Ch 6 Intro to Consumer Credit
Monday, March 2, 2026 1:54 PM
What is Consumer Credit?
- Credit
○ An arrangement to receive cash, goods or services now and pay later
- Consumer Credit
○ Refers to credit used for personal needs (excluding a home mortgage) vs how a
business would use it
○ Based on trust in people’s ability & willingness to pay bills when they are due
The importance of consumer credit in our economy
- Credit was originally a privilege of the affluent, no direct finance charges were
imposed & the credit was added to the price of goods. When cars became the norm
in the early 1900’s, installment credit started trending where the debt is repaid in
equal installments over a specific period of time & became the norm across America
○ Baby Boomers (1946-1964)
§ Added to the growth of consumer credit & 60% of outstanding debt
○ Gen X (1965-1979)
§ Used credit as a life line, between Gen X & Baby Boomers, credit cards were
used as a survival tool which added to the U.S. consumer debt total
□ *$4.18 trillion as of 2020
Uses & Misuses of credit
- Using credit allows consumers to be more efficient/productive & maybe lead to more
satisfying lives, the following reasons are:
○ A medical Emergency
○ The purchase of a car
○ A sale maybe cheaper on credit
○ Borrowing for an education
- Reasons that are not valid:
○ Everyday living expenses
***Personal note gas may be THEE ONLY EXCEPTION***
○ To finance a high end purchase
- If you decide to use credit be sure the benefits out weight the costs, misuse of your
credit can lead to bankruptcy & loss of credit worthiness
Advantages of Credit
- Credit allows you to enjoy goods & services now and pay them later on a payment
plan based on future earnings
○ They allow you to make purchases when funds are low
○ One monthly payment to the credit
** Try to make two minimum payments a month to cover your fees**
○ Credit is typically safer when traveling w/o having to carry large amounts of cash
§ Best recommend for hotels, rentals & shopping via phone/online
○ Credit can be used to verify identification & provide a purchase history
○ You may see a “float” (pending transaction)
§ A time lag between the time of purchase & when the merchant deducts the
balance from your account when payment is due
○ Some credit companies offer perks for using their issued credit like:
§ Rebates
§ 5% back
§ Extended warranty on certain items
§ Submit claims for a broken/lost/stolen products for a value limit of $1,000 if
claimed within 90 days
§ Emergency Medical Evacuation
§ Insurance in the event of death
§ Worldwide auto rental collision damage waivers
§ Road side assistance
§ Redeemable points for gifts cards, cash, airfare, hotels & vacation packages
§ Damage & theft protection within 120 days of a purchase
§ Some credit cards don’t charge foreign travel transaction fees
Disadvantages of Credit
- Temptations to overspend can lead to
○ Failure to pay can result in loss of income, loss of valuable property, your
reputation (aka your credit score)
- Serious misuse of a credit card can lead to
○ long term financial problems, family issues & a slowing progress to any financial
goals
- Credit Costs Money
○ It’s a service that must be paid & delayed payments might be met w/ more
interest
Two Types of Credit
- Closed-End Credit
○ When you payback a one time loan in a specific period of time in equal amounts
○ Are used for a specific purchases w/ a specified amount:
§ Mortgage, auto loans, furniture & appliances
- Three most common types of closed end credit installments
○ Sales
○ Cash
○ Lump sum
- Open-End Credit (Revolving Credit)
○ Loans made on a continuous basis & billed periodically
§ A balance to be repaid in weekly or monthly payments over a set amount of
time
○ A line of credit
§ The max dollar amount of credit available
○ Interest
§ A charge for the use of credit
○ Revolving Credit
§ A pre arranged loan for a specific amount written by special check
Credit Cards
- 7 out of 10 households carry more than 1 credit card
- 2 out of 3 have one retail credit card
- 56% have more than one visa
