How To Win the Retail Credit Card Game

How would you like to get a 15 percent rebate on your purchase today? Why not? But hold on before saying ‘yes,’ there may be some pitfalls on this way. With the average retail credit card APR at more than 23 percent, the savings from store discounts might get wiped out with any interest you accrue.

retail-store-aprWhether we’re searching online for a coupon to save $1 on a box of cereal, getting a loyalty card punched to creep closer to that free 6-inch sub or calling a credit card issuer to get a late payment waived, we’re constantly looking for ways to keep some extra money in our pockets.

However, all deals are not created equal. Take store credit cards, for example.

Undoubtedly, you’ve had some clerk at some store offer you one of these cards, with a pitch that sounds something like this: “Would you like to save 15 percent off your purchase today by signing up for our new credit card?”

About 99 percent of the time, you reflexively say, “No, thanks. I’m good.” But then there are those other times. Maybe you’re spending a lot of money on clothes in preparation for a new job or for your kids’ new school year. Perhaps you’re loading up on lumber, paint and tools for that do-it-yourself project for your house. Or maybe you’ve finally upgraded that old TV for a state-of-the-art new one to hang on the wall in your living room.

That’s when that 15 percent discount can be really appealing – and understandably so. Saving 15 percent off a $500 trip to Home Depot means real money in your pocket.

It’s not that simple, though. For one, these cards typically come with seriously high interest rates. (A recent survey put the average retail card APR at more than 23 percent.) Also, you often aren’t given much time to decide if you want to sign up for the card. After all, who wants to take five minutes at the counter to read a credit card’s terms and conditions? Plus, there’s probably a line of people waiting in line behind you, and the longer you take, the grumpier they’re likely to be.

Credit Bill Of Rights

Your Credit Bill Of Rights

According to the Fair Credit Reporting Act and other acts, you have the right to:
1. Obtain from a credit bureau a report of what’s in your credit file.

2. Know who has inquired into your credit file-stores, banks, employers, etc.

3. Request reverification by the credit bureau if information is incorrect.

4. Get missing data added to your file.

5. Have detrimental credit information removed from your file after seven years and bankruptcy information after ten years.

6. Put your side of the story in your credit file.

7. Privacy of the information in your file from anyone other than legitimate members of the credit-reporting agency.

8. Have your credit report transferred from one area to another any time you move.

9. Use small claims court to resolve any disputes with the credit bureau about incorrect, inaccurate information in your file.

10. Know exactly why you were refused credit. You must contact the institution refusing credit within ten days.

11. Remain silent about poor credit information that does not currently appear in your file.

The Fair Debt Collection Practices Act

Main Concepts of The Fair Debt Collection Practices Act

If you find yourself in financial difficulties, there are several specific steps you can take to protect your credit standing. Although creditors can always turn over your account to a collection agency, some prefer not to do so and would rather make an arrangement for repayment with you. They may be willing to accept reduced payments, extended over a longer period of time; they may be willing to accept a delay or postponement in your payment schedule. Such arrangements will, in the long run, cost you money, since the interest on your debt will continue to accumulate. But they are worth it, since they maintain your credit standing.

The particular arrangement you make with any given creditor can only be determined in conversation between you. It is important to visit your creditors personally, if you can, and to explain your financial situation with complete honesty.

If a bank or finance company is among your creditors, one of its officers may try to talk you into taking out a consolidation loan, which will enable you to pay off your outstanding debts immediately and will give you a long period in which to make repayment. The proposition may sound tempting, but you should think very carefully before agreeing to it, since it merely postpones your problems and charges a high interest rate for the privilege. On the whole it is wiser to reschedule payments of existing debts than to borrow new money to pay them off.

If, despite your best efforts to come to a satisfactory arrangement with a creditor, your account is turned over to a collection agency, you are protected by the provisions of the Fair Debt Collection Practices Act. This law prohibits a number of practices that were previously standard in the debt collection business. Among other things, it prohibits bill collectors from:

  • Placing telephone calls to debtors at unusual places or times, generally before 8 a.m. or after 9 P.M.
  • Harassing debtors and their families by telephoning frequently.
  • Being personally abusive towards debtors or members of a debtor’s family.
  • Threatening to expose debtors to their friends, neighbors or employers. A collector may get in touch with other people, but only to find out where the debtor lives or works and may not tell anyone other than the debtor and the debtor’s legal counsel that any money is owed.
  • Pretending — whether in writing, in person or on the telephone — to represent any agency of local, state or federal government.
  • Engaging in any other misrepresentations — as, for example, pretending to take a survey in order to obtain personal financial information about the debtor.
  • Making any attempt to humiliate the debtor in some manner — as, for example, by stationing in front of the debtor’s house a car with the words “debt collector” on it.
  • Demanding payment in excess of the amount actually owed.
  • Instituting legal proceedings against the debtor except in the debtor’s home town, where the contract was signed, or in an action involving real estate, in an area where that real estate is located.

