credit & debt

How to Protect Your Rights

When you apply for and use credit, you should expect a fair deal from the lender.

Several federal laws protect your rights. The Truth in Lending Act requires the lender to disclose the terms of the deal in a way you can understand. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD) gives credit card users new protections against arbitrary rate increases. The Equal Credit Opportunity Act prohibits unfair discrimination in the granting of credit. The Fair Credit Reporting Act helps if you have been denied credit. And the Fair Credit Billing Act, which is designed to prevent foul-ups on your bills and help straighten them out when they do occur. You could benefit from detailed knowledge of these laws.

The Truth in Lending Act. Federal truth-in-lending rules require lenders to express the cost of borrowing as the annual percentage rate, or APR. The APR and the method of calculating the finance charge must appear prominently on lenders' loan disclosure forms.

The CARD Act. Your card issuer must give you 45 days notice of any interest rate increase on an existing card. You can opt out of the increase and pay off your balance at the old rate. If you apply for a new card, the issuer may not increase your rate for one year (unless it is tied to an index that fluctuates) and then it may charge the higher rate only on new purchases, not your existing balance. If you owe balances on your credit card at several different rates, any payment over the minimum must be applied to the highest rate balance.

The Equal Credit Opportunity Act. This law says that you cannot be denied credit because of sex, marital status, age, race, color, religion, national origin, your receipt of public-assistance income, or your exercise of your rights under truth-in-lending and other credit laws. Neither this law nor any other guarantees anyone credit. But the law does guarantee that your creditworthiness will be evaluated on the same basis as that of all other customers.

The Fair Credit Reporting Act. This law give you the right to receive a copy of your report at no charge if you've been denied credit within the past 60 days. You can ask the credit bureau to investigate any errors you report and to contact the creditor who reported the negative information. If the creditor involved confirms the information but you still think it's wrong, you can add a short statement to your file, telling your side of the story.

The Fair Credit Billing Act. The heart of the Fair Credit Billing Act obligates credit card issuers and firms that extend revolving-type credit to do the following credit payments to your account the day they are received, mail your bill 14 days before payment is due and send you detailed explanation of your rights under this law.

If you are denied credit, start by calling the credit bureau in question and getting your report mailed to you. When you examine your report, you should not see any negative information more than seven years old, unless you have been declared bankrupt. Federal law requires that most unfavorable reports be purged after seven years (ten in the case of bankruptcy) so that past financial problems won't haunt someone for life.

If you find any information in your credit record that's wrong, demand that the credit bureau investigate the report. If it can't verify the accuracy of the item, the information must be dropped from your file. When unfavorable information is accurate, you may be able to minimize its damage by attaching to the report a short statement. If you missed several payments during a period in which you were unemployed or ill, for example, an explanation of the extenuating circumstances might give you a better chance with the next potential creditor who calls up your report.

Assuming your report is changed after your review, you can have the credit bureau send the revised report to credit grantors who got the original version during the previous six months.

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