Loans & Credit Articles

Cheat Sheet / Updated 04-12-2024

Everyone hates having debt, but most people can’t feasibly make a big purchase or handle a crisis without taking on some kind of debt, like student loans, auto loans, and credit cards. Debt happens to everyone at some point. However, that doesn’t mean you can’t do anything about it. Here you find some tips to start getting out of debt.

Article / Updated 08-07-2023

Before you get a mortgage, be sure you understand your personal financial situation. The amount of money a banker is willing to lend you isn't necessarily the amount you can "afford" to borrow given your financial goals and current situation. Maximize your chances for getting the mortgage you want the first time you apply by understanding how lenders evaluate your creditworthiness. Don't waste time and money on loans that end up rejected. Most obstacles to mortgage qualification can and should be overcome before submitting a loan application. Because the ocean of mortgage programs is bordered with reefs of jargon, learn loan lingo before you begin your mortgage-shopping voyage. This will enable you to hook the best loan and avoid being taken in by loan sharks. To select the best type of fixed-rate or adjustable-rate mortgage for your situation, clarify two important issues: How long do you expect to keep the loan? How much financial risk are you able to accept? Special situation loans — such as a home equity loan or 80-10-10 financing — could be just what you need. However, some "special" loans, such as 100 percent loans and balloon loans, can be toxic. Whether you do it yourself or hire a mortgage broker to shop for you, canvas a variety of lenders when seeking the best mortgage. Be sure to shop not only for a low-cost loan but also for lenders that provide a high level of service. Investigate when shopping for a mortgage on the Internet. Be cautious. You may save time and money. Or you could end up with aggravation and a worse loan. Compare various lenders' mortgage programs and understand the myriad costs and features associated with each loan. Just as you must prepare a compelling resume as the first step to securing a job you want, crafting a positive, truthful mortgage application is key to getting the loan you want. After you get a mortgage to purchase a home, stay informed about interest rates, because a drop in rates could provide a money-saving opportunity. Refinancing — that is, obtaining a new mortgage to replace an existing one — can save you big money. Assess how long it will take you to recoup your out-of-pocket refinance costs. If you're among the increasing number of homeowners who reach retirement with insufficient assets for their golden years, carefully consider a reverse mortgage, which enables older homeowners to tap their home's equity. Reverse mortgages are more complicated to understand than traditional mortgages. If you fall on tough economic times and get behind on your housing payments, don't resign yourself to foreclosure. Take stock of the situation. Review your spending and debts and begin a dialogue with your lender to find a solution. Make use of low-cost counseling approved by the United States Department of Housing and Urban Development.