You may legally break off all contact with a debt collector by informing the agency — or individual — in writing that you have turned the matter over to an attorney, or that you simply will not deal with the collector or the agency. In that case, the collector has the right to notify you that he or she will go to court to force collection. But having told you this once, the collector cannot continue to make any contact with you, either personally or in writing.

These requirements apply only to collection agencies. They do not apply to creditor companies or institutions, to their lawyers, federal or state officials or legal process servers — except in the case of those localities that have imposed their own specific legal restrictions.

In the event you are bothered by a collection agency that acts in violation of the Fair Debt Collecting Act, make sure you notify your local Better Business Bureau. In addition, it is a good idea to write to the Bureau of Consumer Protection of the Federal Trade Commission. If the FTC commission receives several complaints against a particular agency, it may bring suit against it. You, too, have the right to bring suit, and if you are successful, you can collect actual damages, additional damages up to $1,000, court costs and attorney fees.

The Fair Credit Billing Act

Correction of Billing Errors and Other Rregulations of the Fair Credit Billing Act

This important piece of legislation is designed to give consumers a method of dealing with the errors in — or disputes about — billing that are almost certain to occur from time to time in credit card accounts. The difficulties can arise for any number of reasons. The company may fail to credit you for a payment you have made. It may charge you for an item bought on someone else’s card. It may fail to credit you for an item you returned. Sometimes, such errors can be corrected informally, through a phone call to the credit card company. But a phone call will not trigger the safeguards that the law provides, and for this reason wise consumers stick scrupulously to the procedures the legislation outlines.

First, the law permits you to withhold payment for any item while it is the subject of a dispute, and also to withhold payment of any minimum fees or finance charge that may be associated with it. But you are required to pay all other charges, and should. Then, the law requires you to write a letter to the company that issued the card, directing it to the office listed on your bill as the one authorized to deal with inquiries and complaints. The letter — which should be sent separately from your payment — should include your name, account number and date and should clearly and specifically describe the problem about which you are complaining, indicating the item you question, the amount of money involved and why you believe the company is in error in making the charge.

The law requires that the company receive this letter no later than 60 days after your bill was mailed to you; if you delay sending the message until nearly the end of that 60-day period, it might be advisable to send it by certified mail, requesting a return receipt. The company cannot threaten your credit rating or dispute your account because you question a bill, and it must acknowledge your letter in writing within 30 days and inform you of its decision no later than 60 days thereafter. If the decision is in your favor, your account must be corrected to reflect this fact. The charge — and any fees you may have paid in connection with it — must be removed or the credit entered. If the decision is not in your favor, the company must send you a letter providing you with proof– a copy of the sales receipt, for example — that the company is correct, together with a statement of what you owe, which may include any finance charges that have accumulated and any minimum payments you did not make during the period of the dispute.

If you find the company’s decision unacceptable, the law gives you at least 10 days to write again. But it also gives the company the right to report you as a delinquent and to take action to collect. Even then, however, you have the right to disagree in writing, to obtain from the company the name and address of every firm to which your delinquent status has been reported and to enter your side of the story in your credit record. When the matter is finally settled, the company must report the outcome to every organization that has received information about it.

If the error concerns a charge for goods not yet delivered, the credit card company cannot conclude that there is no mistake in the billing until the goods have actually arrived. If you fail to reach a satisfactory solution, contact your state banking commission if the card was issued by a bank in your state. Otherwise, write to your state attorney general’s office.

When to Pay Credit Card Bills

How To Optimise Your Credit Card Expenses?

Although most credit card accounts carry the same annual interest rates, they do not all calculate monthly interest charges the same way. Consequently, consumers may find themselves paying differing amounts in interest on the same purchases.

For example, if the interest is calculated on the basis of the consumer’s average daily balance, a cardholder who owes $200 at the beginning of the 30-day billing cycle and pays $100 on the 15th day will be charged interest on $150 (15 days at $200 plus 15 days at $100, divided by 30). This means that average daily balance accounts should be paid as early in the month as possible, since this reduces the amount on which interest is owed.

On the other hand, if it is calculated on the basis of the adjusted (or unpaid) balance, that same cardholder will pay interest only on the $100 owed at the end of the cycle. In this case, therefore, cardholders can safely wait to the end of the cycle to pay their bills — provided, of course, that they are careful not to make purchases at that time.

