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If someone steals my credit card and uses it, do I have to pay the charges?
If you report the theft immediately, by federal law you aren’t responsible for illegal charges after your card is stolen. Even if you don’t report the card stolen, the most you generally must pay is $50. I’m disputing a charge on my credit card bill. What are my rights while the charge is being investigated?
If you notify the lender in writing within 60 days of the statement, you’re in good shape. You don’t need to worry about paying the charge while you wait for it to be resolved, and you can continue to use your card. The card company, on the other hand, has specific legal responsibilities. The company must respond within 30 days and resolve the problem within 90 days -- otherwise, they can’t collect the disputed amount or any finance charges.Furthermore, the card company cannot file a negative credit report about you while the problem is under dispute.What is a minimum finance charge on a credit card?
The minimum finance charge is the minimum amount the credit card company imposes on your unpaid balance. Many cards charge a 50¢ minimum. By itself, 50¢ isn’t a lot of money. But if your outstanding balance is just $15, 50¢ works out to an annual interest rate of 40%. Is it easier to get a single-purpose credit card?
Single-purpose credit cards that you can only use at one company and its affiliates can be easier to obtain than broad-use credit cards. This is in part because retailers want your business. Single-purpose cards also tend to have lower credit limits, which lowers the retailers’ risk.Department stores issue the most single-purpose cards, but some hotels, airlines, and even telephone companies issue them as well.You can start building a credit record with a single-purpose credit card and prove that you handle credit responsibly.What’s that black stripe that runs across the back of my credit cards?
The black stripe probably has two "information tracks" that can be read by credit card readers. The first track has information such as your name, the card’s expiration date, your credit limit and your personal identification number (PIN). The second track has your individual account number, the date you opened the account and other discretionary data. Can I get competitive interest rates at my credit union?
You can often get very competitive rates on everything from savings accounts to home loans at a credit union. As non-profit institutions with no income taxes to pay, no investors to satisfy and lower marketing costs and overhead, credit unions can pay above-average rates on deposits and charge below-average rates on loans and credit cards. What is the difference between a debit card and a credit card?
When you pay by debit card, the money is taken instantly and directly from your checking or savings account. When you pay by credit card, your credit card bank or other financial institution pays the bill and sends you a monthly bill for your charges. Using a debit card can help you avoid getting into debt and incurring finance charges, because you pay as you go. Some stores charge a small fee when you use a debit card. Should I buy flight insurance?
If you need to insure your life, the cheapest way to do it is usually to buy term life insurance. Don’t waste money by buying life insurance at a vending machine in the airport. This sales pitch plays into your fear of flying. In reality, you’re probably in more danger driving to the airport. Besides, you may already be covered; some credit card companies give you automatic flight insurance if you charge your tickets on their card. It’s also worth noting that some travel agencies provide you with free flight insurance when you purchase your tickets through them instead of buying the tickets directly from the airline. Where do I get information on remodeling?
Try these sources:
- National Association of the Remodeling Industry, 780 Lee St, Suite 200, Des Plaines, Ill., 60016; 847-298-9200 or 877-685-6274.
- "Rehab a Home With HUD's 203(K)," published by the U.S. Department of Housing and Urban Development, 7th and D St., S.W., Washington, DC 20410.
- "Cost vs. Value Report" by Remodeling magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC 20005. $7.95 per copy; call (202) 736-3447 for credit card orders.
- The Do-able Renewable Home," by the Coordination and Development Department, American Association of Retired Persons, 601 E St., N.W., Washington, DC 20049.
How safe is it to use a credit card to purchase items or services on the Web?
It’s far safer than giving your credit card to a waiter at a restaurant. Most Web sites that sell merchandise or services use "secure" transaction methods through a technology known as encryption. Encryption uses mathematical formulas to jumble the words and numbers of information, and only the intended recipient has the code to decipher the information. Yes, some encryption experts have broken these codes and some encryption systems have had flaws, but the chances of a transaction being intercepted and your credit card numbers stolen are remote. Does a Chapter 7 bankruptcy get rid of all my debts?
Sorry. Chapter 7 bankruptcy filing -- the so-called straight bankruptcy -- doesn’t get rid of all types of debt. You’ll still be stuck with: - Most taxes and customs.
- Child support and alimony
- Any unpaid withholding.
- Any Social Security taxes and penalties.
- Student loans less than five years old.
And if you have debts from fraud, embezzlement, or larceny, or from "willful and reckless acts," you’re still on the hook. Under the new bankruptcy reform, you’ll probably have to pay your car loan and more of your old credit card debt.How should I re-establish my credit after a divorce?
