Articles on Consumer Credit

Short-term loans made to enable people to purchase goods or services primarily

for personal, family, or household purposes.

Consumer Credit Transactions.

Consumer credit transactions can be classified into several different areas:

Installment credit involves credit that is repaid by the borrower in several

periodic payments; loans repaid in one lump sum are classified as no installment
credit. Installment credit has expanded in popularity, with an increasing number
of consumers buying goods on credit in order to spread repayment of the
purchase price plus the interest owed on the principal borrowed over a series of
payments.

Originator and Holder

The originator of credit is the person or company who originally extended the
credit, while the holder is the individual or business who obtained the debt at a
discounted price in order to collect payments at a subsequent time. Auto dealers
are credit originators at the time a consumer purchases an auto on credit, but
many of the loans are subsequently assigned by them to banks or sales finance
companies, which become credit holders.

Commercial banks buy many consumer installment loans from car dealers and
department stores and also participate in all aspects of consumer credit
transactions both as originators and holders. The portion of the consumer credit
market attributable to banks has greatly increased due in large part to
widespread use of bank credit cards.

In addition, two types of finance companies are active in the consumer credit
industry. The first type is the small loan company, which has contact with
consumers as originators and makes loans to them directly. The other type is the
sales finance company, which does not deal directly with consumers; it
purchases and holds consumer installment debts related to the sale of durable
goods on time. The distinction between the two decreases in importance as
consumer finance companies diversify and engage in business on both levels.
Vendor and Lender

The law might regard credit differently, depending on whether or not it is offered
by a vendor (seller). When an appliance store gives credit to customers who buy
such things as washing machines and refrigerators and pay for them over a
certain period of time, this is known as vendor credit. When a consumer borrows
funds from a finance company to pay for appliances, this is known as lender
credit, since the finance company lends but does not sell.

Some states exempt vendor credit transactions from the provisions of state usury
laws. A vendor or a lender can charge the consumer interest (a fee for the use of
borrowed money over time). In the past, usury statutes restricting the legal
interest rate have ordinarily been applied only to lender credit. The difference in
the treatment of lender credit and vendor credit is premised upon the
assumption made by law that vendors are able to adjust their prices to allow for
the period during which they await payment. If, for example, the vendor's time
price was excessive in that it allowed for a high interest rate, then the consumer
could opt for payment of the cash price. Courts believe that competitive pricing
will prevent vendors from charging too much interest when they extend credit. It
is the seller's decision how to reduce the time price to encourage consumers to
pay cash for goods.

Some courts have found since 1970, however, that these principles have no
application to revolving charge accounts because department stores do not
charge consumers less for paying for items in cash. There is one uniform
purchase price, regardless of whether the sale is a credit or cash transaction.
Both finance charges and tax are computed on the basis of the cash price.

In cases where courts have indicated that state usury laws must necessarily be
applied in the vendor credit extended through revolving charge account
customers, state legislatures have enacted statutes to increase the legal rate of
interest that may be charged on such accounts. Most consumer credit cannot
exist within the usury law limits, and therefore the pattern has been to enact
laws that permit special higher finance rates for vendor credit to consumers.

Licensing Creditors

Banks, savings and loan associations, and finance companies ordinarily must be
licensed under state or federal statute. Credit companies that purchase retail
installment debts from sellers are also subject to governmental licensing
regulations.

When the licensing requirement is primarily a revenue-raising device, potential

licensees often need only file the appropriate forms and pay the required fee to
obtain a license. However, when the licensing provisions require the applicant to
be reputable and reliable, the public is protected only if the licensing agency has
the energy and resources to investigate the applicant's qualifications.

Credit Reports

When a consumer makes an application for credit, the creditor must decide
whether or not he or she is a good risk. Most creditors regularly order a credit
report on an applicant rather than undertake a costly investigation on their own.
Files are retained by two types of credit agencies.

Credit Bureaus

Credit bureaus publish reports which are primarily used by merchants who are
attempting to decide whether or not to allow consumers to purchase
merchandise financed by credit that will be repaid on time. Such reports
ordinarily disclose financial information, such as the location and size of an
individual's bank accounts, charge accounts, and other debts and the person's
bill-paying habits, income, occupation, marital status, and lawsuits.