The third method of calculation, based on the previous balance, is illegal in some states and, in any event, undesirable for consumers, since it charges consumers the amount owed when the cycle opens — in this case, $200.

Fair Credit Reporting

The Fair Credit Reporting Act

When you apply for credit, the lender may ask a credit reporting agency for a summary of your financial history before deciding whether to grant the loan. This is standard procedure, particularly when substantial sums are involved, and every day, thousands of such credit reports are issued to lenders throughout the country. The majority of them deal solely with your bill-paying record in connection with the credit transactions in which you have been involved over the last several years.

On the other hand, if you apply for a job that carries considerable financial responsibility or a large amount of life insurance, you may be examined much more thoroughly. In a so-called investigative credit report, the agency may also get in touch with your friends, neighbors and business associates to discover as much as possible about the way you live. But if such a report about you is contemplated, you are entitled to be notified of this fact within three days of the time the request for the report is made — unless the investigation is in connection with a job for which you have not specifically applied. And you are also entitled to obtain a complete and accurate description of the nature and scope of the investigation request.

If you are rejected for a loan or credit, you have the right to invoke the protections offered by the Fair Credit Reporting Act. This law requires lenders to inform rejected applicants of the reason for the rejection, and if that reason is a negative credit bureau report, the law gives those applicants a number of important rights.

First, they have the right to know the name and address of the credit bureau that issued the report and to know precisely what information about them the credit bureau has in its files. Applicants who request this information, either by mail or phone, within 30 days of the time that credit was denied them must be given it free of charge; thereafter, the credit bureau may demand a small payment.

It is up to the credit bureau to decide how to make that material available. Most permit applicants to examine the file itself, by com-ing to the bureau office — and the law permits them to bring their lawyers or other persons with them, if they choose. If that is not convenient, the bureau will supply either a copy of the material in the file or a written description of it. If the applicant has any difficulty understanding this material, the bureau is obliged to explain and interpret it.

In addition, the Fair Credit Reporting Act gives credit applicants these important rights:

  • The right-to know the names and addresses of all companies to which the report was sent during the preceding six months.
  • The right to challenge any information in the credit report on the grounds either of its accuracy or its date, and to compel the credit bureau to reexamine such information, by consulting with the creditor in question, if necessary. Generally, any negative information — arrest records, paid tax liens, adverse lawsuits or judgments, for example — that is more than seven years old must be removed. One exception is a previous declaration of bankruptcy, which may stay in the files for 10 years. Another is the case of an individual applying for credit on life insurance worth more than $50,000 or a job paying more than $22,000 a year. Any information that proves to be incorrect must be stricken from the record.
  • The right to have all changes made as the result of investigation sent to any companies that received the inaccurate report.
  • The right to enter into the file, in the event that investigation does not alter it, a short statement giving the applicant’s side of the story. This statement — or a summary of it — must be included in all future reports the agency sends about the applicant.

These protections are extremely valuable. Applicants who discover errors in the report are in a good position to reopen their previously failed negotiations, and this time they may be successful. Even if there is no error, it is often helpful for applicants to enter their own statements with the report. There may be extenuating circumstances — a temporary loss of employment; a one-time major and unexpected expense — that will make them more attractive prospects to lenders who might otherwise reject them.

Most credit bureaus adhere strictly to the requirements of the Fair Credit Reporting Act and cooperate willingly with consumers. But if you have any difficulty with an agency, you should report it in writing to: Bureau of Consumer Protection, Federal Trade Commission.

The Commission will not intercede for you, but a number of complaints may trigger an investigation and, possibly, legal action that halts the company’s offensive practices.

You should also report any problems to the credit bureau trade organization, which will attempt to settle the dispute. Write to: Associated Credit Bureaus.

If this intercession fails, and you believe that a credit agency has violated your rights under the law, consult an attorney. You may have grounds for legal action under the law and your suit, if successful, will bring you damages as well as court and attorney’s fees.

Another source of help in disputes with credit agencies is your state attorney general’s office. In situations where you are unable to reach an agreement, you may bring suit. If you are successful, you may collect damages as well as court and attorney’s fees.

Equal Credit Opportunity

The Equal Credit Opportunity Act

Before 1975, when the Equal Credit Opportunity Act became effective, a considerable number of Americans — women, older people and minority group members — often had difficulty in obtaining loans and credit. Since then, discrimination on these bases has been forbidden by law. Prospective lenders no longer have the right even to ask borrowers about their race, religion or nationality — except, for monitoring purposes, in the case of real estate loans, and even in this case, the borrower is under no obligation to respond. Older people cannot be rejected on the grounds that their age prevents them from obtaining credit insurance and in determining their financial status, prospective lenders must take into account such various sources of income as Social Security, annuities and pension payments.

