THE CREDIT HANDBOOK From the Office of the Minnesota Attorney General helping people afford their lives and live with dignity and respect www.ag.state.mn.us This brochure is intended to be used as a source for general information and is not provided as legal advice. The Credit Handbook is written and published by the Minnesota Attorney General’s Office. This document is available in alternative formats to individuals with disabilities by calling (651) 296-3353 (Twin Cities Calling Area), (800) 657-3787 (Outside the Twin Cities), or through the Minnesota Relay Service at (800) 627-3529. The Minnesota Attorney General’s Office values diversity and is an equal opportunity employer. Office of Minnesota Attorney General Keith Ellison 445 Minnesota Street, Suite 1400, St. Paul, MN 55101 (651) 296-3353 (Twin Cities Calling Area) (800) 657-3787 (Outside the Twin Cities) (800) 627-3529 (Minnesota Relay) www.ag.state.mn.us OFFICE OF THE MINNESOTA ATTORNEY GENERAL Table of Contents Introduction ................................................................................................ 3 The ABCs of Credit..................................................................................... 3 Where Do I Start? ....................................................................................................................................................... 3 Choices! Choices! ...................................................................................................................................................... 3 Credit Cards ................................................................................................................................................................ 4 How to Get Credit ........................................................................................5 Credit Reports ............................................................................................................................................................ 5 Credit Scores .............................................................................................................................................................. 7 What if I Get Turned Down? ...................................................................................................................................... 8 The Cost of Credit ...................................................................................... 9 What Will It Cost Me? ................................................................................................................................................ 9 Lost or Stolen Credit Cards ..................................................................................................................................... 12 Extras ........................................................................................................................................................................ 12 Money Saving Tips .................................................................................................................................................. 13 When Credit Goes Bad ..............................................................................15 Are You in a Credit Crisis? ...................................................................................................................................... 15 I Can’t Pay My Bills ................................................................................................................................................... 15 Debt Payment Plan ................................................................................................................................................... 17 A Note About Debt Settlement Companies ............................................................................................................ 19 Debt Collection ..........................................................................................19 Debt Collectors ......................................................................................................................................................... 19 Answering a Lawsuit ................................................................................................................................................ 20 Garnishment ............................................................................................................................................................. 21 Vehicle Repossession .............................................................................................................................................. 24 Considering Bankruptcy ........................................................................ 25 What Is an Automatic Stay? .................................................................................................................................... 26 Different Types of Bankruptcy ................................................................................................................................. 26 Chapter 7 .................................................................................................................................................................. 26 Chapter 13 ................................................................................................................................................................ 29 What Debts Cannot Be Discharged in Bankruptcy? ............................................................................................... 31 For More Information ............................................................................................................................................... 31 THE CREDIT HANBOOK 1 Other Issues .............................................................................................. 32 Electronic Banking ................................................................................................................................................... 32 Fighting Credit Card Fraud ....................................................................................................................................... 32 Stop Identity Thieves in Their Tracks ...................................................................................................................... 33 The Rent-to-Own Trap .............................................................................................................................................. 36 Look Out for These Scams ...................................................................................................................................... 36 Credit Laws and Your Credit Rights..................................................... 37 Truth in Lending Act ................................................................................................................................................. 37 Fair Credit Billing Act................................................................................................................................................ 37 Fair Credit Reporting Act ........................................................................................................................................ 38 Electronic Funds Transfer Act ................................................................................................................................. 39 Equal Credit Opportunity Act ................................................................................................................................... 39 Consumer Leasing Act ............................................................................................................................................ 40 Fair Debt Collection Practices Act ......................................................................................................................... 41 Resources .................................................................................................. 42 Top Ten Credit Tips .................................................................................................................................................. 42 Glossary of Terms .................................................................................................................................................... 43 Consumer Agencies ................................................................................................................................................. 47 2 OFFICE OF THE MINNESOTA ATTORNEY GENERAL Introduction Credit seems to be the American way of life: today, the average consumer has 13 credit obligations—including revolving credit accounts (e.g., credit cards and home equity lines of credit) and installment loans (e.g., student, mortgage, car, and personal loans). Credit can be an excellent tool when it’s used well. But unfortunately, the road to easy credit contains some potholes. This handbook is a guide to using credit. It will explain why most of us choose to use credit, provide tips to help you choose the right credit for you, detail the fees and terms to know, explain common pitfalls, and clarify your credit rights. The ABCs of Credit Credit offers convenience. And, in today’s economy, using consumer credit has become a major element of personal money management. Credit allows you to buy and use items now, but pay for them later. With credit, you can enjoy a purchase while you’re paying for it—or you can make a purchase when you