If you allow your name to remain on joint accounts with your ex-spouse, you are also responsible for the bills.

Some credit contracts require that you immediately pay the outstanding balance in full if you close an account. If so, try to get the creditor to have the balance transferred to separate accounts.

If Your Spouse’s Poor Credit Affects You. If your spouse’s poor credit hurts your credit record, you may be able to separate yourself from the spouse’s information on your credit report. The Equal Credit Opportunity Act requires a creditor to take into account any information showing that the credit history being considered does not reflect your own. If for instance, you can show that accounts you shared with your spouse were opened by him or her before your marriage and that he or she paid the bills, you may be able to convince the creditor that the harmful information relates to your spouse’s credit record, not yours.

In practice, it is difficult to prove that the credit history under consideration doesn’t reflect your own, and you may have to be persistent.

Women: Maintain Your Own Credit-Before You Need It. If a woman divorces, and changes her name on an account, lenders may review her application or credit file to see whether her qualifications alone meet their credit standards. They may ask her to reapply, although the account remains open.

Maintaining credit in your own name avoids this inconvenience. It can also make it easier to preserve your own, separate, credit history. Further, should you need credit in an emergency, it will be available.

Do not use only your spouse’s name, for example, “Mrs. John Wilson” for credit purposes.

Tip: Check your credit report if you haven’t done so recently. Make sure the accounts you share are being reported in your name as well as your spouse’s. If not, and you want to use your spouse’s credit history to build your own, write to the creditor and request the account be reported in both names.

Find out if there is any inaccurate or incomplete information in your file. If so, write to the credit bureau and ask them to correct it. The credit bureau must confirm the data within a reasonable time period, and let you know when they have corrected the mistake.

If you used your spouse’s accounts, but never co-signed for them, ask to be added on as jointly liable for some of the major credit cards. Once you have several accounts listed as references on your credit record, apply for a department store card, or even a Visa or MasterCard, in your own name.

If you held accounts jointly and they were opened before 1977 (in which case they may have been reported only in your husband’s name), point them out and tell the creditor to consider them as your credit history also. The creditor cannot require your spouse’s or former spouse’s signature to access his credit file if you are using his information to qualify for credit.

Tip: A secured credit card is a fairly quick, easy way to get a major credit card if you do not have a credit history.

What factors affect my credit rating?

Your credit rating is affected by a number of different factors, some obvious and others few consumers are aware of. The following factors are discussed below:

  • Whether you have a credit card or use another person’s credit card
  • Whether you have a bank checking or savings account
  • Where you live
  • Your age
  • Your debt-income ratio
  • Whether you have declared bankruptcy or have had “charge-offs” to your account
  • Whether you are delinquent in any child support payments
  • Whether you have “too much” credit available

Does having a credit card or using another person’s credit card improve my credit rating?

One of the best things you can have on a credit report is a bank credit card– such as a Visa, MasterCard or Discover card -that has been paid on time over a specified period in the past. In a credit scoring system, a good bank card reference usually carries more weight than an American Express card or a department store card.

If you are an authorized user (someone who has permission to use a credit card, but is not legally liable for the bills) on someone else’s account, the payment history will likely be reported in your credit file, but you won’t be able to rely on it to help you build your own credit rating. Usually, it will neither help you nor hurt you when you apply for a loan.

Does having a checking or savings account improve my credit rating?

A checking or savings account will usually enhance your credit rating. Some banks give you extra points in applying for their credit card if you have a checking or savings account with them. In fact, some banks also give discounts on loan rates when you hold other accounts with them.

Is my credit rating affected by where I live?

Many creditors give a higher score to those who have lived at the same address for at least two years. Others give extra points just for living in the same area for two years or more.

Creditors may take into account your geographic location in scoring your length of time at one address. If you live in a city, where people move more often, the length of time at your address will probably count less than if you live in the country.

If your address is a post office box, you may find yourself turned down for credit. To fight fraud, some creditors screen out applicants whose addresses indicate commercial offices, mail drops or prisons.

Since post office boxes or rural delivery boxes are commonplace in rural areas, a lender may issue a card to that address while rejecting applicants with a P.O. Box in a large city.

People who own their homes usually earn a higher score than renters.

Does my age affect my credit rating?

If a lender’s credit experience shows that people in a certain age group have a better record of paying their bills than people of other ages, that lender may, legally, give a higher score to the better-paying age group.

However, the Equal Credit Opportunity Act (ECOA), a federal law intended to prevent discrimination in lending, does not allow lenders to discriminate against people age 62 or over. The ECOA requires creditors using a scoring system to give those aged 62 and older an age-factor score at least as high as the best score given to anyone under age 62.

How important is my debt-income ratio in determining my credit-worthiness?