- 47% have a Mastercard
○ Only 1/2 of all credit users pay off their full credit balance each month known as
Convenience holders
- About 25,000 financial institutions participate in credit cards mostly w/ visa
international & MasterCard
○ Co-Branding
§ The link between a credit card & a business offering “points” when buying a
service or product, usually offered by hotels, airlines & major retailers
§ They often offer points, miles, cash back & other rewards that increase over
a period of time
- Smart Cards
○ AKA smart-chip enabled combine a credit card, drivers license, health care ID w/
medical history, insurance, frequent flyer miles & phone cards
- Debit Cards
○ AKA bank cards, electronically subtract from your account at the moment you
purchased a good/service
○ Most commonly used at ATM machine, POS terminals & service stations
○ Unlike credit cards that extend payments, you are also not responsible for
charges on a debit card you did not accept
○ Lost/stolen debit cards reported within two days have federal regulation limits
to your liability of up to $50 plus any amount resulting in your failure to notify
the bank
Stored Values
- A.k.a. gift cards, resemble a typical debit card using magnetic technology to store
information and funds
- Unlike traditional debit cards, Store value cards are pre paid providing you with
immediate money
○ In the late 90s retailers began issuing these parts instead of a paper certificate
and have rapidly grown
○ Today they can be used for payroll, general spending, travel expenses,
government benefit payments & employee benefit and rewards
○ Market research estimates 100 million dollar loss of gift cards & are treated the
same as bankruptcy for major retailers
Travel and Entertainment (T&E) cards
- Unlike credit, the balance must be paid in full not in installments or a minimum
Smart phones
- Aka mobile commerce, has increased in digital use such as apps for payment & tap to
pay
○ Over 80% of Americans have smartphones
Home Equity Loans
- Are based on the difference between current market value of your home & the
amount you owe on your mortgage
○ Depending on the value of your home you can borrow up to 80% of its appraisal
value
- Home Equity Loan
○ Set up similar to a revolving line of credit
§ Revolving Credit - An arrangement where the borrower is given a specified
amount for a certain period of time
○ These types of loans are strongly recommended for:
§ Education, home improvements and/or medical bills ONLY
§ If you miss a payment you can loose your home & will have to pay the home
loan in full
Protecting yourself against debit/credit card fraud
- Credit Fraud, How to protect yourself
○ Store credit cards somewhere secure
○ Shred & trash anything w/ your account number
§ As of 2025 you can go paperless, this is personally recommended
○ Don’t give your credit card number over the phone or online UNLESS you made
contact
○ Don’t write your credit number outside of an envelope or any type of packaging
○ Remember to have your receipts (digital or physical)
○ Verify a merchant returns your card to you
○ If credit billing is incorrect, the card is lost or stolen be sure to notify your card
holder institution/bank immediately
Protecting your credit info on the internet
- Use a secure browser
- Keep records of your online transactions
- Review your monthly bank & credit statements in case of any errors
- Read/ask about policies that use your personal data
- Keep all person data online private & don’t disclose personal info
- Give payment info only to businesses you know & trust
- Never share you password online
- Never open/download files or hyperlinks from unknown websites/companies/people
it will give them access to all info on your device
Measuring Your Credit Capacity
- Can you afford a loan?
○ Add all your monthly expenses & subtract it from your take home pay, if the
difference doesn’t cover the monthly payments or leave you w/ a surplus of
funds for other expenses you can’t afford a loan
○ What can you give up to make the loan payments?