If you kept separate credit cards and loans in your individual names, the divorce shouldn’t affect your credit much. If you had joint accounts, however, you need to close the accounts or convert them to individual accounts as quickly as possible. Creditors may allow you to convert existing joint accounts into individual ones, although they are not required to. If credit was granted partly on the strength of your spouse’s income, you may have to reapply, based on your own income, debt, and other factors. In the meantime, the lender can’t revoke your credit unless you stop paying your bills on time.
When you apply for credit, you can include any alimony as monthly income.Can a bill collector insist that I wire the money I owe to him through Western Union?
A bill collector may say that you have to "wire" your payment through Western Union or some other service. But the fact is it’s illegal to make such a demand. It is just one of the high-pressure tactics some collectors employ.
Here are a few of the "urgency payment" options that bill collectors commonly suggest -- none of which you are required to accept:
- Send money by express or overnight mail. This adds at least $10 to your bill. A first-class stamp is fine.
- Wire money through Western Union’s Quick Collect or American Express’ Moneygram.
- Pay your bill by credit card. At best, you’ll trade one debt for another, probably at a higher interest rate. At worst, this tactic gets you farther and farther into debt.
What is actually in a credit report?
You can expect your credit report to show this information for each credit account:
- Name of creditor
- The type of account
- Terms
- Amount of the original debt or credit limit
- Balance outstanding on the most recent report
- Whether payments were made late during the reporting period
Credit reports are seldom complete. Some card issuers don’t report to credit bureaus out of respect for customers’ privacy. Many gas credit cards report only delinquent accounts.Most credit grantors are primarily interested in the last 12- or 24-month reporting period. Many credit bureaus routinely delete older information from their files. However, a bankruptcy can stay on a credit record for up to 10 years and debts that a creditor writes off as "uncollectible" can remain for seven years.Do credit bureaus decide whether I should get credit?
Credit bureaus only report your credit information -- they don’t decide if you get credit. Only the company that orders the credit report can do that. Credit bureaus collect information from banks and other creditors, store it in a database and provide the information when you apply for a new credit card or loan. The credit bureau doesn’t even track the decisions potential creditors make. Can I list Social Security payments as income when I apply for a loan or credit card?
Generally, the answer is yes. You can count your Social Security checks as monthly income when you apply for a loan or credit card. In fact, lenders see Social Security payments as more secure than income such as alimony or part-time employment income because Social Security checks are guaranteed to arrive every month. Can bad credit keep me from getting a home?
Credit problems such as a missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years, or not paying your taxes can make it difficult to get a home loan. If you build a clean record for six months to a year, however, you may be able to show that you have come through difficult times but are now a good credit risk. If you can't get a conventional home loan, you may want to look into other options, such as a lease option, or a seller-financed loan.Do I have to pay bills that identity thieves run up in my name?
Thanks to federal credit fraud law, you don’t have to pay more than $50 in direct damage from identity thieves. Credit card and other companies that wrongly extend credit in your name must make the thieves pay up or take their losses, minus $50 they could ask from you. (Many creditors never ask for that $50.) Identity theft costs you enough indirectly, from credit damage and embarrassment to the time and money spent fixing your credit record and convincing creditors that you have been wronged.Is it always better to pay cash for a car?
Paying cash for your car can be a great idea. Not only do you avoid hefty finance charges, but paying cash forces you to pay only what you can afford.
There are, however, some exceptions. For example, if you have set aside $10,000 for a car and have $6,000 in credit card debt, your best bet is to pay off your high-interest credit cards, put the remaining money toward a down payment on the car and take out a loan with the lowest possible financing rate available. Rates on auto loans are usually much lower than rates on credit card balances. Although you will still pay finance charges, they will be lower. And unlike credit card debt, most car loans have a fixed interest rate for the life of the loan.Are credit cards with reward points a good deal?
So-called rewards cards can be a real perk, especially if you regularly use the services they reward. You might qualify for free flights, free upgrades and free overnight stays, and other goodies. Be sure you understand the terms, such as expiration dates, and watch out for annual fees and other charges. Sometimes it’s better to get the cheapest card you can find, instead of the one with the most rewards. Should I get credit disability insurance?
You are better off buying a broader policy that provides a steady income if you become disabled. Credit disability insurance pays off your credit card bills (or at least makes your minimum monthly payment) if you become unable to work, but it’s expensive for the level of protection it provides. Consider credit disability insurance only if you are in poor health and can purchase the policy without a medical evaluation. In that case, this may be the only disability insurance you can get. I can’t pay my debts. Can I file for bankruptcy?