Some creditors look at your “debt/income ratio” to determine whether you qualify for credit and how much credit you qualify for.

To find your debt/income ratio, total up your monthly payments on all bills. Then, divide these payments by your monthly gross income (before tax). This is your debt/income ratio.

If it’s less than 28 percent, you should have no trouble getting a loan (and can consider yourself successful at managing your debt and maintaining a good credit rating). If it falls between 28 percent and 35 percent, you have what’s considered high debt, and you may find it difficult to obtain some loans. If your debt/income ratio is 35 percent or more, you will probably not be able to get additional credit. More importantly, you are potentially in financial jeopardy.

Keep in mind that these are general guidelines. Some large card issuers will accept debt ratios as high as 40-45 percent. Others compare your net (after-tax) income to your debts to determine your debt ratio.

Tip: In determining your debt/income ratio, do not include payments for your mortgage, utility bills, doctor bills or other items that do not appear on your credit report: The creditor will not look at these.

If you should incur unexpected expenses, get ill, lose your job, or get divorced, you could find yourself unable to meet your obligations. Consider seeking credit counseling through a local non-profit consumer credit counseling service.

Will bankruptcies or “charge-offs” affect my credit rating?

Most lenders (but not all) will automatically reject you if your application or credit file indicates a bankruptcy. Both types of bankruptcy — Chapter 13 (the wage-earner’s plan under which all debts are eventually repaid) and Chapter 7 (straight bankruptcy) — remain in your credit files for ten years. Few creditors draw any distinction between the two types, so you don’t get any “credit” for having repaid your bills using Chapter 13.

In addition to the bankruptcy itself remaining on your report for ten years, each separate account that was discharged through bankruptcy can be reported in your file for up to seven years.

“Charge-offs” (accounts written off as “un collectible”) and “collection accounts” (accounts sent either to the creditor’s own collection department or to an outside collection agency) are extremely negative.

Note: If an account that has been charged-off (other than for bankruptcy), the creditor will usually turn it over to a collection agency, which will then attempt to collect. It then becomes a “collection account” for reporting purposes.

Tip: If you pay the charged-off amount, make sure the creditor updates the account as a “paid charge-off.”

Tip: In exchange for paying off a collection account, you may be able to negotiate with the creditor or collection agency the permanent removal of the negative information from your credit bureau files. However, lenders are under no obligation to make such an agreement.

Will delinquent child support payments affect my credit?

Delinquent child support frequently appear on credit reports. In 1984, Congress amended the federal Child Support Enforcement (CSE) legislation to require more routine reporting of delinquent payments.

State child support enforcement agencies must report overdue child support to a credit bureau that requests such information, as long as the amount exceeds $1,000. CSE agencies may also report delinquencies of any amount on a voluntary basis.

Before a CSE agency reports your delinquent child support debts to a credit bureau, it must tell you that it is going to do so and provide you with information on how to dispute the delinquency.

Can my credit rating be negatively affected by having too much available credit?

You may be turned down for a loan because you have too much available credit. When creditors evaluate your application for credit, they ascertain whether, if you were to use all your available credit, you would be over your head.

Accounts you no longer use, or have paid off, can count against you if they are listed as “open” on a credit report. The act of paying off a revolving account does not, in itself, result in its being “closed” in the eyes of creditors. Further, some creditors do not report to credit bureaus the fact that accounts are closed.

Tip: Every time you close an account, ask the creditor to report it as “closed by consumer” to all credit bureaus to which the account has previously been reported. If a closed account appears on your credit report as open, dispute the entry with the credit bureau.

In determining whether you have too much available credit, creditors usually consider:

    • The number of accounts you hold. As noted above, having too many credit card accounts can count against you.
    • The total credit you have available. Having too much available credit can count against you.

Conversely, being at or near the limit on your credit cards (i.e., with little available credit) can also count against you if it suggests that you have incurred too heavy a debt load.

 

What should I do if a friend or family member asks me to co-sign a loan?

Many people agree to co-sign loans for friends or relatives, as a favor, as a vote of confidence, or because they just can’t say no. Unfortunately, their act of kindness often backfires because according to many finance companies most cosigners end up paying off the loans they’ve cosigned–along with late charges, legal fees and all. Not only is this an unwanted out-of-pocket expense, but it can also affect the cosigner’s credit record.

While a lender will generally seek repayment from the debtor first, it can go after the cosigner at any time. When you agree to cosign a loan for a friend or family member, you are also responsible for its repayment along with the borrower.

Guaranteeing a loan is a better option than to cosign one in that where a loan is guaranteed, the lender can usually go after the guarantor only after the principal debtor has actually defaulted.

