What Is PMI?

PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

What Is a Residential Mortgage Transaction?

There are four requirements for a transaction to be considered a residential mortgage transaction: (1) a mortgage or deed of trust must be created or retained; (2) the property securing the loan must be a single-family dwelling; (3) the single-family dwelling must be the primary residence of the borrower; and (4) the purpose of the transaction must be to finance the acquisition, initial construction, or refinancing of that dwelling.

Unsigned Credit Cards

Stealing and using credit cards that have not been signed is another potential fraud. In other words, credit card thieves could steal your unsigned credit cards and then sign your name on the card in their handwriting. By doing so, they take your name as an alias and they will never have a problem writing and verifying their own signature.

Protect your credit cards. When you receive a new or replacement card, sign the back of it as soon as it is activated. Always be sure to store it in a safe place. Cut up expired cards before disposing of them.

Stolen Checks

A major concern for the elderly is the theft of checks from mailboxes and mail slots. Since the
mail carrier delivers social security checks on the same day of each month, these and other predictable, routine payments are easy prey for theft. Stolen checks are easily turned into cash by thieves who know where to go and what to do.

The Social Security Administration strongly encourages direct deposit of checks. Seventy-five percent of those receiving social security benefits use direct deposit.

If you have any regularly scheduled payments, you should seriously consider direct deposit. Federal Reserve Banks and financial institutions process direct deposit transactions electronically through a national automated system. Contact your financial institution about payments that are eligible.

Age

Creditors can ask how old you are in order to be certain you have reached legal age to enter into contracts. They can also consider your age to estimate how long you will continue to work. However, age cannot be used to deny credit to those 62 or older (in the case of credit-scoring systems) or to those applicants whose age exceeds that required for credit insurance.

Applicant Notification

Lenders must notify credit applicants of their decision within 30 days after the application is completed. If credit is denied, the creditor must provide a written statement that includes the action taken, reason for denial (or how to request it), the applicant's rights, and the name and address of the enforcing federal agency. If you believe that discrimination has taken place, you have the right to file suit. If creditors are found to have discriminated unfairly, they can be held liable for actual damages and punitive damages up to $10,000.

Divorced Individuals

If you pay or receive alimony, child support, or maintenance, you can be asked how these items affect your income. However, if you do not plan to use this income to repay the loan for which you are applying, you do not have to list it on your application.

Prohibited Information

Credit applications cannot ask you about your sex, race, color, religious affiliation, or national origin unless you are applying for residential real estate. Even then, you are not required to answer. The information is used only to enforce fair housing laws, not for evaluation purposes.

You cannot be asked your marital status, unless your spouse will help secure, use, or be legally responsible for the loan. Creditors are also prohibited from asking about your plans to have children.

Credit for Couples

Spouses have the right to have their credit histories listed separately, including the accounts they use jointly. Married women have the option of using their birth name or married name. In the case of couples who jointly established credit, but whose credit appears in the name of only one spouse, the other partner has the right to rely on that credit history as well.

Limiting Access

You may request that consumer reporting agencies do not distribute your name on lists used by creditors and insurers to make unsolicited offers of credit and insurance. Requests can be made by telephone or in writing by filling out a form available from each credit reporting agency. For telephone requests, call (888) 5 OPT OUT to be excluded from Experian, Equifax, and Trans Union. Telephone requests last for two years; written requests are permanent.

Consumers have the right to sue consumer reporting agencies, users, and providers in state and federal court for violations of the Fair Credit Reporting Act.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act requires that individual creditors apply credit standards in a fair manner, so that all consumers are given an equal chance to obtain credit. It does not require all creditors to have the same standards, nor does it guarantee approval of loan applications.

In reviewing your credit application, lenders cannot discriminate on the basis of sex, marital status, race, religion, national origin, age, income from assistance programs, or if you exercise your rights under the Consumer Protection Act. The only acceptable criteria are your ability and intent to repay funds borrowed.

Extra Copies of Charge Slips

When processing your credit card, a dishonest merchant may decide to imprint a few extra copies of the charge slip. Later, the merchant can submit these copies to the issuing institution for payment on phony charges.

Keep your eye on your credit card whenever it is in use. Watch clerks process your credit payments. Open your credit card bills promptly each month. Make sure that you made the listed purchases. Also, report any charges that you did not make to the credit card company.

Stolen Cards at the Office

Over the lunch hour when you leave your office for lunch, you could be the target of a credit card thief. Credit card thieves often gain illegal access to the offices of employees who are away in order to search unattended. Most times, they leave the offices and immediately go on a shopping spree, charge credit cards to their limits, and withdraw cash on debit cards.

