Credit Basics

Key Terms

Creditor: The financial institution or business who extends your credit with the agreement that you pay them back with interest (they also have terms and conditions that you agree to meet). Examples are VISA, MasterCard, car loans, retail stores, etc.

Credit Bureaus: Companies that collect information on consumers’ credit.

What information do credit bureaus collect on a consumer’s credit report?

  • Name, previous names and employment history
  • Installment loans (such as car loans, student loans, etc.)
  • Revolving Accounts (such as credit cards)
  • Unpaid medical bills or other bills that have been referred to a collection agency or charged off
  • Public records
  • Bankruptcy
  • Any account where you are a co-signer (these are considered your debts)

Ordering Your Credit Report

www.annualcreditreport.com

Under the Fair Credit Reporting Act, all consumers can obtain one FREE copy of their credit report every 12 months from each of the three credit bureaus at this website.

If you don’t have access to the internet, you can also get your free copy by calling
toll free (877) 322-8228 or by writing to:

Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281



You can also pay for a copy of your report by contacting one of the following Credit Bureaus:

  • Equifax: 1-800-685-1111
  • Trans Union: 1-800-916-8800
  • Experian: 1-888-397-3742

A credit report will cost between $9-$18 through the Bureaus, so do get the free ones instead!

Download a Sample Credit Report

Know Your Privacy Rights

How to “Opt-Out”

Credit Bureaus sell your name and address to companies who want to solicit your business. You have the right to opt-out of having all three Credit Bureaus sell your information by calling one national number: 1-888-5-OPT-OUT.

The National Do-Not-Call Registry

You can also protect yourself from unwanted phone calls from predatory lenders and other telemarketers. As of October 1, 2003, the Federal Communications Commission (FCC) established the National Do-Not-Call Registry. Telemarketers may not call registered telephone numbers or they will be subject to large fines. The registry will not prevent calls from organizations or businesses with whom you have an established relationship (for example, your current long distance company), calls which are not commercial, or calls from non-profit organizations.

To register call 1-888-382-1222 or go to www.donotcall.gov. You must call from the telephone you wish to register.

How to Protect Yourself Against Identity Theft

  1. Never provide your personal information in response to an unsolicited request whether over the phone or internet.
  2. Shed important documents that have your address and/or social security number listed on them.
  3. Do not carry identification that has your social security number in your purse or wallet. If your wallet is stolen, you can notify credit card companies but you can not control what credit accounts will be opened in your name with your social security number.
  4. Order a copy of your credit report every year. Catch mistakes and fraud before they ruin your personal finances.
  5. Pay attention to your statements. If your bills don’t arrive on time, contact your creditor. A missing credit card bill might mean that the identity thief has changed your billing address and is using your account.
  6. Guard your mail from thieves. Pick up your mail from your mailbox as soon as possible.
For more information on identity theft: For more information on credit:
www.consumer.gov/idtheft/ www.cardtrak.com
1-877-ID-THEFT(438-4338) www.bankrate.com
www.ftc.gov www.fairissac.com

Your Credit Rights

Wade Jessup was being hounded by debt collectors about several past due debts. They called him so often at home and at work that he didn’t want to answer his phone for fear a debt collector would be on the other end of the line. One debt collector had warned Wade that he could end up in jail if he did not pay what he owed. That comment really scared Wade because he did not have the money to pay the debt collectors and they just wouldn’t take “no” for an answer. Wade did not want to ask his parents for help because he was embarrassed that he had gotten himself into so much financial trouble. Wade thought his only option was to pay off the debts using some of the cash advance checks two of his credit card companies sent him every month even though he knew that the last thing he needed was more debt. However, he just wanted to get the debt collectors off his back!

It’s too bad Wade did not know about a federal law called the Fair Debt Collection Practices Act. If he did, Wade would have known that the debt collector that threatened him with jail time was breaking the law and that he was entitled to tell all of the debt collectors to stop calling him. However, like most consumers, Wade was unaware of the laws that have been passed to protect consumers when they apply for and use credit, find problems in their credit records or fall behind on their bills.

Yet, knowing about those laws and understanding how to use them is an important part of avoiding problems when you use credit, and maintaining a problem-free credit record.

Since 1968, credit protections have multiplied rapidly. The concepts of “fair” and “equal” credit have been written into laws that outlaw unfair discrimination in credit transactions; require that consumers be told the reason when credit is denied; let borrowers find out about their credit records; and set up a way to settle billing disputes.

Each law was meant to reduce the problems and confusion surrounding consumer credit, which, as it became more widely used in our economy, also grew more complex. Together, these laws set a standard for how individuals are to be treated in their financial dealings. Here is a summery of the laws:

Truth In Lending Act (1968)

Ensures consumers are fully informed about cost and conditions of borrowing. This landmark piece of legislation guarantees that creditors have to state the cost of borrowing in a common language so that you – the customer – can figure out exactly what the charges will be, compare costs, and shop around for the credit deal best for you.

