CREDIT TIPS FOR CONSUMERS
Including:
- How Consumers Obtain Credit
- Solving Billing Problems
- Checking Credit Histories
- Dealing With Debts
- Building a Credit History
- ebt Collection Practices
How Consumers Obtain Credit
The FTC enforces the Equal Credit Opportunity Act (ECOA), which prohibits creditors from discriminating against consumers applying for credit on the basis of sex, race, marital status, national origin, religion, age or because they receive public- assistance income. This does not mean that all consumers who apply for credit will receive credit, but it does mean that creditors may consider only such things as income, expenses, debts and credit histories when choosing applicants. While creditors usually consider a number of factors when deciding whether to grant credit, most rely heavily on consumers' credit histories, which they obtain from local credit bureaus. Credit bureaus are organizations that gather and sell credit information on consumers. These bureaus, sometimes called consumer reporting agencies, are the principal source of information for credit histories.
A credit-history report is based on information supplied over time by creditors with whom consumers have done business. Creditors are not required to forward such information, but many do so. The reports contain records of consumers' credit-card payments and loan payments, as well as employment information and other matters of public record, such as court judgments and bankruptcies. From these reports and sometimes from other sources, such as banks or employers, creditors determine whether consumers are likely to be good or bad credit risks. All legitimate creditors want to know whether consumers will be able to pay them back. Consumers should be wary of any company that promises to extend credit to consumers regardless of their credit history. Consumers with good credit histories usually are able to obtain additional credit. Consumers with histories of delinquent payments, judgments or bankruptcies may find that creditors are reluctant to grant them credit. As a result, building and maintaining a good credit history is essential.
Checking Credit Histories
The FTC also enforces the Fair Credit Reporting Act (FCRA), which gives consumers specific rights in dealing with credit bureaus. It requires the bureaus to maintain reasonable procedures for assuring they furnish correct and complete information to creditors. The FCRA allows consumers to learn from credit bureaus what information is in their credit-history files and the sources of that information. Consumers who are concerned about their credit histories should check with local credit bureaus. For a small fee, the bureaus will tell consumers what information is in their files. Consumers can find these bureaus in the Yellow Pages under "Credit" or "Credit Reporting Agencies." Since more than one credit bureau may have a file, consumers should call each one listed. While the bureaus are not required to give consumers a copy of the file, many of them do. Consumers can also request the names of creditors who have received a report in the last six months. Not all creditors report credit-history information to credit bureaus. As a result, consumers may find that some of their credit accounts are not included in the bureaus' reports. Consumers who have had credit in a different city or under a different name can request the bureaus to include this information. When asking a credit bureau to add account information, consumers should do so in writing and include all relevant information, such as account numbers, expiration dates, and the names and addresses of the creditors with whom they have had accounts in order to expedite the process. While the bureaus do not have to add new accounts to a file, many will do so for a small fee. In checking credit reports, women who share accounts with their husbands may find the accounts listed only in the husband's name. Under the ECOA, creditors who report information on accounts used by both spouses must report it under both names when requested. For this reason, women should contact creditors directly if they want to have these accounts listed under their names as well. Under the FCRA, consumers can challenge the completeness or accuracy of the information and the bureau is required to investigate the matter. If the bureau cannot verify the disputed information, it must delete it from the file. If consumers disagree with the results of the investigation, they are entitled to write a statement presenting their side of the story, which becomes part of the credit-bureau report.
If negative or derogatory information is accurate, only time can remove it. Credit bureaus can report bankruptcies for 10 years and other negative information, such as failure to pay bills, for seven years. Besides requiring credit bureaus to make credit-history information available to consumers and to maintain complete and accurate records, the FCRA places certain requirements on creditors as well. Creditors who deny credit applications based on information in a credit-bureau report must tell consumers they have done so and furnish the credit bureau's name and address so consumers know which bureau to contact. If creditors deny credit based on information from other sources, such as banks or employers, they must disclose the nature of this information or tell consumers of their right to request this disclosure. Creditors must also tell consumers that they can learn the reasons why their credit applications were turned down by making an inquiry. Creditors may deny credit because of information in credit-history files that indicates past credit problems or because of little or no established credit history. Creditors may also deny credit based on information consumers supply on credit applications, such as income. The law provides that, if consumers are rejected by a creditor because of a credit-bureau report, credit bureaus must disclose the contents of credit files to consumers, free of charge, if consumers request it and if they write within 30 days of being rejected. Consumers should check to see whether the information in the file is accurate and complete.