You may be able to file for bankruptcy, but make sure it’s your last resort. Filing for bankruptcy takes a financial and emotional toll for years to come. Every time you apply for a loan, a credit card, or even a job, the bankruptcy on your credit report can come back to haunt you. In addition, the new federal bankruptcy law makes it harder to file for chapter 7 bankruptcy, the provision of the bankruptcy that lets you wipe the slate clean. The new law establishes "means testing" so that if you have some ability to pay off creditors, you will be required to file for Chapter 13 protection.Before you file for bankruptcy, seek help getting your finances back on track. For example, the Consumer Credit Counseling Services is a national nonprofit group that offers debt-repayment plans and advice at little or no cost.MSN Money’s "Guide to Personal Bankruptcy" offers more information on the topic.What is the grace period on a credit card?
A grace period on your credit card is the length of time between the billing date and the date you must pay the balance in full to avoid interest charges. Basically, you borrow the money for free during this time. Many cards have 25-day grace periods. If you pay your balance in full before the 25 days are up, you are not slapped with any finance charges. If you pay only part of the balance owed, you pay finance charges, generally retroactive from the time of your purchases.
Not all credit card issuers have grace periods. Read the fine print carefully.Is it a good idea to pay off credit card bills with savings?
Indeed, it can be a good idea. Earning one or two percentage points of interest on your savings, while paying double-digit interest rates on your credit card debt, gets you nowhere fast. To add to the injury, you pay income tax on the meager savings interest, and you can’t deduct the credit card interest from your income taxes. Seriously consider paying off high-interest credit cards or auto loans with savings. Pay off the cards with the highest interest rates first. Be sure to keep enough money in an emergency fund or in available cash advances to cover three to six months’ worth of living expenses.What credit card terms should I look for?
The best credit card terms for you depend on your payment history. Do you pay off the entire balance at the end of every month? Or do you like to make only minimum payments? If you pay a card’s entire balance at the end of each month, you don’t need a card with an extremely low interest rate -- you probably won’t pay any finance charges anyway. Look for credit card companies that charge no or very low annual fees.If you carry a balance on your card from month to month, look for cards with low interest rates. Just one percentage point difference can make an enormous difference -- far more than a $25 or $50 annual cardholder fee.Are traveler’s checks outdated, now that credit cards are accepted everywhere?
The days of scrambling for traveler’s checks before your big trip are probably over. Credit cards have become practically a universal currency. You can charge whatever you want in just about any part of the world and pay for it in U.S. dollars when you return home.To buy traveler’s checks requires coming up with the cash beforehand, and you may have to pay sales fees. You also have to guess how many checks to get before leaving on your trip.Still, it is still easier to replace stolen or lost traveler’s checks than credit cards on short notice in a foreign country. A few traveler’s checks can give you some peace of mind.Can a credit card company make me sell my home to pay my bill?
Don’t lose sleep worrying that the credit-card company will make you sell your home. It can’t. If you get behind on your credit card payments, the worst that will happen in the short term is that you will lose your credit privileges and get negative marks on your credit report.Can I save taxes by paying off credit-card debt with a home equity loan?
Yes. Interest on credit card debt is not tax deductible, but, under existing tax law, home equity interest is fully tax-deductible up to loan amounts of $100,000. So, paying off your credit card debt with a home equity loan can be a smart move -- assuming you don’t fall into the trap of racking up the credit card debt again. How can I keep thieves from stealing my identity?
An identity thief can’t steal your identity without first getting information. Guard your personal information carefully: - Don’t carry unneeded credit cards, your Social Security card, your birth certificate or other personal documents in your purse or wallet.
- Keep track of your ATM, credit and debit cards. Store the receipts in a safe place or shred them.
- Shred unneeded personal documents and mail with identifying information before throwing it out.
- Cancel unused credit card accounts.
What’s the difference between the adjusted balance method, the average daily balance method, and the previous balance method of calculating finance charges?
Here’s how the three methods work Under the adjusted balance method: When you make a payment on a credit card, the payment is subtracted from the balance at the beginning of the monthly billing cycle before interest is calculated.Under the average daily balance method: Interest is calculated on the average of the amount you owe each day.Under the previous balance method: Interest is calculated on the previous balance regardless of your payment this period. All else being equal, the adjusted balance method will result in the lowest interest charges.What’s this over-limit fee on my credit-card statement?