Fair Credit Reporting Act (1970)

Protects the privacy and accuracy of information in a credit check. Under the federal Fair Credit Reporting Act, credit reporting agencies are not allowed to report any information that is too old, incomplete, or wrong. While positive or neutral information can be reported indefinitely, negative information can only be reported for the following length of time:

Bankruptcy Filings: Ten years from date filed, not discharged. The three major credit bureaus, and many smaller ones, have agreed voluntarily to remove Chapter 13 bankruptcies – a bankruptcy where debts are paid back over several years – seven years from the date of filing. If that doesn’t happen automatically, you’ll have to ask.

Civil suits, civil judgments, records of arrest: No longer than seven years from the date of entry, or the current governing statue of limitations, whichever is longer.

Paid tax liens: Seven years from the date satisfied (paid).

Unpaid tax liens Indefinite until the lien is paid (see above).

Collection or charge-off accounts: Seven years unless a US Government insured or guaranteed student loan, or National Direct Student Loan (NDSL). If those types of student loans are in default and you bring them current for an entire year, your previous late payments will be deleted.

Any other adverse information (including late payments): Seven years. Adverse information is any data that may cause an unfavorable action result for the consumer, for example being turned down for credit, employment or insurance; or being charged a higher rate than applied for in the case of credit or insurance.

Warning: Beware of collection agencies that tell you they have ways of reporting the collection account “forever” to the credit bureaus if you don’t pay. That’s simply not true.

Equal Opportunity Act (1974)

Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance. This law applies to any business that grants credit to consumers, including banks, finance companies, retail and department stores, credit card companies, and credit unions.

Fair Credit Billing Act (1974)

Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts. When you purchase goods or services with a bankcard or a retail store charge card and you discover an error on your account billing statement, you have the right to have the problem resolved through the dispute resolution process established by the federal Fair Credit Billing Act (FCBA).

  • Your account is not properly credited for a payment you made or for a refund you are entitled to.
  • Charges that you did not authorize appear on your statement. The law limits your responsibility for these charges to $50.
  • You are charged the wrong amount for a purchase.
  • There are mathematical errors on your account statement.
  • You are billed for goods or services you did not accept or that were never delivered as agreed.
  • Your account billing statement arrives late because it was sent to your former address even though you provided the creditor with written notice of your change of address at least 20 days before the end of the period you were billed for.
  • Your account statement reflects charges for insurance or for another type of service or product sold by a credit card company but you did not authorize the charges.

Fair Debt Collection Practices Act (1977)

Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts. Here is a summary of what debt collectors covered by the FDCPA cannot do when they are trying to collect from you:

  • Call you at an inconvenient time or place such as before 8am or after 9pm unless you give them permission to do so.
  • Call you at work if they know that your employer does not want you to be called there. Also, they cannot contact your employer about your debt.
  • Contact you by postcard or use an envelope that makes it clear that a debt collector sent it.
  • Try to scare you into paying a debt by sending you a letter that appears to have come from a government agency or a court of law.
  • Call you repeatedly within a short period of time – every hour during an afternoon, or day after day for example.
  • Contact your neighbors, relatives, friends or other people to get information that can help them collect the money that you owe.
  • Use profanity when communicating with you.
  • Threaten to ruin your reputation, harm you or your property, or throw you in jain unless you pay your debt. However, debt collectors can threaten to sue you assuming they are willing to follow through on their threat.
  • Order you to accept their collect calls or pay for their telegrams.
  • Collect more than the amount that you owe, unless it is allowed under your state’s law.
  • Deposit a post-dated check before it’s date.
  • Take your property or threaten to take it unless they are legally entitled to.

Credit Card Accountability, Responsibility, and Disclosure Act (2009)

The Credit Card Card Accountability, Responsibility, and Disclosure Act or the Credit CARD Act may make it more difficult to acquire credit from banks and other lenders. They have lost some of the leverage they used in the past to raise interest rates or because of a “default” on another bill.

The banks and lenders won’t be able to accumulate as much profit as they did before because the industry will have to be more transparent. So they will probably be spending some of their time and brain power on discovering different methods, or reintroducing older methods to make up for lost profits.

Certain measures have been taken to help protect the card holder and it’s your responsibility now to become acquainted with them. So let’s begin.

Now that the Credit CARD Act has passed, the credit card industry is going to change. As always, be frugal with charging on your card; the less debt you have the better off you will be. Credit Card companies aren’t as focused or interested in high credit scores, loyal customers, or timely monthly payments, as they used to be. They are concerned with risk levels and likelihood of defaults, especially if you are carrying a large balance from month to month. If you pay off your balance each month they still might be unhappy because they won’t be making any money off of you in interest charges – so it’s a Catch – 22 situation. Shop around for a good interest rate; there will always be competition in the credit card industry, but the low interest rates may be gone for good. Even introductory rates, which were once the teaser to bring in new business, will not be as attractive.

