consumers to use and enjoy purchases before they have been paid for in full. It
comes in many shapes and forms including credit cards, auto loans and home
come with many perks, beyond the frequent flyer miles and point schemes we hear
about so often. They are convenient to carry, and, when used carefully, are
safer than cash. If your credit card is stolen, federal law limits your
liability. If you have paid for unsatisfactory goods or services with your
credit card, you may be able to initiate a “charge back” by contacting your
credit card company.
Keep in mind
that there are some drawbacks to using credit. It usually costs money, so it is
important to make sure you read and understand all of the fine print when you
open a new credit account. It is important to keep interest charges and other
fees in mind as you gauge the financial impact of a purchase made on credit.
makes it easy to buy impulsively. It can be hard to remember that purchases
made on credit must be paid for later. If you overspend, you run the risk of
tying up your future income to pay for yesterday’s purchases. By spending
beyond what your budget allows you to repay comfortably, you may quickly find
yourself maxed out.
keep track of the way you use credit that has been extended to you. They keep a
file, associated with your name, date of birth, and social security number that
is dedicated to recording your financial history – it is your credit report.
Your report includes
information about your bill payment and employment history, credit account
balances and available limits, your income, and matters of public record that
involve you, such as bankruptcy filings, tax liens, civil judgments and
There are three
national credit bureaus maintaining a separate report on you: Equifax,
Experian, and TransUnion. These bureaus are private companies that sell the
information in your report to others who inquire. They keep a record of all
inquiries made about your credit history for the past year.
information on your credit report, whether favorable or unfavorable, is
removed, with some exceptions, after seven years. Bankruptcy information can
remain on your report for 10 years. Civil judgments remain until the statute of
limitations expires or seven years – whichever is longer.
The statute of
limitations on a judgment can be as long as 20 years in Wisconsin.
credit bureaus may also report your credit score, which is a number that is
calculated using the information from your credit report. The information that
is taken into account for this calculation may include the number, age and type
of credit accounts in your name, your credit to debt ratio, your bill payment
history and whether any of your accounts have been sent to collections.
Who sees your
bureaus report the information in your file to companies or people with a
legitimate business need for the information. These may include lenders, insurance
companies, employers, and landlords. These entities use your credit report to
gauge how financially trustworthy you are.
insurers want to know how much of a risk they are taking in doing business with
you. They use the information in your credit report to decide whether to lend
to or insure you and under what terms. If you have not used credit carefully,
it can be difficult to borrow money when you want to finance a really important
purchase, like a home or vehicle.
For example, if
your credit report shows that you have maxed out your credit cards, a lender
may see you as a risky borrower and choose to charge you a high interest rate
or not to give you a loan for that shiny new car.
use credit reporting as a way to weed out potential tenants who may not
dependably pay rent on time. Some employers, believing that a job hunter’s
general character will be reflected in their credit history, may screen
applicants by checking their credit reports before hiring. Prospective
employers need your written consent to check your credit report.
Where to start
often takes credit to get credit, building your credit history from scratch can
be tricky. Consider asking someone who has already established a credit history
to co-sign on a loan for you. But remember, if you do not repay your loan, your
co-signer is on the hook.
If getting a
co-signer is not an option for you, you might try applying for a credit account
with a local business. Businesses in your area may be more open to extending
credit to someone without credit history. After you have established a pattern
of timely payments, you may have better luck being offered a credit card from a
A third option
is to apply for a secured credit card, which is a card that is tied to a
savings account. Your savings account balance, or some portion of it, serves as
your credit limit. Major credit card companies are more apt to extend this type
of credit to someone without an established history, because the savings
account money can pay back the loan in the event that you do not.
used responsibly, can help you qualify for more credit, more affordably. Make
sure that your lender reports to the credit bureaus regularly. This will ensure
that you are well on your way to establishing a sparkling credit history.
generally issue three types of credit accounts.
In this type of
agreement, the consumer has the option to either pay the balance off in full
each month, or pay a portion of it off. Credit cards are considered revolving
must pay a charge agreement balance off in full each month, so no interest accrues.
