The Credit CARD Act of 2009 into law May 22, 2009

By Getachew Teklu

The new normal
President Obama signed the Credit CARD Act of 2009 into law May 22, 2009, following passage days earlier in the Senate and the House. (Read the act.)

What will the credit card law mean for cardholders? Millions of credit card users will avoid retroactive interest rate increases on existing card balances and have more time to pay their monthly bills, greater advance notice of changes in credit card terms and the right to opt out of significant changes in terms on their accounts. That will take the surprise out of “gotcha” fine print and give consumers time to shop around for better deals if they don’t like the new terms. The requirements are being phased in. The first batch took effect Aug. 20, 2009, and the majority of provisions start Feb. 22, 2010, while some begin in August and December 2010. Once in effect, the law will also fundamentally change the way credit card issuers market, bill and advertise credit cards.

Here are the highlights of the credit card law:

Limited interest rate hikes: Interest rate hikes on existing balances would be allowed only under limited conditions, such as when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Significant changes in terms on accounts cannot occur without 45 days’ advance notice of the change.

Limited universal default: “Universal default,” the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), would end for existing credit card balances. Card issuers would still be allowed to use universal default on if they give at least 45 days’ advance notice of the change.

The right to opt out: Consumers now have the right to opt out of — or reject — certain significant changes in terms on their accounts. Opting out means cardholders agree to close their accounts and pay off the balance under the old terms. They have at least five years to pay the balance.

Limited credit to young adults: Credit card issuers will be banned from issuing credit cards to anyone under 21; unless they have adult co-signers on the accounts or can show proof they have enough income to repay the card debt. Credit card companies must stay at least 1,000 feet from college campuses if they are offering free pizza or other gifts to entice students to apply for credit cards.

More time to pay monthly bills: Under the credit card law, issuers would have to give card account holders “a reasonable amount of time” to make payments on monthly bills. That means payments would be due at least 21 days after they are mailed or delivered. Consumers have complained about due dates that change without notice or are moved up, giving them less time to pay their bills and increasing the likelihood of late fees.

Clearer due dates and times: Credit card issuers would no longer be able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates would be illegal under the new credit card law. Payments due at those times or on weekends, holidays or when the card issuer is closed for business will not be subject to late fees.

Highest interest balances paid first: When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first. Current industry practice is to apply all amounts over the minimum monthly payments to the lowest-interest balances first — thus extending the time it takes to pay off higher-interest rate balances.

Limits on over-limit fees: Consumers must “opt in” to over-limit fees. Those who opt out would have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees. Fees charged for going over the limit must be reasonable.

No more double-cycle billing: Finance charges on outstanding credit card balances would be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. So-called two-cycle or double-cycle billing hurts consumers who pay off their balances; because they are hit with finance charges from the previous cycle even though they have paid the bill in full.

Sub prime credit cards for people with bad credit: People who get sub prime credit cards and are charged account-opening fees that eat up their available balances would get some relief under the new credit card law. These upfront fees cannot exceed 25 percent of the available credit limit in the first year of the card. Instead of charging high upfront fees, some issuers are considering high interest rates on these high credit risk accounts.

Minimum payments: Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.

Law doesn’t cover everything
Consumers should take note: Although the reforms are the most dramatic changes in credit card laws in decades, they do not protect card users from everything. Issuers can still raise interest rates on future card purchases and there is no cap on how high interest rates can go. Business and corporate credit cards also are not covered by the protections in the CARD Act. If credit card accounts are based on variable APRs (as the majority now are), interest rates can increase as the prime rate goes up. Credit card companies can also continue to close accounts and slash credit limits abruptly, without giving cardholders advance warning. Many banks are already finding ways around the law and launching new fees not specifically banned by the credit card reform law.

February 6, 2010 at 7:38 PM 1 comment

New Credit Card Laws for 2010

December 25, 2009 at 8:55 PM 1 comment

What is Credit?

