Credit Reporting

Obtaining Credit

Open End and Closed End Credit

Credit is a broad term that covers all sorts of financial arrangements.  Generally, there are two types of credit: “open end” and “closed end.”

Open end credit is an ongoing extension of credit that may continue indefinitely, assuming neither party withdraws.  Credit cards are the most common form of open end credit.  As the consumer pays off the balance of the card, additionally credit becomes immediately available.

In a closed end credit transaction, credit is only extended once and payments on that transaction are made over a period of time.  Mortgages, car loans, or other loans are examples of closed end credit.

Required Disclosures to Consumers

By law, creditors are required to inform consumers about the costs of the credit transactions they are entering.  This is helpful for consumers because they can compare offers from various creditors and shop around for the best deal. 

 

The disclosures that creditors are required to make for applications for open credit include

  1. The annual percentage rate of interest (If more than one rate may apply, the range of balances to which each rate is applicable must also be disclosed. If the account has a variable rate, the card issuer must also disclose the fact that the rate may vary, and how the rate is determined.)
  2. Any annual or other periodic fee for the card, including any fee based on account activity or inactivity
  3. Any minimum or fixed finance charge that could be imposed during a billing cycle
  4. Any transaction charges imposed for the use of the card for purchases
  5. Any cash advance fee
  6. Any late payment fee
  7. Any fee for charging over one's credit limit
  8. Any "grace period," during which any credit used for purchases may be repaid without incurring a finance charge (If the length of the grace period varies, the card issuer must disclose the range of days, the minimum number of days, or the average number of days in the grace period.)

Additionally, creditors are required to offer consumers disclosures on a statement each billing cycle. These disclosures include

  1. The date of the bill and the beginning date of the billing cycle
  2. The outstanding balance owed at the beginning of the billing cycle
  3. The date and amount of each extension of credit during the billing cycle, with a description of the transaction sufficient to identify it
  4. Any credits to the account (such as payments received)
  5. All finance charges for the billing cycle, itemized as interest, late fees, minimum fees, annual fees, etc.
  6. The balance on which the finance charge was computed and a statement as to how the balance was arrived at
  7. Each interest rate used to compute the finance charge
  8. The final balance
  9. The date by which payments must be made to avoid any finance charge
  10. The address of the creditor for purposes of disputing charges or other inquiries

 

A creditor offering closed end credit must make certain disclosures before the transaction is completed and conspicuously, in writing, and in a form the consumer may keep.  The disclosures must appear in a table, and the table may not contain other information not directly related to the required disclosures.

 

The required disclosures include

  1. The identity of the creditor
  2. The dollar amount being financed (the principal of the loan)
  3. The finance charge (the dollar amount that the credit will cost you)
  4. The annual percentage rate (the interest rate)
  5. The payment schedule (the number, amounts, and timing of payments)
  6. The total of payments (the dollar amount you will have paid when all payments are made)
  7. The total sale price (down payment, plus amount being financed, plus finance charge)
  8. Any prepayment penalty (a fee charged if the consumer pays off the loan early)
  9. Any charge for late payments

Lost or Stolen Credit, ATM, and Debit Cards

One of the advantages of using a credit card is that federal law limits your liability for unauthorized charges if your credit card is stolen or lost.  Under the Fair Credit Billing Act (FCBA), your liability for unauthorized use of your credit card is capped at $50.  If you report the loos before your credit card is used, you are not liable for ANY unauthorized use.  Finally, if your credit card number is stolen, but not the card, you are not liable for unauthorized use.

ATM or Debit cards also have protections, but they are not as strong.  If you report an ATM or debit card missing before someone uses it, you are not responsible for any unauthorized transactions.  However, if you report it after the card has been used, your liability is determined by how quickly you reported the loss.

 

If you report

Your maximum loss:

Before any unauthorized transactions occur $0
Within 2 business days after you learn about the loss or theft $50
More than 2 business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you $500
More than 60 days after your statement is sent to you All the money taken from your account, and possibly any accounts linked to your debit account.

Time is of the essence!
 

Protect you Cards

Here are some tips to protect your card and account from unauthorized access.

  • Don’t disclose your account number over the phone unless you initiated the call.
  • Draw a line through blank spaces on charge or debit slips above the total so the amount can’t be changed
  • Don’t sign a blank charge or debit slip
  • Tear up copies and save your receipts to check against your monthly statements
  • Cut up old cards – cutting through the account number – before you throw them away.  Do not use a shredder for credit cards.
  • Open your monthly statements promptly and compare them to your receipts.  Report mistakes or discrepancies as soon as possible
  • Carry only the cards you’ll need.
  • Keep a record of account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.
  • For debit cards, don’t carry your PIN in your wallet, purse, or pocket.  Never write it on the card, on the outside of a deposit slip, an envelope, or other papers that could be lost or looked at.  Commit it to memory.
  • Cover the PIN pad when entering your PIN on an ATM machine.

Disputing Credit Card Charges

If you have unauthorized charges or other errors on your credit card, the Fair Credit Billing Act (FCBA) protects your right to have those charges disputed.  In order to take advantage of your rights under this act:

  1. Write to the creditor at the address given for “billing inquiries,” not the address for sending your payments.  In clude your name, address, account number, and a description of the billing error.  The FTC provides sample letters at http://www.consumer.ftc.gov/articles/0385-sample-letter-disputing-billing-errors
  2. Send your letter so that it reaches the creditor within 60 days after the first bill with the error was mailed to you.
    1. It is a good idea to send it by certified mail and get a return receipt.  This will give you proof that the creditor received it.
    2. The creditor must acknowledge your complaint within 30 days of receiving it, unless the problem has been resolved.