Perhaps most dramatic are the changes the law has brought about in the treatment of women. In the past, married women often could not get credit unless their husbands acted as co-signers; unmarried women were often held to much more rigid credit tests than men; young married women without children were often turned down on the grounds that when — and if — they became mothers, they would no longer be acceptable credit risks. Under the provisions of the Equal Credit Opportunity Act, all these forms of discrimination are outlawed. Specifically, the law provides that:

  • A lender may not reject a female applicant for credit because of her sex or marital status, and any woman whose application is denied has the right, within 60 days, to ask for the reasons in writing. A lender who refuses to supply this information is subject to court suit and could be forced to pay the plaintiff’s actual charges plus punitive damages, attorney fees and court costs.
  • In applying for credit, married women may use their maiden names, if they choose.
  • Divorced or legally separated women are not obliged to list such sources of income as child support and alimony when applying for credit. But those who believe that mention of these resources will improve their chances of getting the money can do so, and although prospective lenders are entitled to determine if these sources of income are reliable, they must be taken into consideration when making a decision.
  • A lender may not ask a woman whether she intends to have children.
  • A lender can ask a woman’s husband to co-sign a loan only when it is clear that her income alone is insufficient or when property jointly held is to be used as collateral.
  • Lenders may not ask women about their marital status except in states with community property laws — specifically, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington — where the spouse can use the account or will be contractually liable for it, or where the spouse’s income is used to help qualify for the loan.

Lenders who violate the Equal Credit Opportunity Act are subject to severe penalties, including actual damage, up to $10,000 in punitive damages along with attorney fees and court costs.

Violation of the law can be difficult to prove, especially in cases where the applicant’s credit-worthiness can be considered marginal, whether because of a relatively low income or a short period of employment or residence in the community. Under the terms of the law, applicants who are rejected for credit must be given the reasons for this action in writing. If, after you have examined the lender’s statement, you remain convinced that you are the victim of discrimination, the next step is to write a letter describing the situation in full. Your complaints about commercial banks should go to the nearest regional office of the Federal Reserve System.

  • Complaints about federally insured savings and loan associations should go to: General Counsel, Federal Home Loan Bank Board, 1700 G Street, NW, Washington, D.C. 20552.
  • Complaints about credit unions should go to: National Credit Union Administration, 1776 G Street, NW, Washington, D.C. 20456.
  • Complaints about credit card companies, finance companies and retail stores should go to: Federal Trade Commission, Equal Opportunity Division, Washington , D.C. 20580 .
  • Or, if you prefer, you can send your complaints — no matter what kind of lending agency is involved — to your state’s consumer protection office or attorney general’s office.

The Truth in Lending Act

The Truth in Lending Act is a US Federal Law Protecting Consumers in Credit Transactions

The primary purpose of this federal legislation, enacted in 1968, is to make the borrower aware of exactly how much a loan will cost. There was a time when lenders could simply advertise “8 percent interest.” Unless the borrower carefully examined the exact terms of the loan — often written in difficult-to-understand legal terminology — he or she was unlikely to realize that “add-ons” might effectively double the interest being charged. Such tactics are now illegal. Today a borrower must be provided with information, written in terms that a layman can understand, which includes the following facts:

  • The finance charge: All lenders — except those lending mortgage money — must state clearly in their contracts the total amount the loan (or line of credit) is going to cost the borrower. This amount may include sums other than interest: there may also be points, handling, appraisal, loan and/or insurance fees and similar expenses.
  • The annual percentage rate (APR): All lenders must disclose their cost of credit as a yearly rate. Unless the information is given in these terms, consumers can end up paying considerably more for either closed or open-ended loans than they expected. If, for example, you borrow $1,200 for a year at 10 percent interest with the understanding that you will repay the total sum plus interest at the end of the year, you will have had the use of the full $1200 at a cost of $120. But most consumer loans are repaid in monthly installments. You therefore do not have the use of the money in full, and the interest rate is thus increased. For instance, $1320 paid back in 12 equal installments of $110 a month represents an 18 percent annual rate of interest.
  • Late payment penalties: In order to assure themselves of an adequate profit, most lenders levy penalties on borrowers who are tardy in making scheduled payments. This practice is entirely legal, but under Truth in Lending, institutions that engage in it must disclose that fact, and must also disclose the terms of the penalties.