§ Entertainment, new appliances/tech, in some cases necessities
- General Rules of Credit Capacity
○ Debt to income ratio
§ Calculated by dividing your monthly debts to your net income
□ This doesn’t include a house payment
§ Don’t spend more than 15-20% of your income on credit payments
○ Debt to Equity Ratio
§ Calculated by diving your total liabilities to your net worth
Co-Signing a Loan
- Co signing
○ You are responsible for someone else’s debt in the event that they can’t pay
○ As a cosigner, you are being asked to take a risk that a professional lender will
not take
○ In most states, if you are the cosigner and someone misses a payment, the
lender can collect the entire debt from you immediately without permission first
○ The amount you owe if they decide to sue, If this happens, they may take your
wages & property
- Co Signers often pay
○ 3 out of 4 co signers are asked to pay either the whole or a portion of the loan
up front
- If you do co sign
○ Make sure you can afford the loan, if you cant you will be sued for damages
○ Even if your not asked to pay, it might keep you from getting any credit lines in
the future
○ Secure the loan & understand the consequences BEFORE handing over any type
of insurance (a car or furniture) if the money doesn’t go through (defaults) you
can lose the property you are requesting
○ Be aware of state laws that might give you additional rights
○ Request copies of any over due payments be sent to you to ensure payment and
to protect your credit
Building & Maintaining your Credit Rating
- The quality of your credit rating is up to you & reflects your capacity to borrow &
repay money
○ Credit Bureaus
§ AKA Consumer Report Agencies (CRA) collect info about consumers
○ 3 Major Credit Bureaus
§ Experian Information Solutions
§ TransUnion Credit Information Company
§ Equifax Services
○ Each maintenance millions of credit files based on info received from lenders
once a month
§ Firms sell data to creditors to evaluate applications
- The Consumer Financial Protection Bureau receives over approx. 36,000 complaints
per year
○ Incorrect credit reports
○ Mixed reports for those w/ similar or the same last name
○ As of 2015 & stricter federal laws, Experian, Equifax & TransUnion reduced
errors on reports
○ In 2017, Play girls began removing taxes and civil judgment debts (payment of
damages) from credit reports If the information was incorrect
- Who provides data to credit bureau?
○ Information is obtained from banks, finance companies, merchants, credit card
company & other creditors
- What is in your Credit Files?
○ Your name, address, social security & date of birth
○ Employer, position & income
§ As well as former employers
○ Your spouse & their info as stated above
○ If you own or rent
○ If checks were returned for insufficient funds
○ Credit history & type of credit
○ Amounts of money borrowed
○ Purchases
○ Payments made, amounts due & outstanding balances
- Fair Credit Reporting
○ The 1971 law that regulates the use of credit reports, requires unnecessary info
be deleted & gives consumers they’re files & their rights to have data corrected
○ Prescreens are companies who are allowed to view your credit report & show it
to you
§ Experian, Equifax etc
- Who can obtain a credit report?
○ Possible future employers w/ permission from the courts
○ Someone verifying your eligibility for a benefit under the govt
- The Limits on Adverse Data
○ Most info in your credit report is only 7yrs, bankruptcy make go as far back 10yrs
○ Unpaid tax liens are reported for 15yrs
○ After the 7-15yr credit reporting companies can’t disclose your info unless you
are being investigated for:
§ A credit application over $75,000
§ Life Insurance policy over $150,000
- Incorrect Info on your credit file
○ Someone w/ a similar name
○ Check your credit for incorrect charges
○ You can request a free report within 60 days of being denied credit, insurance or
rentals of any kind
○ Review your credit report every 3-6months
- What are some Legal remedies?
○ Any consumer reporting agencies that fail to comply w/ the law or commits acts
of negligence can be sued by the consumer, if found guilty the consumer will be
awarded damages, court costs, attorneys fee’s & punitive damages
○ This must be present within 2yrs of discovery, anyone under false pretenses will
be fined $5,000, imprisoned for one year or both
Applying for Credit
- A scenario from the past
○ The Equal Credit Opportunity Act (ECOA)
§ States that race, color, age, sex, marital status & other factors may not be
used to discriminate against
What creditors look for: The 5 C’s of Credit Management
- Character
○ The borrowers attitude towards credit obligations
- Capacity
○ Your financial ability to meet credit obligations aka regular loan payments
- Capitol
○ Refers to your assets or net worth & your ability to repay a loan
- Collateral
○ An asset that you pledge to a financial institution to obtain a loan
- Conditions
○ Refers to general economic conditions that affect your ability to repay a loan
Age
- Creditors may not turn you down if
○ Your credit decreases because of age
○ Ignore your application based on retirement income
○ Closed your credit account/require you reapply due to age or retirement
○ Deny you credit/close your account because of life insurance or other credit
related insurance that is NOT available
Housing Loans
- The EOAC covers the application for your mortgage or home improvement loan
FICO & Vantages
- Info in your credit report is used to calculate your FICO credit score be aware of these
numbers:
○ Low/risky borrower - 300-400
○ Average - 450-500
○ Good - 600-750
○ Great - 760-850
§ Recommended range for a better mortgage rate & auto loan
- Pending the number of your FICO/credit score, it will show the banks and lenders
how trust worthy you are w/ money
○ High numbers represent lower likelihood of risks
○ Does not count debt collection that has been paid off
○ 30 million additional consumers with short histories are eligible for credit reports
○ Ignores negative credit history affected by natural disasters
Nerd Wallet Free Credit Score Check
What if your application is denied?