Credit bureaus supply such information to a group of subscribers who, in

exchange, provide them with information for their files. All the information
obtained is filed in case it is requested by someone in the future. Nonsubscribers
can ordinarily obtain information through the payment of a fee.

A majority of credit bureaus are members of the Associated Credit Bureaus of

America, which regulates public information for them. It keeps members
apprised of financial transactions that might cause people to be unable to meet
their obligations.

Credit Reporting Bureaus

Credit reporting bureaus formulate financial reports on individuals for purposes

not directly related to the extension of credit. Such reports are used by
employers to evaluate job applicants, by insurance companies to assess the risk
in relation to a prospective policy buyer, and by landlords to avoid renting to
tenants likely to cause damage to the property or disturb other tenants. Bureaus
of this type compile data and provide it upon request to interested parties.

These reports contain personal information about the subjects and their families
that is obtained from interviews with neighbors, associates, and co-workers.
Information is kept for possible future investigation requests.
Problems

In the late 1960s, Congress investigated abuses in the collection and

dissemination of information by credit bureaus and determined that such
bureaus compiled files on more than fifty percent of the people in the United
States. These information files, however, frequently contain inaccurate,
misleading, or irrelevant facts, and are not kept confidential. The most frequent
error is to confuse two individuals having the same name or similar names. The
possibility of committing this error increases as the area covered by the bureau
becomes larger.

Supervision

Many states have enacted statutes to regulate the business practices of credit
bureaus. However, the need for national uniformity has led to the enactment of
fed- eral laws dealing with consumer credit information.

The Fair Credit Reporting Act, which is title VI of the Consumer Credit Protection
Act (15 U.S.C.A. § 1601 et seq.), was enacted in 1970. This congressional
enactment affects and regulates businesses that regularly obtain consumer credit
information for other businesses, either for payment or in a cooperative
exchange.

The law covers any report by an agency if it is related to a consumer's

creditworthiness, credit standing or capacity, character, general reputation,
personal characteristics, or mode of living. Further, the law applies to any such
report when employed or expected to be used for evaluating a consumer for one
of four purposes: credit or insurance for personal, family, or household use;
employment; licenses to operate particular businesses or practice a profession;
and any other legitimate business need.

The requirements of the Fair Credit Reporting Act affect (1) the credit bureau;
(2) the businesses that use the credit reports compiled by credit bureaus; (3) the
rights of the consumers who are the subjects of such reports; and (4) how the
consumer can enforce his or her rights when errors are discovered in such
reports.

Credit bureaus are required to have standard procedures for determining and
updating the accuracy of the information in their files. There is a seven-year limit
on the information on file, except where the file discloses that the party was
bankrupt within a period of ten years. Data relating to an individual's character,
reputation, or lifestyle that are obtained through personal interviews with
neighbors and friends cannot remain in a file unless it is verified every three
months.

While the Fair Credit Reporting Act does not prohibit the collection and
compilation of information unrelated to finance — such as hair length, political
tenets, and sexual practices and preferences — such information must be
accurate and not obsolete. The law does, however, restrict credit bureaus to
furnishing reports for reasons of credit, insurance, employment, obtaining a
government license or other benefit, or other legitimate business needs related
to business transactions with the consumer. Credit bureaus are required to
investigate new clients to ascertain that they are using reports solely for one of
these five permitted purposes. In addition, prospective clients are required to file
a statement with bureaus certifying the purpose for which the reports will be
used and agreeing not to use them for any other purposes.

Consumers are legally entitled to ascertain that no inaccurate or obsolete

information is kept in files on them, and to be notified when a creditor relies
upon a report issued by a credit bureau, so the consumer can see the type of
information kept on file and correct any mistakes in it.

A consumer, however, has no right to examine the actual file kept on him or her
by a credit reporting agency. Anyone who has been refused credit on the basis of
a report can discover the nature and substance of all but medical information
contained therein, as well as the source of the information, except investigations
based on comment from neighbors and associates. The consumer can also find
out the identity of anyone who has received the report for employment purposes
during the last two years or any other purpose during the last six months.