In addition to the general disclosure requirements of the Truth in Lending law, there are others that relate specifically to closed and open-ended loans. Closed-end loan agreements, for example, must include the following information:

  • The date on which each payment for the loan is due.
  • The total amount the borrower will have paid out once his or her obligation has been fulfilled.
  • Whether or not a prepayment penalty — a percentage of the money still outstanding — will be levied against borrowers who pay their loans in full before the due date; and if it is levied, the amount.
  • If the interest rate is variable, the circumstances under which it changes and on what basis the rate is determined.
  • The total number of payments to be made.
  • Whether or not the loan contains a demand feature and, if it does, the terms.
  • An accurate description of any property that may have been used to secure the loan and the terms under which that property may be forfeited.

Open-ended loan agreements must include the following information:

  • Whether or not borrowers can avoid interest charges, and if so, how. Most credit card companies do not charge interest on bills that are paid in full, and under Truth in Lending, the holders of such cards must be given at least two weeks from the opening of the billing period to make their payments.
  • The differences — if any — in interest rates for different kinds of loans. Credit card companies often charge a higher rate of interest for cash advances than for purchases; if they do, this information must be given in the credit agreement. Similarly, if there is a variable rate of interest, the circumstances under which the rate may vary and the limits on the amount by which it can vary must be disclosed. Finally, any changes in interest rates must be reported to card holders, and transactions completed before the rate change is in effect must be billed at the earlier rate.
  • The lender must send the borrower a monthly statement detailing the following: previous balance; payment received; amount owed; interest; principal and date or time by which the new balance or a portion of it must be paid to avoid additional charges. The statement must also itemize all purchases made during the billing period.

Failure on the part of a lender to make the disclosures required by the Truth in Lending law gives a borrower grounds for legal action — a suit for damages, plus double the finance charges up to a maximum of $1,000. If the suit is successful, the defendant will be required to pay court costs and the plaintiff’s legal fees.

If you think any bank has violated the terms of the Truth in Lending Act, get in touch with your state banking commission; if your complaint concerns a credit card company or some other lender, report it to your state attorney general’s office.

Advertising Restrictions. The Truth in Lending Act also imposes restrictions on those who advertise credit. A bank, for example, may advertise that credit is available to “qualified customers,” but if it goes beyond that to mention specific credit terms, it must describe other basic requirements. An ad for a new home, for example, cannot merely advertise” 12 percent credit” unless it also mentions the annual percentage rate. Nor can the ad state the amount of finance charge without also stating the amount of the down payment, if any, the terms of repayment and the APR.

Protections For Users of Credit

Legal Protection Of Borrowers

Like millions of Americans, you probably make at least some of your purchases on credit. The practice of buying now and paying later, though vital to both individual and national economies, can be dangerous if abused. Each year hundreds of thousands of people find themselves over their heads in debt and unable to meet all their monthly payments. Often they resort to desperate means — trying, for example, to consolidate their debts by incurring a single new one, a tactic that sometimes makes matters worse. In some cases they wind up in bankruptcy court, their credit ratings shattered and their property forfeit.

Neither federal nor state governments can prevent people from overextending themselves financially, but the governments can, and do, provide consumers with some protection in the credit marketplace. Because banks are the primary source of credit, they come under particularly close scrutiny.

There was a time, not too long ago, when a bank could turn down a credit applicant for any reason, or for no reason at all. A person might be denied a loan on the basis of sex, race, marital status or just because the loan officer took a dislike to the applicant. Similarly, banks and other lending institutions could conceal the true interest they were charging for loans by stressing the monthly rate and obscuring the total yearly cost. Credit reporting agencies, upon which lenders depend for determining the credit-worthiness of an applicant, were so loosely governed that they could report mere rumors as evidence of a person’s lack of financial responsibility. All such practices, and a host of other dubious credit procedures, have been outlawed.


The Perils of Cosigning

Bank Loan Cosigning Perils

There may come a time when a friend or relative applies for a loan and the lending institution refuses unless the applicant can find a cosigner. If someone you know asks you to cosign a loan, consider the request very carefully before you agree.

Chances are that the lender would not have required a cosigner if the applicant’s credit rating was good. If you do cosign, you are not simply doing your friend a favor; you are agreeing to pay off the loan in full in the event that your friend cannot.

In fact, if you are accepted as a cosigner, the lender may be more persistent in dunning you for repayment than in pursuing the borrower, on the assumption that your financial resources are greater. As a cosigner, you have few rights but possibly crushing obligations — and all this without having received a penny from anyone.