By Getachew Teklu

 Whenever you make a purchase today with the promise to pay for it tomorrow, you are using credit. Having credit lets you make purchases when you don’t have cash available. Before a lender will allow you to use credit, it must first believe that you can be trusted to repay the amount of credit you use. This is considered financial trustworthiness. Lenders use a number of factors to determine your financial trustworthiness. The most commonly used factor is your credit history. How you have used credit in the past – your credit history – is considered to be the best way to predict how you will use it in the future. Your credit history is reported in your credit report and credit score. When you are a new creditor and do not have a credit history, the lender might use other factors such as employment and salary to gauge your financial trustworthiness. Or, the lender might require that someone who does have favorable credit agree to repay your charges if you fail to do so. In this case, the two of you share credit. How Does It Work? To establish credit with a financial institution, you must first make an application.

The lender will use identifying information, like your social security number, to look up your credit history. If the lender determines that you are a trustworthy borrower, then it will extend credit to you. Once you have been approved for credit, the lender will give you guidelines, or terms, for using your credit. The terms include, but are not limited to, how often you should send payments for purchases, what happens if you are late on a payment, and the cost of using credit. Usually, the lender establishes a maximum amount of credit that you can use, a credit limit, based on your credit history. Your credit terms will outline what happens if you exceed this limit. In most cases, there is a monetary penalty. When you’ve been approved for credit, the lender provides you with a way to use this credit, e.g. a credit card. Periodically you will receive a billing statement from your lender detailing purchases you’ve made, interest charged, minimum payment amount due, and payment due date. Per your agreement with the lender, you must make payments by the due date to avoid penalties.

November 12, 2009 at 5:14 PM Leave a comment

You can get all your free credit reports?

By Getachew Teklu

Due to the passage of the 2003 Fair and Accurate Credit Transaction Act (FACTA), all Americans are entitled to one free credit report from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — upon request every 12 months. There are several ways you can request your free credit report:

•Online: Visit AnnualCreditReport.com
•Telephone: (877)-322-8228
•Mail: Complete the Annual Credit Report Request form and mail it to the following address:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

The 2003 law did not eliminate the other ways to receive a free credit report. You’re still entitled to a free credit report if you meet any of the following conditions:

•You applied for a loan and were turned down. You can request a free credit report by writing the correct credit bureau within 30 days of your rejection. Enclose a copy of the declined loan application with your request.
•You’re unemployed and planning to apply for jobs in the next 60 days.
•You’re receiving public assistance.
•You believe your credit file contains mistakes due to fraud.
•You currently reside in a state that offers an annual free credit report from each credit reporting agency by state law. Residents of the following seven states are entitled to one free copy of their credit report each 12 months from each of the three main credit agencies per federal law and one free copy of their credit report each 12 months from each of the three main credit agencies to satisfy their state’s law.

Colorado
Georgia
Maine
Maryland
Massachusetts
New Jersey
Vermont

The second free report can be obtained by directly calling each credit bureau:

Equifax: 1-800-685-1111
Experian: 1-888-397-3742
TransUnion: 1-800-916-8800

If you have any difficulty ordering this free report over the phone, you may also write to each bureau:

Equifax
P.O. Box 740256
Atlanta, GA 30374

Experian
P.O. Box 2002
Allen, TX 75013

TransUnion
P.O. Box 2000
Chester, PA 19022

Include the following info in your letter. Be sure that each person requesting the report signs and dates the request.

•Your full name
•Date of birth
•Current and former address
•Social Security number
•Your spouse’s name
•Your phone number

Sources: Bankrate.com and Privacy Rights Clearinghouse

For those who do not reside in the seven states where you are entitled to a second free credit report per agency per year, you may order a second or third report directly from the three agencies by mail. Include the same identifying information listed above and mail to the same addresses listed for each bureau. Here is a breakdown of the charges:

California residents: $8 per report
Connecticut residents: $5 per report
Minnesota residents: $3 per report
Montana residents: $8.50 per report
Virgin Island residents: $1 per report
Residents of all other states: $10 per report

November 9, 2009 at 3:52 PM 1 comment

Fixing Errors on a Credit Report

by Lee Ann Obringer

What if your name is Bob Jones, and when you get your credit report from one of the credit bureaus you find that there are accounts listed there that are held by another Bob Jones? Or, you find that your unemployed and debt-heavy brother’s information is showing up on your report? What do you do? Under the FCRA, you have the right to, and the CRA has the responsibility of, correcting any errors or incomplete information in your credit report.