Article / Updated 07-05-2023

Once you’ve determined the income for your spending plan, you need to calculate what’s going out — and where it’s going. Determining your monthly spending isn’t difficult, but for some people it requires a little digging. Many of your major expenses — mortgage or rent, credit card bills, utilities, car loans, and so on — hit monthly. If you have an expense that occurs other than monthly, prorate it to a monthly amount. For example, a $2,000 homeowner’s insurance bill due once a year is $166.66 a month. For frequent yet varying expenses such as electricity, gather several months to a year and then determine a monthly average. Using your checking and savings account statements, credit card statements, cash receipts for significant purchases, other financial records, and/or a financial planning program such as Quicken, enter and categorize all your expenses to figure out what you spend each month. If you don’t have complete financial records, don’t worry — just use your best estimates to fill in the blanks. Expense Planned Actual Difference Rent/mortgage Property taxes Renters/homeowners insurance Home maintenance Water Sewer Garbage Gas/oil for heating Electricity Telephone Car payment Car insurance Gasoline Car repairs/maintenance Clothing Groceries/household supplies Doctor/dentist Prescriptions Health insurance Life/disability insurance Childcare Tuition/school expenses Child support/alimony Personal allowance (small, out-of-pocket expenses) Entertainment Eating out/vending Cigarettes/alcohol Newspapers/magazines Hobbies/clubs/sports Gifts Donations Work expenses Cable/satellite TV Internet service Cellphone Student loans Pet/veterinary expenses Other: Other: Total Expenses $ $ $ Here, use the Planned column for your best guesses of expenses that are not fixed, like electricity, and then record the Actual amounts as bills roll in. If an expense is fixed, like rent, put it in the Actual column. Fill in the Difference column as you track your Planned expenses and find out the Actual Amounts. If you’re like most people, you’ll be able to account for around 80 to 90 percent of where your money is spent. But you’re likely to find that a fraction of your income seems to vanish into parts unknown. You may be able to save in some of these areas if you decide that you’d rather consciously reallocate the money or reallocate the expense to personal allowance: Allowances: Your kids won’t like this, but you don’t have to give them set allowances. Bank fees: There is no reason to pay fees for a checking account if you take the time to shop around. Babysitting: See if you can work out a deal with friends or neighbors to watch their kids one day in exchange for them watching yours the next. Salon: Instead of going to a high-priced salon, look for a beauty school in your area. You may be able to get your hair done for free (or for a nominal charge). Beer, wine, and soda: For some people, giving up brewskis, a favorite cabernet, or soft drinks may seem like a real hardship. But when you add up how much money you’re spending, it may be enough of a motivation to cut. Fast food and vending machines: Shop at the grocery store instead; use coupons for amazing savings. Books, magazines, newspapers, CDs, and movies: One of the greatest resources at your disposal is your public library. All you want — free of charge. Car washes: Do it yourself or toss a sponge, some soap, and the hose at your kids and set them loose. Lottery tickets and other forms of gambling: A dollar in the bank is much more valuable than a dollar spent gambling. School fundraisers: Just say no. If you want to help your local school, you can volunteer at the library, coach a sports team, or lead a scouting troop. Entertainment (concerts, movies, sporting events, and so on): Look for ways to entertain yourself and your family free of charge. Health foods: Eating healthfully is important, but health foods can be pricey. Shop the produce department of your grocery store, stick to whole grains and lean meats, and your spending plan will be fine. Hobbies: Most hobbies cost money, and although they’re fun, so is saving money. Eating out: Even if you’re eating at fast-food restaurants, eating out costs a lot. You can save big money by preparing your food at home. Pets: If you’re in financial trouble, getting a new pet isn’t a good idea. Even healthy pets cost money, and if your pet gets sick, you’re in for more expenses. If you already have pets, stick to the necessities (food, vaccinations, hugs) and avoid store-bought toys. Tobacco: You already know that you shouldn’t be smoking. Yard sales: Wash the car instead. Most people think that they’re getting bargains, but they usually end up buying things they don’t really need. You don’t have to cut all these items out of your life. Just be aware that you’re spending discretionary money and consider how important each item really is. To identify that last 10 to 20 percent of expenses, track your daily expenditures. Record all those cash expenses that are such a part of your routine that you hardly notice them — the morning paper, coffee, snacks, and so on. The really good news about this tracking is that you need to do it for only two months to catch almost everything. After that you’ll have a good handle on what’s gobbling up your extra cash, and you can either plug the hole or include it as an expense in your budget.