A consumer who discovers inaccurate or misleading information in his or her file

can request that the agency reinvestigate his or her credit background and
submit a brief statement which either explains or corrects the information. The
agency must include such information in the consumer's file and notify recent
users of the changes in the consumer's file upon the consumer's request.

Federal agencies, such as the Federal Trade Commission (FTC), can issue orders
for the enforcement of this law. Officers and employees of the credit bureau who
willfully or intentionally violate this law are subject to criminal prosecution. A
maximum fine of $1,000 and imprisonment for a period of up to one year for
each violation can be imposed upon conviction.

A credit bureau which fails to treat a consumer in the manner required by this
law can be sued by the consumer who must prove that the credit bureau or the
business that used the report did not properly maintain reasonable procedures
to ensure compliance with the law. The consumer must also show that such
failure to maintain was negligent or careless and that he or she incurred personal
or financial injury from this failure.
Credit Discrimination

Discriminatory practices in the granting of credit led to the enactment of

legislation to ensure that all qualified applicants have the same opportunity to
receive credit.

Sex

In the past, women were systematically denied credit regardless of whether they
would be able to repay their loans. It was not uncommon for bankers to refuse to
consider a married woman's income when a couple applied for a loan or a
mortgage. Banks made the assumption that a woman of childbearing age was an
automatic credit risk.

Single women had greater difficulty than single men in obtaining credit,
particularly home mortgages. Creditors were also reluctant to extend credit to
married women in their own names and refused to count a woman's income
when calculating the creditworthiness of a married couple. Women also had a
difficult time reestablishing credit upon divorce or widowhood.

More than half of the states currently have enacted statutes proscribing
discrimination based upon sex or marital status.

In 1974, Congress enacted the Federal Equal Credit Opportunity Act (15 U.S.C.A.
§ 1691 et seq.), which prohibits credit discrimination based not only upon sex
and marital status, but also upon race, religion, and national origin. It has,
however, very detailed prohibitions against discrimination based upon sex and
marital status. Creditors are not permitted to (1) assign a value to sex or marital
status in calculating an applicant's creditworthiness; (2) assign a value to having
a telephone in the name of the applicant; (3) question a married couple's
childbearing plan; (4) alter the terms of credit or require a reapplication when
there is a change in an individual's marital status; (5) refuse to consider the total
income of an applicant and a spouse; (6) delay action on an application or refuse
to consider it; and (7) discourage an individual from making an application for
credit.

Federal agencies such as the FTC can guard against violations of this law through
the issuance of restraining orders. In addition, consumers can commence an
action against creditors who have denied them an equal opportunity to acquire
credit. Where credit discrimination is prohibited by a state law also, the
consumer can choose whether to pursue the state or the federal remedy.

Other Types of Discrimination

Subsequent amendments to the Equal Credit Opportunity Act have been

concerned with race and age discrimination. The act provides that a creditor can
take an applicant's age into consideration only in a situation where older people
are given a preference or where a specific type of credit is allowed someone
because that person is elderly. The law also requires that public assistance
benefits be counted by creditors as a portion of an applicant's income. The race
of an applicant cannot be used as a ground for the denial of credit.

Disclosure of terms

Until the late 1960s, there was considerable variety as to the information given
consumers about their credit arrangements. The greatest lack of uniformity was
in the statement of the rate of interest charged. Some creditors did not disclose
the rate of interest, telling consumers only the number and amount of monthly
payments. Those creditors that did state the rate of interest stated it in a variety
of ways.

In response, Congress enacted the Truth-in-Lending Act as Title I of the

Consumer Credit Protection Act of 1968. The law is essentially a disclosure
statute, offering little substantive protection to consumers. A creditor is free to
impose any charges for credit permitted by state law. In addition, the statute
does not restrict or confine the terms and conditions of the extension of credit.
All that the Truth-in-Lending Act requires is that the consumer be informed of
the terms and conditions of the credit transaction.

Under the statute and FTC regulations, the creditor must describe the credit
terms clearly and conspicuously in a disclosure statement. At the time of
disclosure, the creditor must furnish the customer with a copy of the statement.
The disclosure requirements of the act are detailed and complex, because they
deal with many types of credit transactions. In general, the creditor must disclose
the amount financed, the annual percentage rate, and any finance charges
associated with the extension of credit to the consumer. Any charges payable in
the event of late payment must also be disclosed.

