Chapter 17 Credit Records and Laws

Credit Records and Laws Establishing Good Credit Credit Records Creditworthiness Getting Started With Credit Credit Ratings and Legal Protection Credit Ratings Credit Reports Credit Laws

Establishing Good Credit Credit Records Credit history – the complete record of your borrowing and repayment performance Credit bureau – a company that gathers, stores, and sells credit information to business subscribers TransUnion Experian Equifax Information is provided by the subscriber when a new credit account is opened

Establishing Good Credit Credit Records Credit report – a written statement of a consumer’s credit history by a credit bureau Information provided by subscribers Information gathered from public record searches  Failure to pay property taxes  File for bankruptcy  File for divorce  Apply for a marriage license

Establishing Good Credit Credit Records Credit report: Information provided on a credit application  Occupation  Spouse’s name and occupation  Residence  Length of employment

Establishing Good Credit Creditworthiness The 5 C’s of credit: 1. Character – Will you repay the debt? 2. Capacity – Can you repay the debt? 3. Capital – Is the creditor fully protected if you fail to repay? 4. Conditions – What general economic conditions can affect your repayment of debt? 5. Collateral – What assets back up your promise to pay?

Establishing Good Credit Getting Started with Credit Establish a credit record: 1. Open a savings account and make regular deposits 2. Open a checking account Bouncing a check will hurt your credit record 3. Open a store credit account Co-signer – someone who promises to pay if the borrower fails to pay Pay balance promptly each month

Establishing Good Credit Getting Started with Credit Establish a credit record: 4. Get a small loan 5. Apply for a credit card

Credit Ratings and Legal Protection Credit Ratings – measure of creditworthiness based on an analysis of the consumer’s financial history Point system – credit bureau assigns points based on amount of current debt, number of late payments, number and types of open accounts, etc.

Credit Ratings and Legal Protection Credit Ratings Excellent credit rating (A rating) – pay bills before due date Good credit rating (B rating) – pay bills on due date or within grace period Fair credit rating – pays bills within grace period and occasionally late Poor credit rating – payments are not regular or are missed; debts not paid in full; bankruptcy

Credit Ratings and Legal Protection Credit Reports include: 1. Summary of information 2. Public record information 3. Credit information 4. Account detail 5. Requests for credit history 6. Personal information

Credit Ratings and Legal Protection Credit Laws – laws designed to protect consumers from unfair credit practices: Consumer Credit Protection Act Fair Credit Reporting Act Fair Credit Billing Act Equal Credit Opportunity Act Fair Debt Collection Practices Act

Credit Ratings and Legal Protection Consumer Credit Protection Act of 1968 Requires lenders to fully inform consumers about the total cost of credit (finance charge) Finance charge – includes interest, service fees, and any other costs Annual percentage rate (APR) – uses the finance charge to calculate the yearly percentage cost

Credit Ratings and Legal Protection Fair Credit Reporting Act If denied credit you have the right to know what is in your credit file and who has seen it List of requests for credit purposes and employment purposes May request a copy of your credit report at no charge within 30 days

Credit Ratings and Legal Protection Fair Credit Billing Act Creditors must resolve billing errors within a specified period of time Creditors must have a written policy Complaint must be in writing and submitted within 60 days of receipt of information Creditor must acknowledge within 30 days Creditor must resolve within 90 days

Credit Ratings and Legal Protection Equal Credit Opportunity Act of 1975 Prevents discrimination in the judgment of creditworthiness Cannot be denied solely because you are: Woman Single Married Divorced Separated Widowed

Credit Ratings and Legal Protection Equal Credit Opportunity Act of 1975 Cannot be denied specifically because of: Religion National origin Race Color Age (except if you are a minor)

Credit Ratings and Legal Protection Equal Credit Opportunity Act of 1975 Cannot be denied because you receive: Public assistance Unemployment Social security Retirement benefits

Credit Ratings and Legal Protection Equal Credit Opportunity Act of 1975 Credit applications may be oral or written Creditor may not ask: Do you plan to have children? What is your ethnic background? What church do you attend? Creditor may not discourage consumer orally or in writing from applying

Credit Ratings and Legal Protection Equal Credit Opportunity Act of 1975 Creditor must notify consumer within 30 days of receiving a credit application Denial must be received in writing

Credit Ratings and Legal Protection Fair Debt Collection Practices Act Designed to eliminate abusive collection practices Debt collector – hired by a creditor to collect an unpaid balance Law prohibits: Threats Obscenities Use of false or misleading statements Law restricts the time and frequency of collection practices (phone calls, etc.)