Article / Updated 06-28-2023

The world of credit can be complex, unforgiving, and very expensive! Consumers need effective protection. The result is a series of laws, protections, and agencies whose purpose is to keep the credit game honest and give consumers a fair opportunity. The Fair Debt Collection Practices Act The Fair Debt Collection Practices Act (FDCPA) limits debt collectors’ activities and spells out your rights. Highlights include Prohibiting collectors from abusing you or being deceptive. Applying the law to most personal debts. Defining when and where a debt can be collected. Requiring a validation notice that specifies how much you owe and what you should do if the debt isn’t yours or has been paid already. Allowing you to end contact with a collector. Giving you the right to sue for breach of the rules. The Bankruptcy Abuse Prevention and Consumer Protection Act The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) revised the process of getting a fresh start when you are overwhelmed by debt. The major provisions in this law include Mandatory credit counseling Stricter eligibility Fewer debts discharged and fewer state exemptions Tax returns and proof of income required for means test Mandatory five-year Chapter 13 plan if over your state’s median income Mandatory financial management education Time between Chapter 7 filings increased to eight years Your lawyer Here are some points to consider when looking for a consumer attorney: Ask a friend for a referral. Look for someone who specializes in debt. If you already have a lawyer, ask her for a specialist recommendation. Check your local American Bar Association affiliate or attorney association for lawyer referral services. Look for someone your gut says you can work with. A good attorney who charges more can be a bargain if you get resolution quickly. Get all agreements in writing. Consumer credit counseling Nonprofit consumer credit counseling agencies act as intermediaries on your behalf with creditors who won’t listen to you. They offer their services for free or for a nominal cost. You can find a good agency online at qfinance.com or by calling 800-388-2227 or 866-703-8787. Look for third-party accreditation and HUD certification. Statute of limitations laws Each state has a law called a statute of limitations (SOL) that sets a limit on how long a debt collector can sue you in court. This protection isn’t automatic; you have to ask for it. What do you need to know and do? If a debt is past the SOL, the creditor can’t successfully sue you in court to collect it. Credit reports show a delinquency for seven years. The period used to figure how old your debt is starts when you miss a payment and never make another one. Your state attorney general Every state has an attorney general. One of their primary responsibilities is to enforce their states’ consumer protection laws. Every state has a consumer protection statute prohibiting deceptive acts and practices. If you decide to ask them for help, make sure you are organized and to the point, and have the pertinent information at hand. The Consumer Financial Protection Bureau The Consumer Financial Protection Bureau, or CFPB helps protect consumers from victimization. Here are the major protections this agency delivers: Use the question-and-answer service for inquiries. File your complaints with the CFPB here. The CFPB forwards your beef to the company and works to get an answer. It requires anyone who issues credit or prepaid cards to give you better, more easily understandable terms-and-cost disclosures. The CPFB assures that paperwork is understandable. It helps set rules on transaction fees for interchange activity. It closely regulates consumer credit counseling, debt settlement, and debt collectors. The Credit Card Accountability, Responsibility, and Disclosure Act Congress enacted the Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) to give you a fair playing field in the area of credit cards. Here are your major protections: Credit card companies can’t raise card interest rates except under specific circumstances. Also, double cycle interest billing is no longer allowed. You get 45 days’ notice of changes. You can opt out of changes. Card companies can’t issue cards to people under 21 who have no income. Creditors must give you at least 21 days after a bill is mailed to make your payment. All payment amounts above the minimum payment must be applied to the balance with the highest interest rate. If you exceed your credit limit, the card company must ask you whether you want that transaction to be processed. The Fair and Accurate Credit Transactions Act The Fair and Accurate Credit Transactions Act (FACT Act or FACTA) helps you in your dealings with credit bureaus. You must be told about any negative action taken as a result of information contained in your credit report. You can find out what information is in your personal file. You can get a free copy of your credit report at least every 12 months if you ask for one. The data in your file must be accurate, verifiable, and current. Only those who have a legitimate business purpose can see your file. The Federal Trade Commission Although the FTC doesn’t deal with individual consumer complaints, it does protect consumers by accumulating and analyzing complaints and then taking industry-wide action to address issues that you bring to it. Here are the five divisions that you may find useful: Advertising practices: Enforces truth-in-advertising laws. Financial practices: Protects you from deceptive and unfair practices in the financial services industry. Marketing practices: Responds to Internet, telecommunications, and direct-mail fraud; spam. Privacy and identity protection: Protects your financial privacy and helps consumers whose identities have been stolen. Enforcement: Sues to address these issues.

Article / Updated 05-03-2023

The federal Truth in Lending Act makes it easy to compare credit card offers, because it requires credit card companies to provide written information about the credit card terms. Do a comparison of credit cards fees, rates, APRs, and balance calculation methods before you accept even a preapproved credit card. Here are some of the terms of credit that creditors must provide: Annual percentage rate (APR): This is the cost of the credit expressed as an annual rate. Pay close attention to a card’s default APR — the rate you end up paying if you make a payment late (or pay some other creditor late), you exceed your credit limit, or your credit score drops below a certain amount. Your APR could triple depending on the terms of the credit offer! Balance calculation method: When you carry a balance on your credit card, the credit card company figures out how much interest to add to that balance by using one of several different methods. Some methods cost you more in interest than others. The least expensive balance calculation methods are adjusted balance and average daily balance excluding new purchases. The most expensive are two-cycle average daily balance including new purchases and two-cycle average daily balance excluding new purchases. Fees: Credit card fees can be really costly, so look for cards that have few and low fees. Examples of common fees include an annual or membership fee, a late fee, a bounced check fee, a fee for exceeding your credit card limit, and a balance transfer fee. Believe it or not, some cards charge you a fee every time you use them or because you don’t use them often enough! Grace period: This is the amount of time you have to pay the full amount of your card balance after the end of the last billing cycle before you’re charged interest on the balance. The longer the grace period, the better; a 25-day grace period is probably the best you’ll do. Some cards have no grace period; avoid them if you expect to carry a balance on your credit card. Periodic rate: This is the rate of interest you’re charged each day on your card’s outstanding balance. If you expect that you may carry a balance on your credit card, get the lowest rate you can. The rate may be fixed or variable, but even a fixed rate isn’t truly fixed because a creditor can raise it at any time after it gives you 15 days notice. Also, pay attention to the interest rates that apply to balance transfers, cash advances, and other transactions you may make with a credit card. These rates won’t be the same as the periodic rate.