While the matter is being investigated, you do not have to pay the disputed amount.  You do, however, have to pay the remainder of your bill that is not part of the investigation.

 

Creditor’s Obligations

  1. The creditor may not take any legal action to collected the disputed amount during the investigation.
  2. Your account cannot be closed during the investigation.
  3. Any creditor who fails to follow the procedures may not collect the amount in dispute up to $50.

Your Rights During the Investigation

  1. If the bill has a mistake, the creditor must explain in writing the corrections that will be made to your account.
  2. If the creditor determines you owe a portion of the amount, the creditor must provide a writing explanation. You may ask for copies of relevant documents that prove how much you owe.
  3. If the creditor determines the bill is correct, you must be told in writing how much you owe and why.  You may ask for copies of relevant documents that prove how much you owe.
    1. Once you receive this notice, you owe the disputed amount, plus any interest or charges that have accumulated during the dispute.
  4. If you disagree with the results of the investigation, you may write to the creditor within 10 days of receiving the explanation.  You may indicate that you refuse to pay the disputed amount.
    1. At this point, the creditor may begin collection procedures.
    2. If the creditor reports you to a credit reporting company as delinquent, the report must also state that you don’t think you owe the money
      1. The creditor must tell you who gets these reports
  5. If you feel that a creditor has violated the FCBA, you may:
    1. File a complaint with the FTC.
    2. Sue a creditor who violates the FTC. If you win, you may be awarded damages plus twice the amount of any finance charge, as long as it’s between $500 and $5,000.  The court may also order the creditor to pay your attorney’s fees and costs.

Credit Scoring

Credit scoring is a system creditors use to help determine whether to give you credit and what the terms of the loan will be.  The credit score indicates how likely you are to repay the loan and make payments when they are due.  This score is compiled using information about you and your credit history, like your bill-paying history, the number and type of accounts you have, whether you pay your bills on time, how much debt you have, collection actions against you, and the age of your accounts.

Credit Report

Your credit report is a key factor in your credit score, so it is important to review it periodically to be certain that it is accurate.  Federal law gives you the right to a free copy of your credit report from each of the credit reporting agencies once every 12 months.

To order your free annual credit report from one or all of the national credit reporting companies, and to purchase your credit score, visit www.annualcreditreport.com, call toll-free 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

Disputing Errors on Credit Reports

There are multiple reasons why it is important to periodically check your credit report to make sure it is accurate.  Your credit report contains information that affects your ability to get a loan.  Checking the report can also be an effective way of detecting identity theft.  If there are errors, the Fair Credit Reporting Act give you rights in disputing these errors.  Under this law, the credit reporting company and the information provider (the company that provides information about you to the credit reporting company) are responsible for correcting inaccurate or incomplete information in your report.

 

Step One

Send a letter to the credit reporting company describing the information you think is inaccurate.  Here is the FTC’s sample dispute letter: http://www.consumer.ftc.gov/articles/0384-sample-letter-disputing-errors-your-credit-report.  Include copies (NOT originals) of documents that support your position.  You should clearly identify each item in the report that you dispute, state the facts, explain why you dispute the information, and request that it be removed or corrected.  Send the request by certified mail so you can confirm that the credit reporting company received your request.

The credit reporting company must investigate the disputed items, unless they consider your claim frivolous.  They must forward all of the information you provided to the organization that originally reported the disputed information.  The information provider must investigate 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.

You are entitled to receive a copy of the results of the investigation in writing and a free copy of your credit report if the investigation resulted in a change.  The credit reporting company must also send you a notice that includes the name, address, and phone number of the information provider.

If the investigation does not resolve your dispute, you can ask that a statement of the dispute by included in your file and in future reports.  You can also ask the credit reporting company to provide your statement to anyone who received a copy of your report in the recent past if you are willing to pay a fee for this service.

Step Two

Tell the information provider (that is, the person, company, or organization that provides information about you to a credit reporting company), in writing, that you dispute an item in your credit report. Here is a sample letter provided by the FTC: http://www.consumer.ftc.gov/articles/0485-sample-letter-disputing-errors-your-credit-report-information-providers.  Include copies (NOT originals) of documents that support your position. If the provider listed an address on your credit report, send your letter to that address. If no address is listed, contact the provider and ask for the correct address to send your letter. If the information provider does not give you an address, you can send your letter to any business address for that provider.

If the provider continues to report the item you disputed to a credit reporting company, it must let the credit reporting company know about your dispute. And if you are correct — that is, if the information you dispute is found to be inaccurate or incomplete — the information provider must tell the credit reporting company to update or delete the item.

 

Tips to Improve Your Credit Score

  1. Keep you balances low – one of the major factors in your score is how much of your credit you are actually using.  As you get closer to your credit limit, your score will likely go down.  Pay down your balances and keep your balances low.
  2. Pay your bills on time – the credit score is an evaluation of your likelihood to repay a loan and make payments when they are due.  A history of making payment on time will increase your score.
  3. Limit the number of credit applications – when you apply for credit, companies will submit an inquiry to the credit agencies to look at your credit score.  The credit score will take into account how many inquiries are on your account.  If you have applied for too many accounts in a short period of time, it can have a negative impact on your credit score.
  4. Be Patient – improving a credit score takes time and consistent effort.  If your credit score is not where you want it to be, start making changes today and watch it improve over time.

 

If you are Denied Credit

The Equal Credit Opportunity Act requires the creditor to give you a notice with either the specific reasons your application for credit was denied or an indication that you have a right to learn the reasons if you request them within 60 days.  Ask for specific answers.  Indefinite and vague reasons are illegal.