Local businesses often extend credit to consumers under this type of agreement.
borrows a fixed amount of money at once and commits to a repayment schedule
that typically requires equal repayments to be made each month. These loans are
often secured by the property the consumer purchased with the loan.
Automobiles, furniture, and major appliances, and personal loans are often
financed through installment agreements.
before opening a credit card account. The fees, charges and benefits to these
accounts all vary a great deal among credit issuers. Here are some variables to
pay close attention to as you are comparing different credit accounts:
percentage rate (APR)
expresses the yearly interest rate on the balance. The higher this number, the
more interest you will be responsible to pay on your balance. Many credit card
companies advertise limited-term low interest rates to lure in customers.
Be sure you
find out what the APR will be after the introductory term expires. Keep in mind
that some credit card companies may raise your interest rate if you “default”
on your agreement by paying late. If this happens, subsequent charges may be
subject to an astronomically high interest rate.
card companies offer a set time period between the date of your purchase on
credit and the date interest begins to accrue. If you pay your balance in full
during this time period, you will not be charged interest.
card companies charge you a flat fee each year, simply for being a cardholder.
Some charge you monthly!
fees and other charges
You might be
charged a fee for a cash withdrawal from your credit line. You will almost
certainly be charged a late fee if your bill is not paid on time or you exceed
your credit limit.
card companies have toll-free customer service hotlines that are available 24
hours a day.
offer benefits like cash and merchandise rewards or credits towards airfare and
gasoline purchases. Before signing up, be sure to assess whether these programs
will truly benefit you. You may find that you are better off with a credit card
that offers a low APR but does not have a rewards program.
you plan to use your credit card as you compare the terms offered by each
issuer. For example, if you plan to pay your balance off in full each month,
having a low APR may be less important to you than paying a low annual fee.
credit due to information in your credit report, federal law requires the
creditor to give you both an explanation for the denial and a free copy of your
credit report. However, you must make a request for it within 60 days of
receiving the denial notice.
If you are
extended credit under less favorable terms than are offered to other consumers
who have applied, federal law also requires the lender to send you a
“risk-based pricing notice,” which includes information on how to obtain a free
credit report from the bureau that reported to that lender within 60 days of
receiving the notice. Additionally, if a lender obtains your credit score from
a credit reporting agency, you will receive a notice that tells you your credit
score and provides information on how your score compares with others.
Make sure that
you pay your bills on time. It is smart to put all of your due dates on a
calendar, especially if you have a lot of monthly bills. Try to keep your
outstanding balances low as compared to your available credit, and do not apply
for a lot of credit at once. Lenders pay attention to the number of inquiries
made for your credit report.
discriminating about what types of credit accounts you open. Some are looked
upon more favorably than others – pass on payday loans.
yourself from credit fraud by activating and signing your credit cards as soon
as they arrive. Save sales receipts to reconcile with your billing statement,
just as you would do with your checking account. This will help you catch
unauthorized or inaccurate charges more quickly.
account information and beware of scammers who “phish” for it by pretending to
represent a legitimate business. Do not give your social security number,
credit card number or expiration date out over the phone or internet unless you
have initiated the contact and know exactly who you are dealing with. Keep an
eye on your credit card when using it in person, and always make sure that it
is returned to you after it is been charged. Never sign a blank charge slip.
consider the risks of co-signing for someone else or lending a credit card to a
friend or family member. Your credit privilege is a precious asset that may not
be worth risking.
You can also
help protect your credit report by making sure that it is accurate. The Fair
and Accurate Credit Transactions Act, a federal law, gives consumers the legal
right to know what is in their credit report. You are entitled to receive one
free credit report per year from each of the three major bureaus. This law does
not give you the right to a free annual credit score.