Article / Updated 04-17-2023

It has been said that a person can’t be too good-looking or have too many friends. This has never been truer than in the world of credit — at least the part about friends. The world of credit can be complex, unforgiving, and very expensive! The credit-granting, credit-reporting, and credit-scoring industries have become increasingly complex and powerful to the point where they are used for everything from issuing credit cards to getting jobs. Consumer advocates recognized that we need effective ways to keep errors, both yours and theirs, from seriously complicating your life. The result is a series of laws, protections, and agencies whose purpose is to keep the credit game honest and give consumers a fair opportunity to access the American financial system. These protections may not always work as you’d like, but if they didn’t exist, you’d be at the mercy of big business, and that’s no place you want to be. In this article, we cover the top ten legal protection resources you have to guide you in dealing with the world of consumer credit. The Fair Debt Collection Practices Act Being protected is especially important when a debt collector comes a-calling. The Fair Debt Collection Practices Act (FDCPA) limits debt collectors’ activities and spells out your rights. Highlights include: Prohibiting collectors from abusing you, being unfair, and trying to trick you into paying. Applying the law to most personal debts, including credit cards, auto loans, medical debts, and debts secured by your home. Defining when and where a debt can be collected — for example, between 8 a.m. and 9 p.m., or not at work. Requiring a validation notice that specifies how much you owe and what you should do if the debt isn’t yours or has been paid already. Allowing you to just say no. If you don’t want to hear from a collector, you can write to the collection agency and demand that it not contact you again. Doing so doesn’t satisfy a legitimate debt, but it ends collector contact. It may, however, begin legal contact to sue you for the debt. Giving you the right to sue for breach of the rules. You have a year to bring action for violations. The Bankruptcy Abuse Prevention and Consumer Protection Act The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) revised the process of getting a fresh start when you are overwhelmed by debt. The major provisions in this law include Mandatory credit counseling before filing Stricter eligibility for Chapter 7 filing to encourage Chapter 13 Fewer debts discharged and fewer state exemptions Tax returns and proof of income required for means test Mandatory five-year Chapter 13 plan if over your state’s median income Mandatory financial management education after filing Time between Chapter 7 filings increased to eight years Bankruptcy was designed to give you the ultimate protection of the courts from your creditors. The process can be as effective as it is damaging to your credit, and you should use it with great care, and only if you’ve already considered less-damaging courses of action. In some states, you can file your own bankruptcy petition (called pro se); in others, you need an attorney. Regardless, we recommend that you use an attorney who does this for a living. A poorly thought out or executed bankruptcy can leave you with unresolved debts and deprive you of the opportunity to use this protection again for several years. A good bankruptcy attorney will spend a significant amount of time with you to compare bankruptcy with other possible ways of handling financial problems. Your lawyer Lawyers often get a bad rap, but if you want an effective weapon in providing consumer protection, you need look no further. Whether your issue is a debt collector, a retailer who won’t step up to resolve a problem, or a contract with unsuspected gotcha clauses, a knowledgeable and persistent attorney is hard to beat. Yes, we know, lawyers are expensive, but there are times when only the best will do. Using a second-rate attorney is like showing up at a gunfight with the second-fastest gunslinger. Better not to show up at all! Here are some points to consider when looking for a consumer attorney: Nothing is better than a referral from a satisfied friend, colleague, or relative. Ask someone in whom you have confidence. You may get a great referral or a solution you hadn’t thought of. Look for someone who does a lot of what you need. Like picking a heart surgeon, you want lots of experience here. If you already have a lawyer, ask for a specialist recommendation. Check your local American Bar Association affiliate or attorney association. They often maintain lawyer referral services. Look for someone your gut says you can work with. Is the lawyer concerned about you and your problem? Always interview more than one attorney. This situation is important. Don’t be deterred by hourly rates. A good attorney who charges more can be a bargain if you get resolution quickly and permanently. Get all agreements in writing to avoid miscommunication. Be sure to read the agreement before you sign it, and ask about anything that’s not clear to you. Coronavirus Aid, Relief, and Economic Security (CARES) Act In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help minimize the impact of the COVID-19 pandemic. The CARES Act provides a number of important financial safeguards intended to last until the crisis is over or for a set period of time afterward. Given Congress’s penchant for keeping laws on the books long after originally intended, and because no one at this time can tell when or if the crisis will be resolved, here are some relevant highlights of the CARES Act: Protections for renters: If you rent in federally subsidized housing or are renting from an owner who has a federally or government-sponsored enterprise (GSE)–backed mortgage (for example, Federal Housing Administration [FHA], Veterans Affairs [VA], U.S. Department of Agriculture [USDA], Fannie Mae, or Freddie Mac), the