A Consumer Credit Consolidation Helpful In Building Up Your Finances

"More and more people are opting for consumer credit consolidation programs
than ever before. The success and popularity of these kinds of finances is possibly
evident from the recent surveys conducted by a federal bureau which indicates
that there has been an increase in the consumer spending percentage in the
month of January itself."

Recent reports presented by the Bureau of Economic Analysis indicate an

upward trend in consumer spending despite trivial increase in monthly incomes.
As per contents of the report, while people spent more during the month of
January as compared to December, there was only a marginal rise in their
earnings during the concurrent period. Well, is that a sign of economic recovery?
This is could be a pertinent question as consumer expenditure is one of the
important issues to explore various precursors that relate to financial revival.
Alternatively, it could be just that availing professional services of reputed online
service providers like who employ professional consumer credit counselors that
can enable debt-ridden borrowers in formulating budgets and in assessing their
personal financial position as well.

Currently, millions of Americans have found themselves engulfed by credit card

debts and many of them are still unaware about the strategies required to reduce
or eliminate these accumulated dues. If your credit card debts have become
unmanageable, it is time for you to seek the right services for debt help. For these
could enable you to consolidate your unsecured debts by putting you across a
customized credit card debt consolidation program. This could be crucial as
credit counseling services could immensely useful in assisting you to work out a
monthly budget and manage your debts as well as finances much better. You too
could soon be in a position like many others, to spend more on other home
prerogatives. And just how could that happen? There are plenty of online lenders
who offer debt consolidation loans that could facilitate a single affordable
monthly payment to repay off multiple creditors regularly every month, in one
stroke through an escrow account. Alternatively, even college going students
who have a bad credit or no credit history could consider availing Government
debt consolidation loans that usually have a pre-determined set of terms and
conditions, to pay off their debts.

Hence, considering the aforesaid benefits, it is recommended to utilize the

service potential of reputed online service providers such as
www.Debtconsolidation123.net. These services could help you to overcome your
credit debt problems since they could help you to obtain unsecured debt
consolidation loans that are affordable as well as offer favorable loan terms.
While you get rid of all your multiple credit dues by making a single monthly
payment at much lower rates of interest, these services also employ qualified
consumer credit consolidation professionals who could educate you on financial
management besides, helping you to maintain a workable budget that takes into
account your needs and ultimately aid you to tide over your debt situation much
quicker.

Consumer Credit in ratings and calculation with reports:

In 1949 Diner’s Club launched the first charge-card company. Fifty-five years
later, Americans spend more using credit cards than they spend with cash,
according to a study by Dove Consulting. With more than $2 trillion worth of
credit card transactions each year, the creditworthiness of card users is an
increasingly important issue to creditors and consumers alike.

While most people realize that their personal creditworthiness is tracked on

something called a credit report, few know much about it or their scoring. The
score, known as a FICO score, was developed by Fair Isaac & Co. to evaluate the
likelihood that consumers will pay their bills. FICO scores range from a low of
300 (highest risk) points to a high of 850 points (lowest risk) and are used as the
deciding factor on more than 75% of credit applications, according to Equifax,
one of the three major credit bureaus in the United States. In 2003, nearly 50% of
Americans had a FICO score between 700 and 800. (See the article The
Importance Of Your Credit Rating.)

In determining the FICO score, mathematical models are used to analyze the data
on an applicant’s credit report, taking into consideration five factors: previous
credit performance, current level of indebtedness, time credit has been in use,
types of credit available and pursuit of new credit.
 
What's on The Report and Why Should I Care?
An in-depth look at a credit report provided by Equifax provides a good overview
of the type of information that can be obtained from any of the major credit
reporting bureaus. The Equifax report is divided into seven sections.

The first section contains personal data, such as current and previous addresses,
social security number and employment history. This is crucial data to identity
thieves, so be sure to protect it by making sure this information is correct and
accurate, and if you discard it, shred thoroughly.