- The EAOC gives you the right to know the specific reasons for denial
○ It can be based on credit reports
- Contact the credit bureau to find out what was reported
- They can’t charge you a fee if you ask for your report within 60 days of being notified
- The credit bureau may investigate if you find incomplete information
How can I improve my credit score?
- Pay bills on time
- Lower balances
○ Personal note: ALWAYS PAY MORE THAN THE MINIMUM BALANCE
§ I.E. $45 minimum, instead try to make say two payment of $25/mo
Avoiding & Correcting Credit Mistakes
- The Fair Credit Billing Act
○ (1975) Has a protocol for correcting billing mistakes, refusing credit
payments/revolving payments on defective items & quickly refunding owed
credit if payments were made
○ Billing errors are:
§ Purchases that were not approved or done by you
§ Incorrect pricing
§ Accepting a purchase not on time or against an agreement
§ Failure to pay for an item/service etc
§ Incorrect mailing address
- In Case of Billing Error
1. Call your billing creditor
i. Most errors happen over the phone, can be corrected over the phone
and/or via mail
2. Give them your name, account number & address
i. Explain what you think the error is & the amount that was input incorrect
3. Pay all parts of the bill that are not in the dispute
i. You don’t have to pay the amount your disputing or any
additional/minimum fees
- The creditor has 30 days to acknowledge your letter, in 90 days either the mistakes
will be corrected or you will be shown the error w/ an explanation
- You will be reported as delinquent until payment/correction is made
Defective Goods or Services
- The Fair Credit Billing Act protects you, allowing you too withhold payment on any
damaged goods or services until the issue is resolved
Identity Crisis: What to do if your identity is stolen
1. Contact the Fraud Dept of each major bureaus
- Equifax www.equifax.com
§ 1-800-525-6258
§ 1-888-298-0045
- Experian www.experian.com
§ 1-888-397-3742
- Trans Union www.transunion.com
§ 1-800-916-8800
2. Contact your creditors for any account that have been tempered with or opened
fraudulently
3. File a police report
To prevent your identity from being stolen:
• Tear/shred any
- reciepts w/ your name on it
- Copies of credit card applications
- Insurance forms
- Bank checks/statements
- Expired credit cards
- Credit mail offers
• Close banks accounts immediately
- Replace debit/credit cards w/new pin
• Social Security Admin
- Will give you a new number if you are still facing difficulties w/ identity theft
• File a complaint w/ the Federal Trade Commission
Complaining about Consumer Credit
- Complaints about banks
• If you have a complaint about something you can submit a complaint to the
Federal Reserve System
Protection under Consumer Credit Laws
- The Truth in lending & consumer leasing act
• If a creditor fails to disclose info, give’s inaccurate info or doesn’t comply w/ the
rules regarding credit cards
- Equal Credit Opportunity Act
• If you can prove discrimination for any reason prohibited by the ECOA
Fair Credit Billing Act
- When a creditor fails to comply w/ rules applied to correcting billing errors which
forfeits the amount owed to the items in question & finance charges on it
- You may also sue for actual damages plus 2x the amount of any finance charges
Consumer Credit Reporting Reform Act of 1997
- Places the burden of proof for accurate credit info on the reporting agency rather
than you
Credit Card Accountability, Responsibility & Disclosure Act of 2009
- Places new restrictions on credit card lending & eliminates some fees
Your Rights under Consumer Credit Laws
- If you believe you have been refused credit due to discrimination, you can:
1. Complain to the creditor
2. File a complaint w/ the govt, they will not handle private cases, when denied credit
you must give your name & address of the agency to contact
3. If all else fails sue the creditors, you have the right to a federal court case
- If you win you can recover your actual damages & punitive damages of up to
$10,000
Monday, March 2, 2026 1:54 PM
What is Consumer Credit?