CARES Act may provide for a suspension or moratorium on evictions. Protections for homeowners: If you have a federally or GSE-backed mortgage and had a hardship caused by COVID-19, you have the right to request and obtain a forbearance extension for up to another 180 days (for a total of up to 360 days), without additional fees, penalties, or additional interest (beyond scheduled amounts). The law prohibits GSE lenders and servicers from beginning or finalizing a judicial or nonjudicial foreclosure or sale against you. Protections for those with student loans: You get automatic suspension of principal and interest payments on federally held student loans through September 30, 2020. And what’s more, suspended payments count toward any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met. Lenders must report any current loans on which they offer forbearance to the credit bureaus as being current as long as the terms of the agreement are observed. Although not part of the law, the three main credit bureaus are allowing free weekly credit reports at least through April 2021. Statute of limitations laws This protection is worthy of Perry Mason: “I object, Your Honor, for this charge is too old.” Well, maybe Perry didn’t say exactly that, but he’d be happy to see that each state has a law called a statute of limitations (SOL) that sets a limit on how long a debt collector can sue you in court, depending on the type of loan you allegedly owe. This is only fair, because after several years, who keeps all those receipts and slips of paper? Either hurry up and sue or forget about it! This protection isn’t automatic; you have to ask for it. What do you need to know and do? Read on. If a debt is past the SOL, the creditor can’t successfully sue you in court to collect it. But you must show up and prove that the debt is too old. Credit reports show a delinquency for seven years. This has nothing to do with the time a debt is collectible. The period used to figure how old your debt is starts when you miss a payment and never make another one. A payment may restart the SOL clock, depending on the state in which you live. Your state attorney general Every state has an attorney general. All attorneys general have at least one thing in common: One of their primary responsibilities is to enforce their states’ consumer protection laws. Every state has a consumer protection statute prohibiting deceptive acts and practices. These statutes include laws that address specific industries or practices. For example, many FACT Act protections, especially for credit reporting, have stricter state regulations, giving you more rights and a local resource for help. State attorneys general love to go after abuses and illegalities in the marketplace, including deceptive trade practices, telemarketing and internet fraud, fake charities, ID theft, and false or misleading advertising. It’s good press for them and good protection for you. Generally, these public officials have a low tolerance for financial shenanigans. So, if you think you’re being abused, taken advantage of, or scammed in a credit or personal finance transaction, this is the office to call. I’ve had good luck working with the consumer protection sections of several state attorneys general. If you decide to ask them for help, we suggest that you be organized and to the point, and have the pertinent information at hand. Attorneys general are no-nonsense law enforcement officials who appreciate you calling for their help but not wasting their time. The Consumer Financial Protection Bureau Reforming our financial system isn’t easy, and the Feds know it, so they formed a new agency — the Consumer Financial Protection Bureau, or CFPB — to carry on the fight of protecting you long after the ink dried on the Dodd-Frank Wall Street Reform and Consumer Protection Act (the legislation that created the CFPB). Not since J. Edgar Hoover headed up the FBI has a federal agency had such far-reaching powers. The CFPB sets rules for payday lenders, credit card issuers, and all the players in between. Here are the major protections this agency delivers: Need information? Use the question-and-answer service for inquiries about mortgages, student loans, debt collections, credit reports, and more. Have a complaint? Let ‘em have it. Bank accounts, credit cards, credit reporting, debt collections, money transfers, mortgages, student loans, and consumer loans are among the topics you can get help with. You complain, and the CFPB forwards your beef to the company and works to get an answer. It reviews the response and shares it with other agencies to identify patterns of abuse and write better regulations. It also sends you e-mail updates and has a secure consumer portal that you can use to track your complaint and give feedback about company responses to help the CFPB prioritize complaints. Just like the Dragnet guys: dum-ta-dum dum! It requires anyone who issues credit or prepaid cards to give you better, more easily understandable terms-and-cost disclosures. If you have to sign it, you should be able to understand it. The CPFB assures that paperwork is understandable. It helps set rules on transaction fees for interchange activity, like on your Visa or MasterCard. It closely regulates consumer credit counseling, debt settlement, and debt collectors to keep you from being victimized. The Credit Card Accountability, Responsibility, and Disclosure Act Fed up with tricky terms, excessive penalties, fees, and unfair banking practices, Congress enacted the Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) to give you a fair playing field in the area of credit cards. Here are your major protections: Credit card companies can’t raise card interest rates except under specific circumstances, such as at the end of a promotional rate, or when a variable interest rate index to which your card is tied rises, or if you’re 60 days late on a payment. Also, double cycle interest billing, which used your