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Credit Guide
This isn't an example of easy—and here’s Dan’s em-dash—cutting and pasting… Some of us can and do pay cash for everything we buy, but most of us take advantage of consumer credit to get things we need now — and pay for them later. You most likely are currently using at least one type of credit: a home mortgage or home equity loan, car loan, credit card, or maybe a monthly installment loan for an appliance. If you're using credit, you obviously know something about it. But do you know:
This guide is designed to help you get a good start, avoid hazards, and know where to go and what to do if you have problems when using credit. Whenever you apply for any type of credit — a loan, charge card, a mortgage — the lender will want to know if you are creditworthy. That is, are you willing and able to repay the loan? Are you a good risk? To determine your creditworthiness, a creditor usually looks at three factors: Capacity Capital Character If you have borrowed before and have a good repayment record, you at least have something to show the creditor to help convince him or her that you're a good risk. But what if you have never borrowed? Then you need to begin to build your credit record. You can start by applying for a small loan at the financial institution where you regularly transact business, being sure to make payments on time. Open a charge account at one or two local department stores and show that you can handle them responsibly. Establishing a good credit history takes time and effort, so try not to get discouraged if it's difficult at first. Carefully planning your use of credit is as important as carefully planning your road trip. As you use credit, your borrowing and repayment habits are recorded and become a part of your file at a local credit bureau. A credit bureau is a business organization that puts together information for your credit file, keeps it up to date, and makes it available for a fee to lenders, insurance companies, and potential employers. Your credit record contains:
Checking each item you give on a loan application would cost the lender a lot of time and money. Credit bureaus make it possible for the lender to obtain your credit history in a single step. Credit bureaus will provide the information they have collected about your creditworthiness to you, as well as to your creditors, and it's a good idea for you to know what's in your credit file. Note, however, that when you obtain a copy of your credit report for general informational purposes, most credit bureaus usually charge a fee. To find the credit bureau in your area, look in the yellow pages under "Credit Rating and Reporting Agencies." More than one may be listed, but any should be able to help you either directly or by referring you to the appropriate agency. When the first cars started to roll on the roads of America at the turn of the century, there were no laws to protect people from damage that might be caused by reckless driving or even by a sheer lack of knowing what to do. Gradually, as more and more cars crowded the roads, it became apparent that laws were needed to make driving safe for everyone. The same is true of consumer credit; as credit use became more and more widespread it was obvious that some lenders were taking advantage of consumers, and the need for rules to protect borrowers became increasingly apparent. In 1968 Congress passed the first in a series of laws, under the Consumer Credit Protection Act, designed to shield consumers from unfair lending practices. Understanding these laws can help you avoid unnecessary worries and may even save you money. Obtaining credit, like going on a trip, requires some planning. When driving on a long trip, do you stop at just any station for gas, or do you look around for the best price? If cost is important to you, you should take time to find the credit agreement that is best for you. The Truth in Lending legislation was designed to help you do just that. Since credit terms can be confusing and lenders charge varying rates, they are required by the Truth in Lending law to state charges in a clear and uniform manner so that you can easily compare prices. The cost of credit must be expressed in two forms: The finance charge The annual percentage rate (APR) By looking at these two figures, you can compare prices. However, you will probably also want to consider other things such as the amount required for down payment and the length of time allowed for repayment. What if you find that the same lender has charged you a higher rate of interest than a friend was charged? Was that lender unfair to you? Probably not. The amount and type of your loan, the period of time you take to repay, the degree of risk the lender perceives, as well as market rates and the lender's cost of funds at the time of the loan, all affect the cost of your loan. Truth in Lending legislation does not set the price of credit--it simply requires lenders to state their prices in such a way that borrowers can easily compare them. Similarly, the Equal Credit Opportunity Act does not guarantee that credit will be extended to you, but does assure that you will not be denied it because of your race, color, sex, marital status, religion, national origin or age, because you receive income from assistance programs, or because you have exercised your rights under the Consumer Credit Protection Act. In short, only those factors that bear on your creditworthiness--that indicate whether you are likely to repay--are to be considered as bases for granting or denying credit (capacity, collateral, character, and credit history). If you are denied credit, the creditor must notify you in writing within 30 calendar days, giving you either specific reasons for the denial or informing you of your right to request an explanation. If the decision to refuse your loan request is based on information from your credit file, the Fair Credit Reporting Act requires the creditor to tell you the name and address of the reporting agency that supplied the information. That agency must then allow you to review your credit file, free of charge. In addition, the Fair Credit Reporting Act controls the use of credit reports, limits the length of time that negative information may appear in your report, and sets up the means for correcting errors in your file. Fair Credit Billing mandates that creditors follow certain procedures when billing you and lets you know what to do in case of an error on your billing statement. It also sets up guidelines for settling a dispute over a billing item. Your rights with respect to truth in advertising, canceling a credit agreement under certain circumstances, and the use of credit cards are among the many that are also safeguarded under the Consumer Credit Protection Act. If you have questions about consumer credit laws or feel that a creditor has treated you unfairly, you should contact the Federal Reserve Bank or other appropriate regulatory agency nearest you for more complete information about your rights and steps you can take to correct a credit problem. There are advantages and disadvantages associated with credit use, but if you get a good start, build a strong credit record, understand your rights and responsibilities, and know where you can turn if you have a credit problem, you can be in the driver's seat on your way to credit-ability. Contact Your Financial Institution's Regulator for More Information If you have questions about your credit rights or if you would like to file a complaint about a financial institution that you feel has treated you unfairly, contact the organization that regulates your financial institution. |
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