Protect your credit cards as you would cash. Never write your PIN number on your debit card. Instead, always commit your PIN number to memory.

Renewals

If there is an annual renewal fee for a card, you must be given an opportunity to cancel the card if you don't wish to pay the fee.

Earlier Disclosure

Truth in Lending also requires card issuers to provide the information earlier than they had in the past. This lets you find out what credit will cost you before you are charged any fees. If a card issuer calls and takes your card application over the telephone and there is a fee for the card issuance or availability, including any fee based on account activity or inactivity, the card issuer must verbally give you the required information at that time. If there is no fee for the card or if the fee isn't required until you actually use the card, the card issuer can mail you the fee information instead of telling you over the phone. You must receive the information within 30 days, but no later than the delivery of the card.

Equal Credit Opportunity

Credit is used by millions of consumers to finance an education or a house, remodel a home, or get a small business loan.

The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. This doesn’t mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.

The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit also are protected by the law.

Credit Card vs. Charge Card

Many people use the terms credit card and charge card interchangeably, but there are important differences. In general, a credit card lets you make purchases for which you are billed later. Most credit card accounts allow you to carry a balance from one billing cycle to the next; however, you have to pay interest on that balance. Usually, you have to pay at least a certain amount of your balance each time you receive a bill.

A charge card is a specific kind of credit card. The balance on a charge card account is payable in full when the statement is received and cannot be rolled over from one billing to the next. Because you cannot carry a balance, a charge card doesn't have a periodic or annual percentage rate, so there is no rate for a charge card issuer to disclose.

The Finance Charge and Annual Percentage Rate --Part 2

Example:

Again, suppose you borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then repay $110 at year’s end, you are paying an APR of 10 percent. But if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don’t really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 finance charge amounts to an APR of 18 percent.

All creditors—banks, stores, car dealers, credit card companies, finance companies—must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure so that you can compare credit costs. The law says these two pieces of information must be shown to you before you use a credit card.

The Finance Charge and Annual Percentage Rate --Part 1

Example:

Suppose you borrow $100 for one year, and the interest is $10. If there is a service charge of $1, the finance charge will be $11.

The annual percentage rate is the percentage cost (or relative cost) of credit on a yearly basis, which is your key to comparing costs, regardless of the amount of credit or how long you have to repay it.

Open-end and Closed-end Leases

There are open-end and closed-end leases and your rights and obligations at lease-end are different in each of these. Both types of leases estimate the lease-end value of the item and use this to project depreciation, which is the basis for calculating your base monthly payment. In an open-end lease, at lease-end, you are responsible for the difference between the estimated lease-end value (the residual value) determined at the beginning of the lease and the actual lease-end value (the realized value). In a closed-end lease, you are not responsible for the item’s value at lease-end, but you are responsible for the condition of the item you lease (that is, an excess wear and use charge may be imposed). In an open-end lease, you may receive a refund of any gain and are responsible for any deficiency. In a closed-end lease the lessor usually keeps any gain and assumes any loss due to overestimating the residual value.

The Consumer Leasing Act provides consumers with some protections against unreasonable end-of-term charges in open-end leases. Assuming that you have met the wear-and-use standards, the residual value is considered unreasonable if it exceeds the realized value by more than three times the base monthly payment (the “Three Payment Rule”). If you believe the amount owed at the end of the lease term is unreasonable and refuse to pay, the lessor may attempt to prove that the residual value was reasonable when it was set at the beginning of the lease. However, if you cannot reach a settlement with the lessor, you cannot be forced to pay the excess amount unless the lessor brings a successful court action and pays your reasonable attorney’s fees. For example, assume that the residual value in an open-end vehicle lease is $12,000, the realized value is $11,000, and the base monthly payment is $250. The end-of-term deficiency is $1,000. However, under the Three Payment Rule, the maximum charge should not exceed $750 (assuming that there is no excess wear-and-use charge) rather than the full $1,000 deficiency unless the lessor can prove the residual value was reasonable when set.

You have the right to an independent appraisal of the property’s worth at the end of the lease term; however, you must pay the appraiser’s fee.

The Federal Reserve pamphlet “Keys to Vehicle Leasing: A Consumer Guide” also contains useful information on leasing and provides a sample of some of the disclosures you should receive when leasing a vehicle.