average daily balance for the current and previous billing cycles to charge you more, is no longer allowed. If your rate or terms change, you get 45 days’ notice to plan what to do. You can opt out of changes you don’t like. Doing so may cause your account to be closed, but you can pay off the debt under the old terms. Card companies can’t issue cards to people under 21 who have no income. This sounds like a no-brainer, but for years creditors had been giving students credit despite their having no income to repay their charges. Creditors must give you at least 21 days after a bill is mailed to make your payment. The due date can’t be before the mail is delivered or on a weekend, a holiday, or a day when the creditor is closed for business. If you’re late, fees are limited to a maximum of $25. All payment amounts above the minimum payment due must be applied to the balance with the highest interest rate, not the lowest. If you exceed your credit limit, the card company must ask you whether you want that transaction to be processed and incur an over-limit fee. Saying “no thank you” results in the purchase being denied but also saves you the over-limit fee. Even if you say yes, the fee can’t exceed the amount by which you exceed the credit limit. So if you exceed your limit by $10, the fee can’t be more than $10. The Fair and Accurate Credit Transactions Act Fairness is something you can hope for in your dealings with the credit bureaus and those other consumer-reporting bureaus that are increasingly in the news. But before the protections afforded in the Fair and Accurate Credit Transactions Act (FACT Act or FACTA) became effective, fairness was strictly in the eye of the beholder. And the beholder wasn’t you! Congress acted to end a number of perceived and real abuses. Congress understood that the nation’s banking system was becoming increasingly dependent on credit reporting, that inaccurate reports resulted in unfair and inefficient banking, and that you have a right to privacy. The result is that you now have more control over what’s said about you in credit bureau files and who can access your information. You also have the right to dispute errors or out-of-date information and to get a free copy of your credit report from each bureau every year. Not bad for the crowd from Washington, D.C.! Here are your main protections: You must be told about any negative action taken as a result of information contained in your credit report, and you must be given free access to the same information. If the interest rate on your favorite credit card goes up, for example, you get to see a copy of the report that contains the data that led to that increase. You can find out what information is in your personal file. No more secrets! It’s your information and your file, so you can look at it. You can get a free copy of your credit report at least every 12 months if you ask for one. You can also get a free report whenever you’re the object of identity theft or fraud, you’re on public assistance, or you’re unemployed but expect to apply for employment within 60 days. You have the right to know your credit score. This score used to be as big a secret as what was in your bureau files. Score watching has become a favorite pastime for many and a profitable business for others. The data in your file must be accurate, verifiable, and current. If data is incorrect or too old, you need only to ask, and it will be verified or removed pronto. Only those who have a legitimate business purpose can see your file, and you can stop everyone from accessing your file without your express permission if you like. Usually only creditors, insurers, employers, landlords, and others with whom you do business get to see what’s in your file. You can slam the door on everyone with a credit freeze. The Federal Trade Commission The Federal Trade Commission (FTC) is the alter ego of the Bureau of Consumer Protection (BCP). Although it doesn’t deal with individual consumer complaints, it does protect consumers by accumulating and analyzing complaints and then taking industry-wide action to address issues that you bring to it. Some examples of BCP protections are your ability to get a free annual credit report, the National Do Not Call Registry to block unwanted telemarketing calls, and appliance disclosure stickers that show the energy costs of home appliances, to name just a few. The BCP looks out for unfair, deceptive, or fraudulent practices in the marketplace. It investigates and sues companies and people who violate the law. It also develops rules to protect you and requires businesses to give you better disclosure of your costs, rights, and dispute-resolution options. It also collects complaints about consumer fraud and identity theft and makes them available to law enforcement agencies across the country. Of the bureau’s seven divisions, here are the five that you may find useful: Advertising practices: Enforces truth-in-advertising laws. If an offer seems too good to be true and it is, complain to the FTC. Financial practices: Protects you from deceptive and unfair practices in the financial services industry, including predatory or discriminatory lending practices, deceptive or unfair loan servicing and debt collection, and fraudulent credit counseling and debt settlement companies. Marketing practices: Responds to internet, telecommunications, and direct-mail fraud; spam; fraudulent work-at-home schemes; and violations of the Do Not Call provisions of the Telemarketing Sales Rule. Privacy and identity protection: Protects your financial privacy, investigates data breaches, helps consumers whose identities have been stolen, and implements laws and regulations for the credit reporting industry, including the FACT Act. Enforcement: Sues to address issues on these practices. Your complaint, comment, or inquiry may help identify a pattern of violations requiring law enforcement action, but the FTC doesn’t resolve individual consumer disputes.

