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March 12, 2010

Financial Spring Cleaning: Your Credit

Credit will play an important role in your financial spring cleaning. Your credit history is key when it comes to renting or buying a home, obtaining a car loan, or starting your own business. Here are some credit-related things you should keep in mind.

Credit Laws Are Changing

The Federal Reserve Board published new regulations based on an amendment to the Truth in Lending Law. This was done to give you, the consumer, more protection. Some of the new changes affecting credit card companies, beginning February 22, 2010, include:

  • The end of confusing billing practices: Payments will be applied to highest interest rate balances first, so you can pay off balances faster and more cheaply.
  • Interest rate reform: Credit card companies have more restrictions and new requirements to inform you if they are going to increase your interest rate. Nearly all interest rate increases on outstanding balances will be prohibited. If your interest rate changes, that new rate can only be applied to new charges you make.
  • Opting in for overdraft: You will now have to opt-in to an overdraft program instead of being automatically enrolled. This means if a transaction would take you over your limit, it may be turned down—potentially saving you costly overdraft fees. Additionally, if you opt-in to overdraft protection, the overdraft fees are limited to one time per billing cycle.
  • Protection for young consumers: Those under 21 will need a cosigner unless they have the means to pay for a credit card.

Find out more about these new changes from the Federal Reserve Board.

Stay on Top of Your Credit Report

Check your credit regularly in order to ensure accuracy and watch for identity theft.

There are 3 major consumer reporting agencies in the United States—Experian, Equifax, and TransUnion. Each agency is required by law to provide you with a free credit report per year.

A good method for staying on top of your credit is to request a report from 1 of these agencies every 4 months. You can do this by phone or by creating an account for each agency’s website. You can also request your reports through Annual Credit Report. Equifax, Experian, and TransUnion created Annual Credit Report to provide consumers with free copies of their credit reports. Be aware that other online services claiming to offer free credit reports may charge you for their services.

By regularly reviewing your report, you can see what accounts are open and who has reviewed your credit. When you read your report, look for:

  • Credit inquiries from companies you don’t do business with.
  • Accounts that you haven’t opened.
  • Unauthorized activity on existing accounts.

This will help you avoid the pitfalls of identity theft. If you do find a discrepancy in your report, contact the consumer reporting agency immediately—it is responsible for correcting it. Put your dispute in writing. Then, have the agency send those changes to anyone who has received a copy of your credit report.

Learn more about credit reports and scores.

This document was prepared for informational purposes only and cannot be considered credit counseling advice or otherwise. Please see your credit counseling professional for additional guidance.