The Consumer Credit Protection Act of 1968 - which launched Truth in Lending disclosures - was a piece of landmark legislation. For the first time, creditors had to state the cost of borrowing in a common language so that you - the customer - could figure out exactly what the charges are, compare costs, and shop around for the best credit deal.
Since 1968, credit protections have multiplied rapidly. The concepts of "fair" and "equal" credit have been written into laws that bar unfair discrimination in credit transactions, require that consumers be told the reason when credit is denied, let borrowers find out about their credit records, and set up a way to settle billing disputes.
Each law was meant to reduce the problems and confusion about consumer credit, which as it became more widely used in our economy, also grew more complex. Together, these laws set a standard for how individuals are to be treated in their financial dealings.
Besides these laws, there are many actions and habits you can cultivate that will protect your personal credit from ever getting compromised.
- Know how to calculate the true cost of any credit you are applying for - and then compare it with alternate sources for the same kind of credit. Any credit card application must state their terms somewhere on the application. Regardless of what is written in the promotional copy - read the fine print. The big print giveth - and the fine print taketh away.
- Carefully review any payment commitments you are signing for. There are many offerings that promise a wonderful life - everything from "how to make a million in Real Estate" to so called "financial success" programs that lock you into a series of purchases that may be many times what you originally thought they would be. Know what the long term commitments are and what penalties may exist for exiting the program.
- Separate Needs from Wants. This is a tough one. Much of our consumer debt is created from "want" purchases. Your family members have needs, wants, and impulses. Needs are required expenditures that you cannot survive without. Cash out for things such as mortgage payments, rent payments, utility bills, gasoline, car payments, car and critical (plugged toilet) home repairs… all legitimately fall into the category of "needs." Wants - are items you don't need, but desire to have. Do you "need" a new car or do you simply "want" one? Do you "need" that pair of $300 Italian crafted ladies pumps - or could you almost pull it off by going to "Shoes for Less"? Differentiating between what you need and what you "want" can frequently bring on an emotional crisis that is important enough to discuss, as a family. Most of us have the ability to live within our means - if we can learn to be truthful with ourselves - and legitimately separate needs from wants.
- Avoid impulse purchases. Sometimes impulse buys occur because of simple "traps" that good merchandisers place in key spots throughout the store. Sometimes impulse buys occur when you are proactively contacted by telemarketing reps, persuasive mail solicitations (or e-mail offers), compelling TV and Radio commercials or compelling magazine advertisements. A good way to tell if you have created more money problems because of an impulse purchase is to see if you feel bad about or angry with yourself a few days after purchasing it. If so - you've probably compromised your debt free status by making an impulse buy. Incidentally, may states have a 3 day return law - that allows you to return merchandise, without penalty, within 3 days of the purchase.
- Make your first monthly payment to yourself. What we mean here is to establish a savings program. It doesn't really matter how far down the financial food chain you think you are. Almost anyone can set aside something each month. If outstanding garnishments exist, simply get a piggy bank and stick $20 in it every week. Don't worry about how little it seems to amount to. What you are doing here is to establish a habit pattern that will eventually become a way of life. Do it - and you'll be glad for the feeling of comfort it provides every now and then.
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