Cost of Settlement on a House

A house is probably the single largest credit purchase for most consumers, and one of the most complicated. The Real Estate Settlement Procedures Act, like Truth in Lending, is a disclosure law. The act, administered by the Department of Housing and Urban Development, requires the lender to give you, in advance, certain information about the costs you will pay when you close the loan. The act also requires that lenders give you the booklet “Buying Your Home: Settlement Costs and Information” to help you understand the closing process and shop for lower settlement costs.

What Laws Apply?

Two laws can help you compare costs:

Truth in Lending requires creditors to give you certain basic information about the cost of buying on credit or taking out a loan. These “disclosures” can help you shop for the best deal.

Consumer Leasing disclosures can help you compare the cost and terms of one lease with another and with the cost and terms of buying for cash or on credit.

Shopping Is The First Step

Credit is a convenience. It lets you charge a meal on your credit card, pay for an appliance on the installment plan, get a loan to buy a house, or pay for schooling and vacations. With credit, you can enjoy your purchase while you’re paying for it, or you can make a purchase when you’re lacking ready cash.

But there are strings attached to credit as well. It usually costs something. And, of course, what is borrowed must be paid back. If you are thinking of borrowing or opening a credit account, your first step should be to figure out how much it will cost you and whether you can afford it. Then you should shop for the best terms.

Make A Checklist for Comparing Credit Cards

Think about how you will use your credit card.

Do you expect to:

Pay your montly bill in full?

Carry over a balance from month to month?

Get cash advances?

Once you have decided how you will use your credit card, make a checklist to compare cards.

Billing Errors

Examples of billing error are:

1. A charge for something you didn’t buyA bill for an amount different from the actual amount you charged

2. A charge for something that you did not accept when it was delivered

3. A charge for something that was not delivered according to agreement

4. Math errors

5. Payments not credited to your account A charge by someone who does not have permission to use your credit card

What If The Item You Purchased Is Damaged?

The federal Fair Credit Billing Act allows you to withhold payment on any damaged or poor-quality goods or services purchased with a credit card--even if you have accepted the goods or services--as long as you have made an attempt to solve the problem with the merchant.

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. You should notify the credit card company in writing and explain why you are withholding your payment.

You may withhold the payment while the credit card company investigates your claim. If you pay the charges for the goods on your credit card bill before the dispute is resolved, you will lose your right to make a claim.

What Kind Of Card Is It?

Most credit card companies offer several kinds of cards: Secured cards, which require a security deposit. The larger the security deposit, the higher the credit limit.

Secured cards are usually offered to people who have limited credit records--people who are just starting out or who have had trouble with credit in the past.

Regular cards, which do not require a security deposit and have just a few features. Most regular cards have higher credit limits than secured cards but lower credit limits than premium cards.

Premium cards (gold, platinum, titanium), which offer higher credit limits and usually have extra features--for example, product warranties, travel insurance, or emergency services.

How Much Is The Credit Limit?

The credit limit is the maximum total amount--for purchases, cash advances, balance transfers, fees, and finance charges--you may charge on your credit card. If you go over this limit, you may have to pay an “over-the-credit-limit fee.”

What are the fees?

Most credit cards charge fees under certain circumstances:

Annual fee (sometimes billed monthly). Charged for having the card

Cash advance fee. Charged when you use the card for a cash advance; may be a flat fee (for example, $3.00) or a percentage of the cash advance (for example, 3%)

Balance-transfer fee. Charged when you transfer a balance from another credit card (Your credit card company may send you “checks” to pay off the other card. The balance is transferred when you use one of these checks to pay the amount due on the other card.)

Late-payment fee. Charged if your payment is received after the due date

Over-the-credit-limit fee. Charged if you go over your credit limit

Credit-limit-increase fee. Charged if you ask for an increase in your credit limit

Set-up fee. Charged when a new credit card account is opened

Return-item fee. Charged if you pay your bill by check and the check is returned for non-sufficient funds (that is, your check bounces)

Other fees. Some credit card companies charge a fee if you pay by telephone (that is, if you arrange by phone for payment to be transferred from your bank to the company) or to cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services. Read the information in your credit card agreement to see if there are other fees and charges.

How Will You Use Your Credit Card?

The first step in choosing a credit card is thinking about how you will use it.

If you expect to always pay your monthly bill in full--and other features such as frequent flyer miles don’t interest you--your best choice may be a card that has no annual fee and offers a longer grace period.

If you sometimes carry over a balance from month to month, you may be more interested in a card that carries a lower interest rate (stated as an annual percentage rate, or APR).

If you expect to use your card to get cash advances, you’ll want to look for a card that carries a lower APR and lower fees on cash advances. Some cards charge a higher APR for cash advances than for purchases.