There are three
ways to order your free annual credit report:
Online at: www.annualcreditreport.com
By mail. Send
an order form request to:
PO Box 105281
bureaus do not share files, but they do receive information about you from the
same sources. Since these reports usually contain identical information, you
might want to stagger your free credit reports so that you get one every four
months. This will allow you to detect and correct errors or fraudulent activity
If you are not
yet eligible for a free report, or you want to know your credit score, you can
purchase these directly from one of the credit bureaus. Contact:
and creditors are legally required by the Fair Credit Reporting Act, another
federal law, to correct inaccurate information in your credit report.
If your credit
report contains inaccurate information, you should notify both the credit
bureau who prepared it and the creditor, in writing, which information is
inaccurate and why. Include a copy of your credit report with the inaccurate
information highlighted. Send your letter by certified mail, return receipt
credit bureau considers your dispute frivolous, they must investigate, usually
within 30 days. After the investigation concludes, the credit bureau must give
you the written results. If the investigation determines that the information
you have complained about is indeed incorrect, the credit bureau must remove it
and provide you with a free copy of your credit report.
If you request,
they must also send notices of correction to anyone who has inquired about your
credit in the past six months. If any employers have inquired about you over
the past two years, you may request the credit bureau to send them copies of
your corrected report in full. The creditor must notify the other credit
bureaus of the information’s inaccuracy and cannot report the wrong information
If the dispute is
not resolved in your favor after investigation, you have the right to request
that the credit bureau include a brief statement noting the dispute in your
file. This statement will be reported to anyone who requests your credit report
in the future.
If your credit
report shows accounts that you did not open, an identity thief may be using
your good name to commit fraud.
Call to report
this matter to any of the three major credit bureaus. Whichever bureau you
notify will contact the other bureaus. All three bureaus will put a “fraud
alert” on your account, which will prevent identity thieves from opening
additional accounts in your name.
A fraud alert
expires after 90 days, but Wisconsin law allows you to place a “freeze” on your
credit report that remains in place until you take action to release it. While
Wisconsin law requires the credit reporting agencies to accept requests for
freezes in writing by certified mail, all three major credit bureaus allow
freezes to be placed online, or over the phone. The credit freeze may cost up
to $10, but is recoverable if you mail to the credit bureau a copy of your
local police department’s report of identity theft. Contact:
police because Wisconsin law requires your local police department to prepare
an identity theft report, even if the theft occurred somewhere else.
By both phone
and mail, contact your creditors, including those who have extended credit in
your name to the identity thief, to advise them that your identity has been
compromised. You will also want to contact phone or utility companies that the
thief has opened accounts in your name. Close the accounts you did not open so
the thief cannot continue to use them. Consider closing all of your credit
accounts and re-opening under new account numbers those you wish to continue
Bureau of Consumer Protection for more information or to file an identity theft
complaint. You may call (800) 422-7128 to request a complaint form by mail, or
download a form online at datcp.wi.gov.
In spite of our
best intentions, many of us may end up in financial straits at some point in
our lives. Unexpected adversities, such as job loss or illness in your family,
can be devastating to your pocket book – making it easy to rack up credit card
debt. However, putting this problem off will only make it harder to dig
yourself out. If you are unable to keep up with your debt repayments, your car
could be repossessed, your wages garnished, and you could even be foreclosed
on. This will affect your credit.
budget and try to create a plan of action to pay off your debt. Talk to your
creditors before missing payments. They may be willing to negotiate a payment
plan that will be workable for you before late payments have damaged your
credit. Do not wait until tomorrow if creditors have already sent your account
to a collections agency, they may no longer be willing to make such
If your debt
problem is more than you can manage on your own, seek assistance from a
reputable credit counseling agency. Contact the Wisconsin Department of
Financial Institutions to see if the agency you have selected is properly
licensed in Wisconsin.
There is no
quick fix for poor credit. Do not buy into offers to repair your credit that
require you to pay before services are provided, recommend against contacting
the credit bureaus directly, or tell you to take any sort of action that seems
illegal, such as starting a “new” credit identity by applying for an Employer
Identification Number to use instead of your own social security number. Making
false statements on a credit application is a federal crime, but scammers do
not care if they get you in trouble, so long as they get your money. If the
negative information on your credit report is accurate, only the passage of
time will remove it.