Article / Updated 04-14-2023

Because a lot of your credit score is based on using credit and making payments on time, it’s a good idea to use small purchases to get back into good standing quickly. Why does making small purchases work so well? Because each item costs less, more purchases are reported to the credit bureaus faster. If it costs more than $10, charge it (but pay it off each month!). Major bank cards certainly report your activity to the credit bureaus. Some store cards may report to only one bureau, or they may not report at all. To find out whether your credit card purchases are being reported and scored, call your card’s customer service number and ask. Pick up extra points on your credit score by following a simple plan when you pay down balances. Scoring models look at how much of your limit you use. The more you use, the higher risk they believe you to be. To maximize your credit score, spread purchases over more than one card to keep your balance on each card as small a percentage of your maximum limit as possible. Say you have two cards, one with a $10,000 limit and one with a $20,000 limit. Simply charge twice as much on the higher-limit card to maximize your score. When your balance exceeds 50 percent of your limit, you begin to lose points. Are you less concerned about your score than about paying down your balances? Some experts suggest that you pay down balances based on the interest rate (that is, pay them in descending order starting with the highest interest rate) to save money on overall payments. Others say that paying off smaller accounts first gives you a feeling of accomplishment, and therefore, you’re more likely to achieve your overall goal. Choose the approach you find more satisfying. Just be sure that you make the choice; don’t let the first bill that shows up get the extra payment by chance. Make a list of each credit card, its balance, and its credit limit. Then allocate your payments to reduce your percentage of credit used to 45 percent or less of the limit on as many accounts as possible. Doing so creates some great positive data in your credit report. This approach not only enables you to regain control of your accounts but also helps you maximize your credit score, because accounts that exceed 50 percent of the limit count more heavily against you. When all your cards are at 45 percent of your limit or below, you may want to allocate more money to the highest-interest-rate cards. If you don’t have a major bank credit card, you may want to try a secured card. You can get one without a fee if you shop around. A secured card differs from a regular Visa or MasterCard in that you maintain a balance in a savings account equal to your credit limit (some cards may allow you more credit than you have on deposit) to guarantee your payment. Secured-card activity is reported just as any other credit card activity is reported, and it affects your credit score in the same way, so it can be a great option if you’re trying to build credit. Generally, if you make all your payments on time for a year, you should have enough of a positive payment history to get an unsecured credit card.

Article / Updated 08-16-2022

Credit impacts two major and basic consumer credit instruments that most people need when they get started on life’s journey: credit cards and loans. You may think that you know how these instruments work, but things have changed because of regulations like the CARD Act and the financial meltdown that threatened banks with failure due in large part to lax underwriting standards. Getting a credit card Getting credit for the first time used to be easy. All you had to do was drive to your nearest gas station and fill out an application for a gas card and then wait for the mail to arrive with your new plastic. If you were a city dweller, the trip may have been on foot to a department store, which would often grant credit on the spot. Both types of credit were relatively easy to get, and they reported your credit history to the three bureaus so that you built a credit history quickly. More and more department store and gas cards are tightening their standards to reflect tightened credit conditions. You can try for cards issued by banks that use a national transaction network such as Visa. Though these cards are more versatile and powerful than their earlier counterparts, they’re also harder to get. Getting that first card now requires a new approach. To begin with, you need a credit history. But how do you get a credit history without credit? Two of the most popular ways are to use someone else’s credit or to use a secured credit card. Use other people’s credit In most instances, when you use another person’s credit, the other person is a family member or a person with whom you have an emotional attachment. Why? Because using someone else’s credit can be dangerous to that person if you mess up. Only someone who really likes you is willing to risk helping you get started. You can piggyback on another person’s credit in two ways. The most popular way is to be added to the person’s account as an authorized user. The other way is to have the person cosign for you. Become an authorized user Being named an authorized user on someone’s credit account enables you to have his or her credit history reported on your credit report while you use a card for which the other person is solely financially responsible. The card statement goes to the account owner, she pays the credit card company, you pay the card owner, and the card’s credit history is reported in both your and the owner’s files. Problems with this approach can arise if the account owner defaults or is late with payments, because then those negative marks go on your credit history, too. Another common pitfall is that you overcharge and the account owner has to ask you for more money than you have available, which can cause a rift between you. Cosigners Cosigning on an account is more often than not a recipe for disaster, and it’s not usually recommended. The cosigner’s credit history doesn’t show up on your credit report. Instead, all that shows up is your own payment history. The statement for a cosigned account doesn’t go to the cosigner, so unless you share the information, the cosigner has no idea what’s happening to the account. Often, the cosigner first hears of a problem when a collector calls and demands an overdue payment. Unfortunately, if you make late payments, the delinquency history appears on the cosigner’s credit report, and negative information stays on the cosigner’s credit history for a full seven years. If you decide to go the cosigning route, its’ a good idea to commit to paying this bill before almost any other. You also need to have the courage to keep your cosigner informed of any changes in your financial picture, especially if you may be late on a payment. Using secured cards A secured card looks and works just like a credit card but is backed by a cash deposit at the bank that issues the card. Typically, your deposit qualifies you for a credit card with a limit equal to that deposit amount. As a result, limits on secured cards tend to be low, but the real value here is to establish a credit history so that you can get an unsecured card and reallocate your deposit to a better purpose, like your emergency savings account. You can find and compare secured cards on a number of websites. Two good sources include Bankrate.com and Creditcards.com. You want to balance services, fees, and interest rates to find the best card for you. Use savings for credit Most banks are happy to lend you your own money. If you accumulate some savings in a passbook account, you can use the savings to secure an installment loan of the same or a lesser amount. With 100 percent collateral in cash for the loan, the interest rate should be very low. Make sure that the loan is reported to the credit bureaus so that you build your credit.