Building a Credit History
If consumers do not have a credit history, it may take them some time to establish their first credit account. Young people just beginning their careers or divorced or widowed women who used accounts in their husbands' names sometimes encounter this problem. Consumers who wish to start building a credit history should do several things. First, it helps to have a steady source of income and to have lived in the same area for at least a year. Consumers should try applying for credit with local businesses, such as department stores, or borrowing a small amount from a credit union or bank where they do business. These creditors may have less rigid qualifications than major creditors. Before applying for credit, consumers should check to see if the creditor reports information to a credit bureau in the area. Creditors are not required to do so, but many do. If possible, consumers should obtain credit that will be reported. Some major creditors offer special credit cards with low credit levels for college students that offer a convenient way to begin establishing a credit history while still in college. If consumers are rejected for credit, they should use the protections of the ECOA to find out why. There may be reasons other than a lack of credit history. For example, their income may not meet the minimum salary requirements or they may not have been at their current place of employment for the required period of time. Creditors must provide the major reasons for rejection if consumers inquire.
Consumers who cannot get credit may wish to consider having a person with an established credit history act as a cosigner. Cosigners promise to pay if the credit applicant does not. Such an arrangement can substantially improve a consumer's chances of getting credit.
Solving Billing Problems
The FTC also enforces the Fair Credit Billing Act (FCBA), which provides consumers with important protection regarding billing problems. The FTC advises consumers to go over their monthly statements with care. Errors do occur, but consumers can remedy them if they know what to do. To receive FCBA protection, consumers must write the creditor a letter that includes the consumer's name and account number; the date, type and dollar amount of the charge being questioned; and an explanation of why the consumer believes the charge is in error. The consumer may also want to request copies of any documentation, such as a signed sales receipt, for the charge. The company must receive this letter within 60 days of the date it mailed the bill containing the alleged error. Be sure to send the letter to the address the creditor specifies for billing inquiries, which is usually a different address from the one for monthly payments. Even if the creditor provides a phone number for billing inquiries, the consumer must write a letter to invoke the FCBA's protection. The consumer should keep copies of all correspondence and may wish to use certified mail to verify delivery. If consumers fulfill these requirements, creditors must:
- acknowledge the letter within 30 days (unless the dispute has been resolved);
- investigate the problem and either explain in writing why the bill is correct or fix the error and credit the consumer's account within 90 days; and
- provide documentation for the charge if the charge is correct and if the consumer has so requested.
Dealing With Debts
Sudden illness or unemployment may make it impossible for some consumers to pay their bills and make their credit payments on time. When this happens, consumers should contact their creditors immediately and try to work out a modified payment plan that reduces payments to a more manageable level. Consumers who have always paid promptly in the past may find that their creditors are willing to work with them. Consumers should not wait until creditors turn accounts over to debt collection agencies to try to resolve such problems.
Consumers who have trouble paying their bills may be tempted to turn to companies that claim to offer assistance with debt problems. Such companies may offer debt-consolidation loans, debt counseling or debt-reorganization plans "guaranteed" to stop creditors' collection efforts. Before signing up with such a company, the FTC advises consumers to investigate it thoroughly. Check with the Better Business Bureau and the state or local consumer protection agency to see if consumers have lodged complaints about the company. Be sure to understand exactly what services the companies will provide and how much they will cost. Sometimes, consumers who turn to these companies encounter additional financial problems. For example, debt-consolidation loans and other short-term loans for large sums of money may have expensive hidden costs or require consumers to use their homes as collateral. Unscrupulous companies may misrepresent the terms of the loans they offer and consumers can end up losing their homes. Companies offering debt counseling services may charge substantial fees or a percentage of consumers' debts, but fail to follow through on the services they sell. Some may only refer consumers to bankruptcy lawyers, who charge additional fees. Companies that sell bankruptcy-related services may not tell consumers that other, less drastic alternatives may exist. For help with dealing with debts, consumers may wish to contact an area office of the Consumer Credit Counseling Service. CCCS is a nonprofit organization with more than 200 offices in 44 states. CCCS counselors try to arrange a repayment plan that is acceptable to consumers and creditors. Services are offered at little or no charge. To find the nearest CCCS office, consumers should contact the National Foundation for Consumer Credit Inc., Suite 601, 8701 Georgia Avenue, Silver Spring, Md. 20910, 301-589-5600.