When the amount that you have charged on your credit card exceeds your established credit limit, many credit-card companies will hit you with a nasty "over-limit" penalty or fee. The charge could top $25 or $50 -- as if charging 12% or even 20% interest on your outstanding balance isn’t already enough. Some banks and credit card companies will waive their over-limit fee if you call and ask, especially if you haven’t exceeded the limit and asked for a waiver before. Can I cancel my credit card to avoid paying the annual fee?
If you are no longer using a card, call the credit card company before the annual fee is charged and say that you want to close the account. Of course, you’ll have to pay any balance or transfer it to another credit card. In many cases, if you tell the company that you are closing the account to avoid the fee, they will waive the fee in order to keep you as a customer.
Be sure to ask the company to report that the account was closed voluntarily, at your request. If the card company simply reports to credit bureaus that the account was closed, future creditors may think the company closed it because you weren’t making your payments. If that happens, it will be more difficult to get a new credit card or a loan in the future.How can a secured credit card help me build my credit?
If you’re just starting to build a credit profile, or if your credit isn’t so great, you might have to start with a secured credit card. Secured credit cards work a little differently. You deposit cash into a bank account in return for a credit line equal to 50% or 100% of your deposit. When you use the card, the bank either debits your deposit or sends you a statement. If you default, the bank deducts the payment from your deposit. After you have shown the bank that you can be relied upon to make your payments promptly, it may offer you a conventional card, or you can apply for a conventional card issued by another company.What are travel and entertainment cards?
Travel and entertainment cards are credit cards with a twist: They don’t charge interest to the cardholder, but their entire balance must be paid every month. Diners Club, American Express and Carte Blanche are examples.
Some of these cards come with higher annual fees, and many of them carry companion interest-bearing cards, such as the American Express Optima card.Where do I find low-interest credit cards?
MSN Money’s Banking site has information on credit card rates and features. In addition, Bankrate.com lists many of the best credit-card deals nationwide, including several with no annual fee and interest rates of less than 12%. You can find their latest deals on the Bankrate.com Web site. The credit-card business gets more competitive every month, so it’s important to shop for a card with the best rate and terms.What is a debt ratio and why should I care about it?
Your debt ratio is the amount of credit you’ve accumulated on a monthly basis compared to your income. It’s a critical number if you plan to make any major purchases, such as a home or car, since lenders check your debt ratio to ensure you’re capable of repaying the loan.
Mortgage lenders generally won’t approve your loan if your mortgage payment would exceed 28% of your gross income (before taxes are withheld). Your total payments -- including all other debts -- should not exceed 36% to qualify for a mortgage.These debts don’t include food, utilities or taxes. For these calculations, mortgage lenders look at items like credit card bills, student loans and car loans and how your mortgage would affect your overall ability to pay.Why do I need to know my total liabilities?
Knowing your liabilities is a key component of knowing where you stand financially. To calculate your total liabilities, add up EVERYTHING you owe. Start with your mortgage and credit card balances. Then, add your current balance on installment and auto loans, loans against life insurance policies, student loans, and margin loans -- even taxes and bills you owe. Don’t forget any taxes you would have to pay on profits from selling investments.How do lenders and credit card companies decide whether to give me credit?
Lenders and credit card companies look at the "Three Cs": character, capacity and credit, to decide whether you’re a good risk. - Character: You get character points for keeping jobs for reasonable lengths of time and for not moving too often.
- Capacity: The more debt you will be able to repay, based on your income and assets, the more capacity you have.
- Credit: Good credit comes from a track record of paying your bills on time. Creditors may also consider your credit limits and how close to those limits you are.
What types of reverse mortgages are available?
Several types of reverse mortgages are available, and more types are available every year. A reverse mortgage is a home loan that works backwards. Generally, you borrow money based on the equity in your home, but you don’t pay it back until you sell the home and move. Some reverse mortgage plans pay you a lump sum; others pay a specified amount every month, either for a certain number of years or until you die. Still others work like home-equity credit lines: You access the money as you need it by writing a special check or using a credit card.How does the prime rate affect me?
The prime interest rate is the interest rate banks charge their largest and most financially solid business clients. Changes in the prime rate affect the rates the rest of us pay for loans -- from home-equity credit lines to credit cards to loans for new cars. Rates on many home equity loans, for example, are based on "prime plus two," meaning the rate the borrower pays is two percentage points higher than the prime rate.What types of questions cannot be asked by a creditor?