Great balance transfer rates are also going to disappear. Remember when your mailbox was flooded with offers to transfer your balance to a new card with an ideal introductory rate and no fees? Now the rates will be higher and transfer fees won’t be low and they may not have a cap on them. So do your homework; if you want to transfer your balance find a card that has a lower interest rate when the initial offer rate is finished.

Annual fees were once a thing of the past, now they are the future. The huge profits garnered from late payment and over the limit fees will not be as easy to accumulate for the credit card industry. So annual fees, and maybe some other “new” fees, will take their place.

Retail cards that offer incentives such as 15% off or a free product if you sign up and buy today with our card – such as Home Depot – may go the way of the dinosaurs. Banks simply aren’t as trusting as they used to be and the new laws want the issuers to be more certain of a consumer’s capacity to make payments. Many people would look at these deals as an excuse to make large purchases, without thinking about their ability in the future to pay off the debt. That irresponsibility led to delinquent payments and worse.

What CARD Means to You

The Credit Card Accountability, Responsibility, and Disclosure Act will make it easier for you to deal with the credit card giants. For instance, credit card issuers will be required to who you, on periodic statements, how long it will take to pay off your existing balance and the interest you will accrue, if you pay the minimal account. Use this valuable disclosure to get a grip on your spending – be accountable. This is a free educational device showing you, in plain language, what it will take to reduce your credit card balance. If the sirens go off in your head when you look at this information, then you’d better halt your spending and get your finances in order.

Some of the changes because of Credit CARD include:

  • Hidden fees – It bans arbitrary interest-rate increases and hidden fees, such as charges for paying off a credit-card bill over the telephone or online.
  • Full Disclosure – It requires clears disclosure, and in plain language, of the terms of credit-card agreements and any changes made to them.
  • Universal Default – It prohibits the practice of “universal default,” which allowed companies to raise interest rates on a credit card to high levels if the consumer was more than 30 days late on another payment.
  • Late Fees – A customer must be over 60 days late on payments before their interest rate can be raised on balances. If the rate is raised, it will go back to the lower rate if the customer makes the minimum payment on time for six months in a row.
  • Delays in payment – It prohibits companies from assessing late fees if the card issuer has delayed crediting the payment. Also credit card companies won’t be able to assess a late fee if a payment is received on a due date that falls on a day when they are closed, such as a weekend or a holiday.
  • Making payments at local banks – It specifies that payments made at local branches must be credited the same day.
  • Freeze on rate increase – It prohibits companies from increasing rates on a cardholder in the first year and requires promotional rates to last at least six months. Rate increases must be periodically reviewed.
  • Credit-limit fees or “opt-in” – This bans credit card companies from charging fees when users exceed their credit limits, unless the cardholder gives them permission to go over their limit on the transaction. That is, they “opt-in” to being charged a fee. If the cardholder has not agreed to allow the transaction to go over the limit then they would be rejected.
  • Early-morning deadlines – It prohibits issuers from setting early morning deadline for credit-card payments because they usually receive their mail in the afternoon.
  • Statements and notifications – It notes that credit-card statements must be mailed 21 days before the bill is due. The old requirement was 14 days, which sometimes made it impossible to receive the bill, look it over and then mail it back on time. Also, consumers must now be given 45 days notice of any fee, rate, or penalty increases. Under the old rules credit card companies could raise rates for any reason and with only 15 days warning.

The future just arrived

Now that the changes have been it’s time to prepare for your financial future in regards to credit cards. As always, you should carefully look through your bills and account information to see if any changes have been made, such as credit limits or rate hikes. Being an informed consumer is your best defense and it should be much easier now.

If you are in significant trouble right now, you may want to consider speaking with a credit counseling agency. Banks want their money and they won’t be as brutal on those consumers who are at least making an effort to pay the money that they owe back. A credit counseling agency can assist you in setting up reasonable monthly payments to help revitalize your financial health.

The last and most important element of this whole matter drills down to one thing – accountability. As a credit card user it is up to you to take matters into your own hands. Yes, there are moments when you must use your credit card for an emergency situation or situations and that could devastate your finances. That is completely understood. But many times credit card debt is due to spending beyond your means.

As a consumer you can make the Credit CARD Act work for you by controlling your spending and keeping your monthly balance to a minimum.

You can turn the tables now by paying more attention to your monthly bills and by taking advantage of the periodic disclosures showing you, in plain language, how long it will take to pay off your balance by making the minimum payment – of course, increase that payment if you can.

Remember, the Credit CARD Act was established to protect you from the tactics of credit cards lenders and to provide you with tools to better manage your credit card spending. So as a credit card holder you’ve been given an opportunity and with that opportunity comes the added responsibility to make it work for you.

Think of the Credit CARD Act as a extraordinary event, which furnishes you with the prospect of enhancing your financial position in the world, no matter how small or large it is, and to finally stay one step ahead of an industry that has long prided itself on creating debt rather than savings – then you’ll be the one laughing as your savings go up and your debt goes down.

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