- Credit
○ An arrangement to receive cash, goods or services now and pay later
- Consumer Credit
○ Refers to credit used for personal needs (excluding a home mortgage) vs how a
business would use it
○ Based on trust in people’s ability & willingness to pay bills when they are due
The importance of consumer credit in our economy
- Credit was originally a privilege of the affluent, no direct finance charges were
imposed & the credit was added to the price of goods. When cars became the norm
in the early 1900’s, installment credit started trending where the debt is repaid in
equal installments over a specific period of time & became the norm across America
○ Baby Boomers (1946-1964)
§ Added to the growth of consumer credit & 60% of outstanding debt
○ Gen X (1965-1979)
§ Used credit as a life line, between Gen X & Baby Boomers, credit cards were
used as a survival tool which added to the U.S. consumer debt total
□ *$4.18 trillion as of 2020
Uses & Misuses of credit
- Using credit allows consumers to be more efficient/productive & maybe lead to more
satisfying lives, the following reasons are:
○ A medical Emergency
○ The purchase of a car
○ A sale maybe cheaper on credit
○ Borrowing for an education
- Reasons that are not valid:
○ Everyday living expenses
***Personal note gas may be THEE ONLY EXCEPTION***
○ To finance a high end purchase
- If you decide to use credit be sure the benefits out weight the costs, misuse of your
credit can lead to bankruptcy & loss of credit worthiness
Advantages of Credit
- Credit allows you to enjoy goods & services now and pay them later on a payment
plan based on future earnings
○ They allow you to make purchases when funds are low
○ One monthly payment to the credit
** Try to make two minimum payments a month to cover your fees**
○ Credit is typically safer when traveling w/o having to carry large amounts of cash
§ Best recommend for hotels, rentals & shopping via phone/online
○ Credit can be used to verify identification & provide a purchase history
○ You may see a “float” (pending transaction)
§ A time lag between the time of purchase & when the merchant deducts the
balance from your account when payment is due
○ Some credit companies offer perks for using their issued credit like:
§ Rebates
§ 5% back
§ Extended warranty on certain items
§ Submit claims for a broken/lost/stolen products for a value limit of $1,000 if
claimed within 90 days
§ Emergency Medical Evacuation
§ Insurance in the event of death
§ Worldwide auto rental collision damage waivers
§ Road side assistance
§ Redeemable points for gifts cards, cash, airfare, hotels & vacation packages
§ Damage & theft protection within 120 days of a purchase
§ Some credit cards don’t charge foreign travel transaction fees
Disadvantages of Credit
- Temptations to overspend can lead to
○ Failure to pay can result in loss of income, loss of valuable property, your
reputation (aka your credit score)
- Serious misuse of a credit card can lead to
○ long term financial problems, family issues & a slowing progress to any financial
goals
- Credit Costs Money
○ It’s a service that must be paid & delayed payments might be met w/ more
interest
Two Types of Credit
- Closed-End Credit
○ When you payback a one time loan in a specific period of time in equal amounts
○ Are used for a specific purchases w/ a specified amount:
§ Mortgage, auto loans, furniture & appliances
- Three most common types of closed end credit installments
○ Sales
○ Cash
○ Lump sum
- Open-End Credit (Revolving Credit)
○ Loans made on a continuous basis & billed periodically
§ A balance to be repaid in weekly or monthly payments over a set amount of
time
○ A line of credit
§ The max dollar amount of credit available
○ Interest
§ A charge for the use of credit
○ Revolving Credit
§ A pre arranged loan for a specific amount written by special check
Credit Cards
- 7 out of 10 households carry more than 1 credit card
- 2 out of 3 have one retail credit card
- 56% have more than one visa
- 47% have a Mastercard