However, if you’ve decided you’re willing to cosign a loan, at the very least you should seek the lender’s agreement to refrain collecting from you until the borrower actually defaults, and try to limit your liability to the unpaid principal at the time of default. You should also plan on staying apprised of the borrower’s financial situation to prevent him or her from defaulting on the loan. An example of this might be having the lender notify you whenever a payment is late.

Cosigning an Account. You may be asked to cosign an account to allow someone else to obtain a loan. With cosigning, your payment history and assets are used to qualify the cosigner for the loan.

Tip: Cosigning a loan, whether for a family member, friend, or employee, is not recommended. Many have found out the hard way that cosigning a loan only leads to trouble.

It bears repeating that cosigning a loan is no different than taking out the loan yourself. When you cosign, you are signing a contract that makes you legally and financially responsible for the entire debt. If the other cosigner does not pay, or makes late payments, it will probably show up on your credit record. If the person for whom you cosigned does not pay the loan, the collection company will be entitled to try to collect from you.

If the cosigned loan is reported on your credit report, another lender will view the cosigned account as if it were your own debt. Further, if the information is correct, it will remain on your credit report for up to seven years.

Tip: If someone asks you to cosign a loan, suggest other alternatives such as a secured credit card by which they can build a credit history. If you are asked to cosign for someone whose income is not high enough to qualify for a loan, you are actually doing them a favor by refusing because they will be less likely to be overwhelmed by too much debt. If you’re still considering cosigning a loan, then you might want to consult an attorney before taking any action to find out what your liability is, if in fact the other person does default.

Tip: If you have already cosigned for someone, and he or she is not making payments on time, consider making the payments yourself and asking the cosigner to pay you directly, in order to protect your credit rating.

How can I get the best deal on a home equity loan or an equity line of credit?

If you decide to apply for a home equity loan, look for the plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs you’ll pay to establish the plan.

Tip: The disclosed APR will not reflect the closing costs and other fees and charges, so compare these costs, as well as the APRs, among lenders.

Interest Rates. Home equity plans typically involve variable interest rates rather than fixed rates. A variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate). The interest rate will change, mirroring fluctuations in the index.

To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value.

Tip: Because the cost of borrowing is tied directly to the index rate, find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past.

Sometimes lenders advertise a temporarily discounted rate for home equity loans-a rate that is unusually low and often lasts only for an introductory period, such as six months.

Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable-rate plans limit how much your payment may increase, and also how low your interest rate may fall.

Some lenders permit you to convert a variable rate to a fixed interest rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.

Agreements generally permit the lender to freeze or reduce your credit line under certain circumstances, such as during any period the interest rate reaches the cap.

What are the costs of obtaining a home equity line of credit?

Many of the costs in setting up a home equity line of credit are similar to those you pay when you buy a home.

For example, these fees may be charged:

  • A fee for a property appraisal, which estimates the value of your home
  • An application fee, which may not be refundable if you are turned down for credit
  • Up-front charges, such as one or more points (one point equals one percent of the credit limit)
  • Other closing costs, which include fees for attorneys, title search, mortgage preparation and filing, property and title insurance, as well as taxes
  • Yearly membership or maintenance fees

You also may be charged a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those charges and closing costs would substantially increase the cost of the funds borrowed.

On the other hand, the lender’s risk is lower than for other forms of credit because your home serves as collateral. Thus, annual percentage rates for home equity lines are generally lower than rates for other types of credit.

The interest you save could offset the initial costs of obtaining the line. In addition, some lenders may waive a portion or all of the closing costs.

Should I obtain a home equity line of credit or a traditional second mortgage loan?

If you are thinking about a home equity line of credit you might also want to consider a traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time.

Tip: Consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges.

Tip: Do not simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APRs are figured differently. The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges. The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.

How should I determine which of several loan alternatives is best?

Use the legally-required disclosures of loan terms to compare the costs of home equity loans.

The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. In general, neither the lender nor anyone else may charge a fee until after you have this information.

You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not enter into the plan because of the changed term.

Credit costs vary. By remembering two terms, you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you-in writing and before you sign any agreement-the finance charge and the annual percentage rate.

The finance charge is the total dollar amount you pay to use credit. It includes interest costs, and other costs, such as service charges and some credit-related insurance premiums.

For example, borrowing $100 for a year might cost you $10 in interest. If there were also a service charge of $1, the finance charge would be $11.

The annual percentage rate (APR) is the percentage cost (or relative cost) of credit on a yearly basis. This is your key to comparing costs, regardless of the amount of credit or how long you have to repay it:

Example: You borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then pay back $110 at the end of the year, you are paying an APR of 10 percent. But, if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don’t really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 charge for credit amounts to an APR of 18 percent.

All creditors-banks, stores, car dealers, credit card companies, finance companies- must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure–before you sign a credit contract or use a credit card–so you can compare costs.

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