When you apply for a loan or a credit card, the creditor can only ask you questions about your credit history and your ability to pay your bills. The creditor can NOT ask about race, religion, sexual preference, or national origin, and you can’t be denied credit for not answering such questions. The federal Equal Credit Opportunity Act makes it illegal to deny credit because of sex, marital status, race or color, religion, or age. What exactly is bad credit?
Numerous types of credit report problems are considered a sign of bad credit and could cause a lender to reject your application for a loan. Such problems include: missing a credit card payment, defaulting on a prior loan, filing for bankruptcy in the past seven years or not paying your taxes. Other black marks on a credit report include a judgment filed against you (perhaps for non-payment of spousal or child support) or any collection activity. Why did my check bounce?
Checks usually bounce -- return to the holder unpaid -- because there wasn’t enough money in the account. It’s not always your fault. For example, your paycheck may not yet be credited to your account. Or, if the check you deposit bounces, all the checks you write may bounce as well. Avoid the hassle and embarrassment of bounced checks by opening an overdraft account. Then, next time you write a check without enough money in your checking account, your overdraft protection kicks in and the bank honors the check with funds from your savings account or the credit line on your credit card.What advantages do mutual funds have over individual securities?
The key advantage of mutual funds is diversification. A typical fund invests in dozens of securities. You buy one investment -- and get ownership in all the stocks or bonds they invest in. The professional management should also theoretically give you a better return than you could get by yourself.
Managing and keeping track of your mutual funds is relatively simple. Each fund will send monthly and annual summaries of your short- and long-term gains, dividends and interest earned. You can trade most funds online or by telephone, and you can have any idle cash automatically invested at competitive rates in a money market fund. Many companies even offer unlimited checking privileges, debit cards and credit cards, much like a bank.
Mutual funds can also help you avoid probate -- you can designate a beneficiary to receive your holding in a fund when you die.How can I verify expenses for tax purposes?
Good record-keeping is a must for tracking and verifying expenses. The best records show who you paid and when, how much you paid and what the expense was for. Receipts and canceled checks are good evidence for a deduction, as well as credit card slips and statements. Appointment books and informal expense logs are good supplementary records; they can show where you were on a given day, who you saw and what you spent. The IRS has special record-keeping rules for items such as business-related use of your car, travel, meals and entertainment. All the details are in IRS Publication 552: Recordkeeping for Individuals.Is it a good idea to have extra taxes withheld from my paycheck as sort of a forced savings plan?
Having a lot of taxes taken out of your paycheck so you can get a big refund when you file your income tax return is a lousy deal -- especially if you have consumer debt. Think about it: The IRS is holding your money, and it’s not paying you interest, while you are paying double-digit, nondeductible interest to your credit card companies.
Consider increasing the number of withholding allowances you take. Apply the increase in your paycheck to debt reduction, or send small amounts of cash into an automatic savings or investment program throughout the year. Not only will you get interest, but if you lose your job or have another emergency, you can get to your savings. For more on this topic, see Jeff Schnepper’s article "Get next year’s tax refund now."Do I have to pay taxes on credit card debt that the company forgives?
If you cut a deal with a creditor, and the company forgives some of your debt, you may now owe another bill -- to the IRS. You have to pay taxes on the amount they forgive. This rule doesn’t apply to debts discharged because you went bankrupt. You may also avoid the tax if you can prove that you are insolvent.Can I deduct interest charges on my personal credit cards from my income taxes?
The short answer is No. Until a major tax reform law took effect in 1987, the IRS allowed taxpayers to deduct credit card interest from their taxable income. That softened the blow somewhat of paying high consumer interest rates.Now, with the exception of business interest and interest on qualifying home equity loans, you cannot deduct consumer interest -- all the more reason to avoid credit card debt.What can I do if I am denied credit?
If your application for a credit card or loan is rejected, the federal Equal Credit Opportunity Act requires that the company that rejected your application provide a written letter that explains why credit was denied. The company must also tell you which credit bureau provided your credit report. Send a written letter to the bureau within 30 days of your denial and request a copy of your report. They must provide it free of charge if you request it within 30 days of being denied credit.
If the credit report contains errors, the bureau can explain how to have the mistakes corrected.How does the market react to the consumer credit report?
The consumer credit report, issued by the Federal Reserve, measures consumer debt under three categories: auto loans, revolving loans, and credit card debt. Because the consumer credit report is volatile, subject to massive revisions, and released well after every other consumer spending indicator, the market almost never reacts to the consumer credit report. Return to Questions
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