○ Only 1/2 of all credit users pay off their full credit balance each month known as
Convenience holders
- About 25,000 financial institutions participate in credit cards mostly w/ visa
international & MasterCard
○ Co-Branding
§ The link between a credit card & a business offering “points” when buying a
service or product, usually offered by hotels, airlines & major retailers
§ They often offer points, miles, cash back & other rewards that increase over
a period of time
- Smart Cards
○ AKA smart-chip enabled combine a credit card, drivers license, health care ID w/
medical history, insurance, frequent flyer miles & phone cards
- Debit Cards
○ AKA bank cards, electronically subtract from your account at the moment you
purchased a good/service
○ Most commonly used at ATM machine, POS terminals & service stations
○ Unlike credit cards that extend payments, you are also not responsible for
charges on a debit card you did not accept
○ Lost/stolen debit cards reported within two days have federal regulation limits
to your liability of up to $50 plus any amount resulting in your failure to notify
the bank
Stored Values
- A.k.a. gift cards, resemble a typical debit card using magnetic technology to store
information and funds
- Unlike traditional debit cards, Store value cards are pre paid providing you with
immediate money
○ In the late 90s retailers began issuing these parts instead of a paper certificate
and have rapidly grown
○ Today they can be used for payroll, general spending, travel expenses,
government benefit payments & employee benefit and rewards
○ Market research estimates 100 million dollar loss of gift cards & are treated the
same as bankruptcy for major retailers
Travel and Entertainment (T&E) cards
- Unlike credit, the balance must be paid in full not in installments or a minimum
Smart phones
- Aka mobile commerce, has increased in digital use such as apps for payment & tap to
pay
○ Over 80% of Americans have smartphones
Home Equity Loans
- Are based on the difference between current market value of your home & the
amount you owe on your mortgage
○ Depending on the value of your home you can borrow up to 80% of its appraisal
value
- Home Equity Loan
○ Set up similar to a revolving line of credit
§ Revolving Credit - An arrangement where the borrower is given a specified
amount for a certain period of time
○ These types of loans are strongly recommended for:
§ Education, home improvements and/or medical bills ONLY
§ If you miss a payment you can loose your home & will have to pay the home
loan in full
Protecting yourself against debit/credit card fraud
- Credit Fraud, How to protect yourself
○ Store credit cards somewhere secure
○ Shred & trash anything w/ your account number
§ As of 2025 you can go paperless, this is personally recommended
○ Don’t give your credit card number over the phone or online UNLESS you made
contact
○ Don’t write your credit number outside of an envelope or any type of packaging
○ Remember to have your receipts (digital or physical)
○ Verify a merchant returns your card to you
○ If credit billing is incorrect, the card is lost or stolen be sure to notify your card
holder institution/bank immediately
Protecting your credit info on the internet
- Use a secure browser
- Keep records of your online transactions
- Review your monthly bank & credit statements in case of any errors
- Read/ask about policies that use your personal data
- Keep all person data online private & don’t disclose personal info
- Give payment info only to businesses you know & trust
- Never share you password online
- Never open/download files or hyperlinks from unknown websites/companies/people
it will give them access to all info on your device
Measuring Your Credit Capacity
- Can you afford a loan?
○ Add all your monthly expenses & subtract it from your take home pay, if the
difference doesn’t cover the monthly payments or leave you w/ a surplus of
funds for other expenses you can’t afford a loan
○ What can you give up to make the loan payments?
