THE CREDIT HANDBOOK - Lori Swanson

THE CREDIT HANDBOOK

From the Office of the

Minnesota Attorney General

helping people afford their lives and live with dignity and respect ag.state.mn.us

This brochure is intended to be used as a source for general information and is not provided as legal advice. The Credit Handbook is written and published by the Minnesota Attorney General's Office. This document is available in alternative formats to individuals with disabilities by calling (651) 296-3353 (Twin Cities Calling Area), (800) 657-3787 (Outside the Twin Cities), or through the Minnesota Relay Service at (800) 627-3529. The Minnesota Attorney General's Office values diversity and is an equal opportunity employer.

Office of Minnesota Attorney General Keith Ellison 445 Minnesota Street, Suite 1400, St. Paul, MN 55101

(651) 296-3353 (Twin Cities Calling Area) (800) 657-3787 (Outside the Twin Cities)

(800) 627-3529 (Minnesota Relay) ag.state.mn.us

OFFICE OF THE MINNESOTA ATTORNEY GENERAL

Table of Contents

Introduction................................................................................................. 3

The ABCs of Credit..................................................................................... 3

Where Do I Start?........................................................................................................................................................ 3 Choices! Choices! ...................................................................................................................................................... 3 Credit Cards................................................................................................................................................................ 4

How to Get Credit.........................................................................................5

Credit Reports............................................................................................................................................................. 5 Credit Scores............................................................................................................................................................... 7 What if I Get Turned Down? ....................................................................................................................................... 8

The Cost of Credit....................................................................................... 9

What Will It Cost Me? ................................................................................................................................................ 9 Lost or Stolen Credit Cards...................................................................................................................................... 12 Extras......................................................................................................................................................................... 12 Money Saving Tips ................................................................................................................................................... 13

When Credit Goes Bad...............................................................................15

Are You in a Credit Crisis? ....................................................................................................................................... 15 I Can't Pay My Bills.................................................................................................................................................... 15 Debt Payment Plan................................................................................................................................................... 17 A Note About Debt Settlement Companies............................................................................................................. 19

Debt Collection...........................................................................................19

Debt Collectors......................................................................................................................................................... 19 Answering a Lawsuit................................................................................................................................................ 20 Garnishment.............................................................................................................................................................. 21 Vehicle Repossession.............................................................................................................................................. 24

Considering Bankruptcy......................................................................... 25

What Is an Automatic Stay?..................................................................................................................................... 26 Different Types of Bankruptcy................................................................................................................................. 26 Chapter 7................................................................................................................................................................... 26 Chapter 13................................................................................................................................................................. 29 What Debts Cannot Be Discharged in Bankruptcy?................................................................................................ 31 For More Information............................................................................................................................................... 31

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Other Issues............................................................................................... 32

Electronic Banking.................................................................................................................................................... 32 Fighting Credit Card Fraud....................................................................................................................................... 32 Stop Identity Thieves in Their Tracks....................................................................................................................... 33 The Rent-to-Own Trap............................................................................................................................................... 36 Look Out for These Scams....................................................................................................................................... 36

Credit Laws and Your Credit Rights..................................................... 37

Truth in Lending Act................................................................................................................................................. 37 Fair Credit Billing Act................................................................................................................................................ 37 Fair Credit Reporting Act ......................................................................................................................................... 38 Electronic Funds Transfer Act.................................................................................................................................. 39 Equal Credit Opportunity Act.................................................................................................................................... 39 Consumer Leasing Act............................................................................................................................................. 40 Fair Debt Collection Practices Act .......................................................................................................................... 41

Resources................................................................................................... 42

Top Ten Credit Tips................................................................................................................................................... 42 Glossary of Terms..................................................................................................................................................... 43 Consumer Agencies................................................................................................................................................. 47

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OFFICE OF THE MINNESOTA ATTORNEY GENERAL

Introduction

Credit seems to be the American way of life: today, the average consumer has 13 credit obligations--including revolving credit accounts (e.g., credit cards and home equity lines of credit) and installment loans (e.g., student, mortgage, car, and personal loans). Credit can be an excellent tool when it's used well. But unfortunately, the road to easy credit contains some potholes.

This handbook is a guide to using credit. It will explain why most of us choose to use credit, provide tips to help you choose the right credit for you, detail the fees and terms to know, explain common pitfalls, and clarify your credit rights.

The ABCs of Credit

Credit offers convenience. And, in today's economy, using consumer credit has become a major element of personal money management. Credit allows you to buy and use items now, but pay for them later. With credit, you can enjoy a purchase while you're paying for it--or you can make a purchase when you lack ready cash. There is usually a charge to borrow money, however. And, money borrowed is money that must be paid back. You can gain a lot from using credit. You can also lose a lot if you don't handle credit well.

Where Do I Start?

If you don't have a credit history, your first step will be to start building one. Consider applying for a local store's charge card or a small loan at a local lending institution. Although most institutions that offer credit (called "creditors") report their accounts to the credit reporting agencies (companies that keep track of a person's credit history), be sure to ask before opening an account. If the creditor does report to the reporting agencies and you pay back your debts on time, you will begin building a good credit history. Be sure to consider how much the card or loan will cost you and look out for hidden fees.

If you are applying for a loan or credit card from a local bank, you may want to sit down with a banker. The banker may know you personally and can better judge your individual situation. Of course, this is less feasible for most people today, since computers have taken over much of the guesswork involved in granting credit.

Choices! Choices!

There are three basic types of credit available. These are:

1. Revolving Credit: Most credit cards are revolving credit accounts. You have a credit limit or "line," (the total amount you can borrow or owe at one time) and your monthly payments are based on how much credit you've used at any time. Most revolving credit is unsecured.

2. Open 30-day Agreements: Charge cards require you to pay off your balance at the end of each month (or 30-day agreement period). Your balance depends on your ability to pay and your past usage. Interest is only charged on late payments. If you make too many late payments, you may lose the card.

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