Debt Collection Practices
The FTC also enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits certain practices by debt collection agencies that collect debts for creditors. The act does not apply to creditors collecting debts themselves. While the act does not erase legitimate debts that consumers owe, it does regulate the ways in which these agencies do business. Debt collection agencies may contact consumers in person or by mail, phone or telegram. They cannot contact consumers at inconvenient or unusual times or places, such as late at night or, if employers object, at work. If a consumer has an attorney, the agency may not contact anyone but the attorney. The agency may contact other third parties only to learn where the consumer is located. In most cases, debt collection agencies are not allowed to tell anyone other than the consumer or the attorney that the consumer owes money. Within five days of the initial contact, collectors must send consumers a written notice, telling them the amount they owe, the creditor to whom they owe it and what to do if they do not believe they owe the money. If consumers request written verification of the debt within 30 days, collectors must stop collection activities until they have supplied this information.
Consumers can stop debt collectors from contacting them by writing the collector and requesting no further contact. Once a collection agency receives such a letter, it may not contact the consumer again except to say that there will be no further contact or to provide notification of some specific legal action that is actually being taken. Agencies may continue collection activities through other means, such as filing lawsuits, but they may not continue to contact the consumer directly. Collectors are not permitted to harass consumers. They cannot:
- threaten to use violence to harm individuals, property or reputations;
- use obscene or profane language;
- make false statements;
- falsely imply that they are attorneys, government representatives or credit-bureau employees;
- send any document that looks like an official document that a federal, state or local government agency might send;
- seize or threaten to seize consumers' wages or property, unless they intend to do so and it is a legal action;
- give false information to anyone about consumers; or
- falsely claim consumers have committed a crime or will be arrested.
- collect any amount greater than the debt, unless the contract creating the debt or state law permits;
- deposit a post-dated check before the check's date;
- make consumers accept collect calls or pay for telegrams by concealing the purpose of the communications; or
- put anything on an envelope besides the the agency's name and address, and they cannot use even the name if it reveals that the letter concerns debt collection.
In addition to the FTC rules and the FTC-enforced laws, many states have their own laws dealing with credit practices and debt collection. Consumers should check with their state attorney general's office or state or local consumer protection offices to determine their rights under state law. The FTC relies on consumer complaints to decide which companies to investigate and to identify trends which indicate problem areas. While the FTC cannot intervene in individual disputes, information from consumers about their experiences is vital to the FTC's enforcement program.
Consumers can send complaints to the FTC's Office of the Secretary, 6th St. and Pennsylvania Ave. N.W., Washington, D.C. 20580. The FTC publishes several publications dealing with credit that are available free of charge by writing to the FTC's Public Reference Branch at the address listed above or by calling 202- 523-3598. News media copies are available from the Office of Public Affairs, same address, 202-523-3830. These brochures are:
- Credit and Charge Card Fraud
- Credit Billing Blues
- Equal Credit Opportunity
- Fair Credit Billing
- Fair Credit Reporting
- Fair Debt Collection
- Solving Credit Problems
- omen and Credit Histories
Mario Baldessari, Office of Public Affairs, 202-523-1848
STAFF CONTACT:
Anne Price Fortney, Bureau of Consumer Protection, 202-724-1119
Kathleen V. Buffon, Bureau of Consumer Protection, 202-724-1186