§ Entertainment, new appliances/tech, in some cases necessities
- General Rules of Credit Capacity
○ Debt to income ratio
§ Calculated by dividing your monthly debts to your net income
□ This doesn’t include a house payment
§ Don’t spend more than 15-20% of your income on credit payments
○ Debt to Equity Ratio
§ Calculated by diving your total liabilities to your net worth
Co-Signing a Loan
- Co signing
○ You are responsible for someone else’s debt in the event that they can’t pay
○ As a cosigner, you are being asked to take a risk that a professional lender will
not take
○ In most states, if you are the cosigner and someone misses a payment, the
lender can collect the entire debt from you immediately without permission first
○ The amount you owe if they decide to sue, If this happens, they may take your
wages & property
- Co Signers often pay
○ 3 out of 4 co signers are asked to pay either the whole or a portion of the loan
up front
- If you do co sign
○ Make sure you can afford the loan, if you cant you will be sued for damages
○ Even if your not asked to pay, it might keep you from getting any credit lines in
the future
○ Secure the loan & understand the consequences BEFORE handing over any type
of insurance (a car or furniture) if the money doesn’t go through (defaults) you
can lose the property you are requesting
○ Be aware of state laws that might give you additional rights
○ Request copies of any over due payments be sent to you to ensure payment and
to protect your credit
Building & Maintaining your Credit Rating
- The quality of your credit rating is up to you & reflects your capacity to borrow &
repay money
○ Credit Bureaus
§ AKA Consumer Report Agencies (CRA) collect info about consumers
○ 3 Major Credit Bureaus
§ Experian Information Solutions
§ TransUnion Credit Information Company
§ Equifax Services
○ Each maintenance millions of credit files based on info received from lenders
once a month
§ Firms sell data to creditors to evaluate applications
- The Consumer Financial Protection Bureau receives over approx. 36,000 complaints
per year
○ Incorrect credit reports
○ Mixed reports for those w/ similar or the same last name
○ As of 2015 & stricter federal laws, Experian, Equifax & TransUnion reduced
errors on reports
○ In 2017, Play girls began removing taxes and civil judgment debts (payment of
damages) from credit reports If the information was incorrect
- Who provides data to credit bureau?
○ Information is obtained from banks, finance companies, merchants, credit card
company & other creditors
- What is in your Credit Files?
○ Your name, address, social security & date of birth
○ Employer, position & income
§ As well as former employers
○ Your spouse & their info as stated above
○ If you own or rent
○ If checks were returned for insufficient funds
○ Credit history & type of credit
○ Amounts of money borrowed
○ Purchases
○ Payments made, amounts due & outstanding balances
- Fair Credit Reporting
○ The 1971 law that regulates the use of credit reports, requires unnecessary info
be deleted & gives consumers they’re files & their rights to have data corrected
○ Prescreens are companies who are allowed to view your credit report & show it
to you
§ Experian, Equifax etc
- Who can obtain a credit report?
○ Possible future employers w/ permission from the courts
○ Someone verifying your eligibility for a benefit under the govt
- The Limits on Adverse Data
○ Most info in your credit report is only 7yrs, bankruptcy make go as far back 10yrs
○ Unpaid tax liens are reported for 15yrs
○ After the 7-15yr credit reporting companies can’t disclose your info unless you
are being investigated for:
§ A credit application over $75,000
§ Life Insurance policy over $150,000
- Incorrect Info on your credit file
○ Someone w/ a similar name
○ Check your credit for incorrect charges
○ You can request a free report within 60 days of being denied credit, insurance or
rentals of any kind
○ Review your credit report every 3-6months
- What are some Legal remedies?
○ Any consumer reporting agencies that fail to comply w/ the law or commits acts
of negligence can be sued by the consumer, if found guilty the consumer will be
awarded damages, court costs, attorneys fee’s & punitive damages
○ This must be present within 2yrs of discovery, anyone under false pretenses will
be fined $5,000, imprisoned for one year or both
Applying for Credit
- A scenario from the past
○ The Equal Credit Opportunity Act (ECOA)
§ States that race, color, age, sex, marital status & other factors may not be
used to discriminate against
What creditors look for: The 5 C’s of Credit Management
- Character
○ The borrowers attitude towards credit obligations
- Capacity
○ Your financial ability to meet credit obligations aka regular loan payments
- Capitol
○ Refers to your assets or net worth & your ability to repay a loan
- Collateral
○ An asset that you pledge to a financial institution to obtain a loan
- Conditions
○ Refers to general economic conditions that affect your ability to repay a loan
Age
- Creditors may not turn you down if
○ Your credit decreases because of age
○ Ignore your application based on retirement income
○ Closed your credit account/require you reapply due to age or retirement
○ Deny you credit/close your account because of life insurance or other credit
related insurance that is NOT available
Housing Loans
- The EOAC covers the application for your mortgage or home improvement loan
FICO & Vantages
- Info in your credit report is used to calculate your FICO credit score be aware of these
numbers:
○ Low/risky borrower - 300-400
○ Average - 450-500
○ Good - 600-750
○ Great - 760-850
§ Recommended range for a better mortgage rate & auto loan
- Pending the number of your FICO/credit score, it will show the banks and lenders
how trust worthy you are w/ money
○ High numbers represent lower likelihood of risks
○ Does not count debt collection that has been paid off
○ 30 million additional consumers with short histories are eligible for credit reports
○ Ignores negative credit history affected by natural disasters
Nerd Wallet Free Credit Score Check
What if your application is denied?