Listed below are some steps you can take to correct errors on your report. Whatever you do, don’t use one of those companies that say they can “fix” your credit history — erase bankruptcies, liens, bad credit, etc. While there are some legitimate companies out there that can help you, you can do anything they can do.

One very important thing is to document everything you do (dates and times of phone calls, people you spoke with, what they said, what your action was, etc.), and keep copies of everything you send them. Don’t send original documents — send copies. Remember to be aggressive and persistent. This process may take a while — usually three to six months.

• Let the paperwork begin – You will begin a long and often arduous task of writing letters explaining the inaccuracies. First, send a letter to the CRA to give your side of the story and try to set straight the inaccuracies that have been reported. The letter should include your name and address and explain what is inaccurate and why. Tell them the facts and request a correction to your report. It would also help to include a copy of your report with the incorrect information circled, along with copies of any documentation that supports your claim. Send your letter by certified mail with a return receipt so you know it was received. Keep a record of everything you sent.Second, send a letter to the merchant or creditor who supplied the incorrect information to make it known that you are disputing it. Send copies of the documentation that supports your claim, just as you did with the CRA.

  (NOTE: Most of the national credit bureaus allow you to begin the dispute process online. This isn’t a bad place to start; but if you have additional documentation, presenting it the good old fashioned way is probably best.)

   

• Give the CRA 30 days – The credit reporting agency legally has 30 days to investigate your claim (unless your claim is deemed “frivolous” or “irrelevant”). If after this amount of time you haven’t heard back, call the customer service department. There is usually a toll-free number on the credit report that you can call for assistance. Remember to keep notes of your conversations and any actions that were taken as a result.

   

• Re-reviewing your credit report – When you get a written response from the credit agency, you’ll also get a new copy of your credit report (if there were any changes). If any information is changed on the report, the CRA cannot change it back unless the creditor provides proof that it was accurate. In this case, you will get notification from the CRA that the item has been put back on your report. You’ll receive the contact information for the creditor or merchant so you can begin your battle (if you know you’re right). Like we said at the beginning, be aggressive and persistent. Find out the creditor’s side of the story. See below to find out what to do if they’re right and you’re wrong.

If you can’t get any satisfaction and feel you’re not being treated fairly by the creditor, you can contact the agency to which they report. Credit InfoCenter has a page that lists this contact information.

November 9, 2009 at 3:37 PM Leave a comment

How Lenders Interpret Your Credit Report

by Lee Ann Obringer

 your credit report only relays the history of your dealings with creditors. However, you need to look closely. There’s information there that may seem innocent to you but not to potential creditors. This includes information like:

• Inquiries – Every time you apply for a credit card to get a free travel mug, duffel bag, or T-shirt, you are adding another hard inquiry to your credit report. When potential lenders see these inquiries, it may wrongly imply that you’re either in some financial situation where you need a lot of credit, or are planning to take on a large debt. Either can flag you as a high credit risk.Other types of inquiries, such as your own requests to view the report, employer requests to view the report and requests by marketers to get your name in order to sell you something, count as soft inquiries. These inquiries don’t show up on the reports that lenders see, and therefore don’t affect how they view your credit.

  Also, watch out when you are car shopping or mortgage shopping. Make sure you don’t let the car dealer or mortgage broker run your credit unless you know you’re going to be buying from them. While the FCRA allows these types of multiple credit inquiries that are within seven to 14 days of each other to be counted as a single inquiry, you would have to be careful of your timing to make sure you don’t have multiple inquiries show up.

  So, how many hard inquiries can you have without a problem? Some experts say that if you have 10 credit card inquiries in six months, that will probably scare a lender. Others experts say that as few as six credit card inquiries in six months can label you as risky. Inquiries that are older than six months may not be looked at as strongly because if you actually set up the loan or opened the credit card account, those accounts would now be showing up on your report as well. The newer inquiries might lead the lender to think that you actually have the credit accounts available now but they haven’t shown up on the credit report yet. Most inquiries drop off of your report after two years.