The second section of the Equifax report provides a summary of the applicant’s
credit history. It includes the number of accounts (both open and closed) held by
the applicant, the type of accounts (mortgage, installment, revolving, or others),
the number of credit inquiries over the last 12 months, the number of accounts
that are past due as well as those in good standing. Intuitively, it may seem like
the more accounts you have open, the higher your credit score will be, but when
it comes to credit, more is not necessarily better.

When financial institutions review your credit report prior to approving a loan,
they often assume that you will use all of the available credit on your credit cards
and factor-in the monthly payments that would be required to service that debt.
If you have a dozen credit cards, all with zero balances, you might have no
problem making a $2,000 mortgage payment each month, but the bank might
look at the situation differently. If the bank factors in your ability to make
monthly payments on a dozen credit cards in addition to a $2,000 mortgage, your
creditworthiness may be diminished.

The third section provides detailed account information. It includes the name,
account type, account number, date opened, balance and status of every account
on the applicant’s record. A breakdown of each account provides payment
history, date of last activity and contact information for the credit issuer. The
section also includes a summary of past-due accounts and accounts with a
negative credit history. If you disagree with any of this information, you have the
right to challenge it. Under federal law, the credit reporting agency then has 30
days to respond to your challenge. If your challenge is successful, the offending
information will be removed from your report.

The fourth section addresses inquiries into the applicant’s credit history.
Inquiries are classified as "hard" or "soft". Hard inquiries are "generated when
you authorized a company listed to request a copy of your credit report". The
number of inquiries over a twelve-month period is tracked and taken into
account when your FICO score is calculated. An excessive number of hard
inquiries have a negative impact on your score. Soft inquiries are generated by
your current creditors checking on your status, credit card issuers reviewing
your file to see if they wish to extend an unsolicited offer and you personally
checking your own credit. Potential lenders don’t see these inquirers when they
review your credit report, and these inquiries do not impact your credit report.

The fifth section details any accounts that have been turned over to a credit
agency. If you failed to make payments and any of your accounts were sent to
collection, information about the delinquent accounts appears here. Similarly, the
sixth section of the report provides information about liens, wage garnishments
or other judgments that appear against you in federal, state or county court
records.

The seventh section of the report provides information on how to dispute any of
the information on your credit report. When it comes to delinquent accounts and
other damaging information, the only way to repair your credit is to wait. Despite
the claims of those late-night infomercials, once negative information appears on
your credit report, there is little you can do to clear it up if the information is
truthful and accurate. The Federal Trade Commission says such information
remains on your report for seven years, with several exceptions. Bankruptcy
remains on your report for ten years. Lawsuit-related information remains until
the suit is settled. To avoid these problems, make all payments on time and don’t
ignore any issues that arise with creditors.

How That Information Impacts Your Score

Factors such as payment history, the length of time an individual has had credit
and the individual’s employment history all play a role in determining your FICO
score. So, even though you may have an excellent source of income and pay all of
your bills on time and in-full,  if you don’t have a mortgage, car payments or
revolving debt of any kind, it is unlikely that your FICO score will be 850.

Equifax cites late payments, or lack thereof, length of credit history and the size
of account balances in relation to your credit limits as major factors that impact
your FICO score. Even if you pay off the full amount owed on your credit cards
each month, the size of the bill has an impact on your score, as large balances are
frowned upon.

Check Your Credit

If you are contemplating a significant purchase, such as a second home or a
substantial piece of property, running a credit check on yourself is a good idea. If
you run the check at least 90 days prior to your purchase, you should have plenty
of time to address any discrepancies that appear on the report.

While credit reports can be obtained from a variety of sources, the three major
credit bureaus in the United States are Equifax, Experian and Trans Union.

Credit reports can be ordered online and obtained instantly. The cost of
obtaining a credit report is less than $50 per person. Keep in mind that each of
these credit bureaus operates independently, so you may need to request a
report from each of them to get a complete picture of your credit history.

Conclusion

Despite the many advertisements that promise to repair bad credit, prevention is
the best way to avoid credit problems. Once negative information appears on
your credit report, there is little you can do to clear it up if the information is
truthful and accurate. However, over time – generally about seven to ten years –
this information is removed from your credit report. To prevent this type of
damaging information from getting onto your credit report in the first place, as
well as to improve your chances of obtaining future financing, be sure to make all
your payments on time and do not ignore issues that arise with creditors.