- The EAOC gives you the right to know the specific reasons for denial
○ It can be based on credit reports
- Contact the credit bureau to find out what was reported
- They can’t charge you a fee if you ask for your report within 60 days of being notified
- The credit bureau may investigate if you find incomplete information
How can I improve my credit score?
- Pay bills on time
- Lower balances
○ Personal note: ALWAYS PAY MORE THAN THE MINIMUM BALANCE
§ I.E. $45 minimum, instead try to make say two payment of $25/mo
Avoiding & Correcting Credit Mistakes
- The Fair Credit Billing Act
○ (1975) Has a protocol for correcting billing mistakes, refusing credit
payments/revolving payments on defective items & quickly refunding owed
credit if payments were made
○ Billing errors are:
§ Purchases that were not approved or done by you
§ Incorrect pricing
§ Accepting a purchase not on time or against an agreement
§ Failure to pay for an item/service etc
§ Incorrect mailing address
- In Case of Billing Error
1. Call your billing creditor
i. Most errors happen over the phone, can be corrected over the phone
and/or via mail
2. Give them your name, account number & address
i. Explain what you think the error is & the amount that was input incorrect
3. Pay all parts of the bill that are not in the dispute
i. You don’t have to pay the amount your disputing or any
additional/minimum fees
- The creditor has 30 days to acknowledge your letter, in 90 days either the mistakes
will be corrected or you will be shown the error w/ an explanation
- You will be reported as delinquent until payment/correction is made
Defective Goods or Services
- The Fair Credit Billing Act protects you, allowing you too withhold payment on any
damaged goods or services until the issue is resolved
Identity Crisis: What to do if your identity is stolen
1. Contact the Fraud Dept of each major bureaus
- Equifax www.equifax.com
§ 1-800-525-6258
§ 1-888-298-0045
- Experian www.experian.com
§ 1-888-397-3742
- Trans Union www.transunion.com
§ 1-800-916-8800
2. Contact your creditors for any account that have been tempered with or opened
fraudulently
3. File a police report
To prevent your identity from being stolen:
• Tear/shred any
- reciepts w/ your name on it
- Copies of credit card applications
- Insurance forms
- Bank checks/statements
- Expired credit cards
- Credit mail offers
• Close banks accounts immediately
- Replace debit/credit cards w/new pin
• Social Security Admin
- Will give you a new number if you are still facing difficulties w/ identity theft
• File a complaint w/ the Federal Trade Commission
Complaining about Consumer Credit
- Complaints about banks
• If you have a complaint about something you can submit a complaint to the
Federal Reserve System
Protection under Consumer Credit Laws
- The Truth in lending & consumer leasing act
• If a creditor fails to disclose info, give’s inaccurate info or doesn’t comply w/ the
rules regarding credit cards
- Equal Credit Opportunity Act
• If you can prove discrimination for any reason prohibited by the ECOA
Fair Credit Billing Act
- When a creditor fails to comply w/ rules applied to correcting billing errors which
forfeits the amount owed to the items in question & finance charges on it
- You may also sue for actual damages plus 2x the amount of any finance charges
Consumer Credit Reporting Reform Act of 1997
- Places the burden of proof for accurate credit info on the reporting agency rather
than you
Credit Card Accountability, Responsibility & Disclosure Act of 2009
- Places new restrictions on credit card lending & eliminates some fees
Your Rights under Consumer Credit Laws
- If you believe you have been refused credit due to discrimination, you can:
1. Complain to the creditor
2. File a complaint w/ the govt, they will not handle private cases, when denied credit
you must give your name & address of the agency to contact
3. If all else fails sue the creditors, you have the right to a federal court case
- If you win you can recover your actual damages & punitive damages of up to
$10,000