   Open credit accounts – Another thing to watch out for as you gather all of those free mugs and duffel bags is that even though you may have forgotten about them, accounts you don’t use still count toward your total available credit. Just as with the hard inquiries we’ve talked about, these can indicate to a potential lender that you could easily put yourself into financial danger with all of that readily available credit.

• According to TransUnion and Experian, you should not close out your oldest card, because it has the most history on it; also, you should maintain four to six credit cards to “keep your credit score and debt balances healthy” . But other than that, close the accounts you don’t use. In addition to avoiding excessive available credit, you’re limiting your exposure to identity theft.

  Cutting up the card or just not using it doesn’t mean the account is closed. You have to call or write to the card company and ask to close the account. 

• Missed payments – Obviously, your payment history makes a big difference. You should always make at least the minimum payment, or consolidate accounts to reduce your payments. These delinquencies stay on your report for seven years — even if you’ve caught up your payments! The same goes for accounts that creditors have turned over to collection agencies or charged-off — meaning that they’ve written the account off as a loss. Even if you do pay off the account at a later date, the charge-off or collection action stays on your report for seven years.

   

• Maxed-out credit lines – Another thing that scares lenders is a maxed-out credit line (or two). This waves a big red flag and indicates that you may be financially strapped for some reason. Some experts suggest moving debt around if this is the case. For example, if you have a maxed-out card but have other cards that haven’t reached their credit limits, you might consider moving some of the debt from the maxed-out card to the non-maxed-out ones.

   

• Debt in relation to income – If you have unsecured credit card debt that is more than 20 percent of your annual income, lenders may not want to give you the best deal on a loan — if they’ll take the chance and give you a loan in the first place. Work to reduce the debt-to-income ratio and you’ll be able to get better rates on the loans you seek.

November 9, 2009 at 3:33 PM Leave a comment

How Credit Bureaus Get Information

by Lee Ann Obringer

A credit bureau is a clearinghouse for credit information about consumers. There are more than 1,000 local and regional credit bureaus around the country that gather information about your credit habits directly from your creditors. Typically, these smaller local and regional bureaus are affiliated with one of three large national credit bureaus — Equifax, Experian and TransUnion (see below).

For example, let’s say you apply for a credit card and provide the card company with all of your personal information, such as your name and address, your previous address (if you haven’t lived at your current residence for more than two years), your employer, other credit cards you have, etc. The credit card company then contacts a credit reporting agency (CRA) and reviews your credit report. If the company approves your application for a credit card, then the information you’ve supplied is forwarded to the CRA. That credit card company also reports your payment history to the CRA, so that becomes part of the report. The CRAs also access information about you from public record information such as court records.

All of the transactions you have that involve credit are reported monthly to CRAs by the merchants or creditors you deal with. Most large creditors report this information to all three national credit bureaus (CRAs). Some smaller lenders or merchants, however, may only report the information to one. For this reason, your report from each CRA may not be the same. You might get a copy of your report from Experian that does not include an account that shows up on your report that is maintained by TransUnion. For this reason, it is wise to review copies of all three reports.

You can find the contact information for all three national credit bureaus in the United States.

• Equifax – www.equifax.comTo order your report, call: 800-685-1111 or write: P.O. Box 740241, Atlanta, GA 30374-0241To report fraud, call: 800-525-6285/ TDD: 800-255-0056 and write: P.O. Box 740241, Atlanta, GA 30374-0241
• Experian – www.experian.comTo order your report, call: 888-EXPERIAN (397-3742) or write: P.O. Box 2104, Allen, TX 75013To report fraud, call: 888-EXPERIAN (397-3742)/ TDD: 800-972-0322 and write: P.O. Box 9532, Allen, TX 75013
• TransUnion – www.transunion.comTo order your report, call: 800-916-8800 or write: P.O. Box 1000, Chester, PA 19022To report fraud, call: 800-680-7289/ TDD: 877-553-7803 and write: Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92634-6790

While the report itself only relays the history of your dealings with creditors, potential creditors can learn a lot from this. Read on to find out how professionals interpret your credit report.

November 9, 2009 at 3:29 PM Leave a comment