Article / Updated 05-12-2022

If you talk with others or read articles or books about prepaying your mortgage, you’ll come across those who think that paying off your mortgage early is the world’s greatest money-saving device. You’ll also find that some people consider it the most colossal mistake a mortgage holder can make. The reality is often somewhere between these two extremes. Everyone has pros and cons to weigh when they decide whether prepaying a mortgage makes sense. In some cases, the pros stand head and shoulders over the cons. For other people, the drawbacks tower over the advantages. At the crux of the decision is the fact that you’re paying interest on the borrowed mortgage money, but if you use your savings to pay down the loan balance, you won’t then have that money working for you earning an investment return. More importantly, what happens if that rainy day comes along and you need those handy cash reserves? Interest savings: The benefit of paying off your mortgage early Mortgage prepayment advocates focus on how much interest you won’t be charged. On a $100,000, 30-year mortgage at 7.5 percent interest, if you pay just an extra $100 of principal per month, you shorten the loan’s term significantly. Prepayment cheerleaders argue that you’ll save approximately $56,000 over the life of the loan. It’s true that by making larger-than-required payments each month, you avoid paying some interest to the lender. In the preceding example, in fact, you’ll pay off your loan nearly ten years faster than required. But that’s only part of the story. Read on for more. Quantifying the missed opportunity to invest those extra payments When you mail an additional $100 monthly to your lender, you miss the opportunity to invest that money into something that could provide you with a return greater than the cost of the mortgage interest. Have you heard of the stock market, for example? Over the past two centuries, the U.S. stock market has produced an annual rate of return of about 9 percent. Thus, if instead of prepaying your mortgage, you put that $100 into some good stocks and earn 9 percent per year, you end up with more money over the long term than if you had prepaid your mortgage (assuming that your mortgage interest rate is below 9 percent). Conversely, if instead of paying down your mortgage more rapidly, you put your extra cash in your bank savings account, you earn little interest. Because you’re surely paying more interest on your mortgage, you lose money with this investment strategy, although you make bankers happy. If you’re contemplating paying down your mortgage more aggressively than required or investing your extra cash, consider what rate of return you can reasonably expect from investing your money and compare that expected return to the interest rate you’re paying on your mortgage. As a first step, this simple comparison can help you begin to understand whether you’re better off paying down your mortgage or investing the money elsewhere. Over the long term, growth investments, such as stocks, investment real estate, and investing in small business, have provided higher returns than the current cost of mortgage money. Taxes matter but less than you think In most cases, all of your mortgage interest is deductible on both your federal and state income tax returns. Thus, if you’re paying, say, a 6 percent annual interest rate on your mortgage, after deducting that interest cost on your federal and state income tax returns, perhaps the mortgage is really costing you only about 4 percent on an after-tax basis. For most people, approximately one-third of the total interest cost of a mortgage is offset by their reduced income tax from writing off the mortgage interest on their federal and state income tax returns. However, don’t think that you can simply compare this relatively low after-tax mortgage cost of, say, 4 percent to the expected return on most investments. The flaw with that logic is that the return on most investments, such as stocks, is ultimately taxable. So, to be fair, if you’re going to examine the after-tax cost of your mortgage, you should be comparing that with the after-tax return on your investments. Alternatively, you could simplify matters for yourself and get a ballpark answer just by comparing the pretax mortgage cost to your expected pretax investment return. (Technically speaking, this comparison isn’t as precise as the after-tax analysis because income tax considerations generally don’t exactly equally reduce the cost of the mortgage and the investment return.)

Cheat Sheet / Updated 04-18-2022

You've probably heard a lot about reverse mortgages, as they are a popular, safe, simple way to supplement seniors' retirement incomes. Before you get started, you need to understand the benefits and disadvantages of getting a reverse mortgage. If you decide a reverse mortgage may be the right answer for you, follow some planning tips to help make the loan process easier.