The Center For Debt Management
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Other Aspects of Using Credit

The best way to keep up your credit standing is to repay all debts on time. But there may be complications. To protect your credit rating, you should learn how to correct mistakes and resolve misunderstandings.

When there's a snag, first try to deal directly with the creditor. The credit laws can help you settle your complaints without a hassle.


What Laws Apply?

FAIR CREDIT BILLING ACT sets up procedures requiring creditors to promptly correct billing mistakes; allowing you to withhold payments on defective goods.

TRUTH IN LENDING gives you three days to change your mind about certain credit transactions that use your home as collateral; it also limits your risk on lost or stolen credit cards.


Billing Errors

The Fair Credit Billing Act requires creditors to correct errors promptly and without damage to your credit rating.

A Case of Error? The law defines a billing error as any charge

— for something you didn't buy or for a purchase made by someone not authorized to use your account;

— that is not properly identified on your bill or is for an amount different from the actual purchase price or was entered on a date different from the purchase date;

— for something that you did not accept on delivery or that was not delivered according to agreement.

Billing errors also include:

— errors in arithmetic;

— failure to show a payment or other credit to your account;

— failure to mail the bill to your current address, provided you told the creditor about an address change at least 20 days before the end of the billing period;

— an item on your bill for which you need more information.

In Case of Error. If you think your bill is wrong, or want more information about it, follow these steps:

1. Notify the creditor in writing within 60 days after the first bill was mailed that showed the error. Be sure to write to the address the creditor lists for billing inquiries and to tell the creditor:

— your name and account number;

— that you believe the bill contains an error and why you believe it is wrong; and

— the date and suspected amount of the error or the item you want explained.

2. Pay all parts of the bill that are not in dispute. But, while waiting for an answer, you do not have to pay the amount in question (the "disputed amount") or any minimum payments or finance charges that apply to it.

The creditor must acknowledge your letter within 30 days, unless the problem can be resolved within that time. Within two billing periods, but in no case longer than 90 days, either your account must be corrected or you must be told why the creditor believes the bill is correct.

If the creditor made a mistake, you do not pay any finance charges on the disputed amount. Your account must be corrected, and you must be sent an explanation of any amount you still owe.

If no error is found, the creditor must send you an explanation of the reasons for that finding and promptly send a statement of what you owe, which may include any finance charges that have accumulated and any minimum payments you missed while you were questioning the bill. You then have the time usually given on your type of account to pay any balance.

3. If you still are not satisfied, you should notify the creditor in writing within the time allowed to pay your bill.

Maintaining Your Credit Rating. A creditor may not threaten your credit rating while you're resolving a billing dispute.

Once you have written about a possible error, a creditor must not release information to other creditors or credit bureaus that would hurt your credit reputation. And, until your complaint is answered, the creditor also cannot take any action to collect the disputed amount.

After the creditor has explained the bill, if you do not pay in the time allowed, you may be reported as delinquent on the amount in dispute, and the creditor may take action to collect. Even so, you can still disagree in writing. Then the creditor must report that you have challenged your bill and give you the name and address of each person who has received information about your account. When the matter is settled, the creditor must report the outcome to each person who has received information. Remember that you may tell your own side in your credit record with 100-word explanation.


Defective Goods Or Services

Your new sofa arrives with only three legs. You try to return it; no luck. You ask the merchant to repair or replace it; still no luck. The Fair Credit Billing Act allows you to withhold payment on any damaged or poor-quality goods or services purchased with a credit card, as long as you have made a real attempt to solve the problem with the merchant.

This right may be limited if the card was a bank or travel and entertainment card or any card not issued by the store where you made your purchase. In such cases, the sale must have been for more than $50 and must have taken place in your home state or within 100 miles of your home address.


Prompt Credit For Payments
And Refunds For Credit Balances

Some creditors will not charge a finance charge if you pay your account within a certain period of time, often called a grace period. In this case, it is especially important that you get your bills, and get credit for paying them, promptly. Check your statements to ensure your creditor follows these rules:

Prompt Billing. Look at the date on the postmark. If your account is one on which no finance or other charge is added before a certain due date, then creditors must mail their statements at least 14 days before payment is due.

Prompt Crediting. Look at the payment date entered on the statement. Creditors must credit payments on the day they arrive, as long as you pay according to payment instructions, for example, sending your payment to the address listed on the bill.

Credit Balances. If a credit balance results on your account (for example, because you pay more than the amount you owe or you return a purchase and the purchase price is credited to your account), the creditor must make a refund to you. The refund must be made within seven business days after your written request or automatically if the credit balance still exists after six months.


Cancelling a Mortgage

Truth in Lending gives you a chance to change your mind on one important kind of transaction—when you use your home as security for a credit transaction. For example, when you are financing a major repair or remodeling and use your home as security, you have three business days, usually after you sign a contract, to think about the transaction and to cancel it if you wish. The creditor must give you written notice of your right to cancel, and, if you decide to cancel, you must notify the creditor in writing within the three-day period. The creditor must then return all fees paid and cancel the security interest in your home. Until the three days are up, a contractor may not start work on your home, and a lender may not pay you or the contractor. If you must have the credit immediately to meet a financial emergency, you may give up your right to cancel by providing a written explanation of the circumstances.

The right to cancel (or right of rescission) was provided to protect you from decisions that are hasty or made under pressure, possibly putting your home at risk if you are unable to repay the loan. The law does not apply to a mortgage to finance the purchase of your home; for that, you commit yourself as soon as you sign the mortgage contract. If you use your home to secure an open-end credit line—a home equity line, for instance—you have the right the cancel when you open the account or when your security interest or credit limit is increased. (In the case of an increase, only the increase would be cancelled.)


Lost or Stolen Credit Cards

If your wallet is stolen, your greatest cost may be inconvenience, because your liability on lost or stolen cards is limited under Truth in Lending.

You do not have to pay for any unauthorized charges made after you notify the card company of loss or theft of your card. So keep a list of your credit card numbers and notify card issuers immediately if your card is lost or stolen. The most you will have to pay for unauthorized charges is $50 on each card—even if someone runs up several hundred dollars worth of charges before you report a card missing.


Unsolicited Cards

It is illegal for card issuers to send you a credit card unless you ask for or agree to receive one. However, a card issuer may send, without your request, a new card to replace an expiring one.

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