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• Which are the best credit cards?
• If someone steals my credit card, how much am I liable for?
• Are rebate credit cards a good deal?
• What is the difference between the average daily balance, adjusted
  balance, and previous balance?
• What can I do if I'm dissatisfied with a credit card purchase?
• What can I do if there is a mistake on my credit card bill?
• How can I get the most benefit from my credit cards?
• What restrictions and limitations can a merchant impose before
  accepting my credit card?
• How can I stop junk mail or telemarketing calls?

CREDIT REPORTS

• How can I check my credit report?
• What if there is an error on my credit report?
• How can I build a credit history so that I can establish credit?
• Who can see my credit file?
• How can I decipher my credit report?

CREDIT RATING

• How will a divorce or separation affect my credit?
• What factors affect my credit rating ?
• Does having a credit card or using another person's credit card
  improve my credit rating?
• Does having a bank account improve my credit rating?
• Is my credit rating affected by where I live?
• Does my age affect my credit rating?
• How important is my debt income ratio in determining my
  credit-worthiness?
• Will bankruptcies or "charge-offs" affect my credit rating?
• Will delinquent child support payments affect my credit?
• Can my credit rating be negatively affected by having too much
  available credit?

FINANCIAL TROUBLE

• How can I tell whether I have too much debt?
• What steps should I take if I get into financial trouble?
• What can I do if I am being hounded by a debt collector?
• What are my rights against banks, creditors and debt collectors?

LOANS

• What should I do if a friend or family member asks me to cosign a loan?
• How can I get the best deal on a home equity loan or an equity line
  of credit?
• What are the costs of obtaining a home equity line of credit?
• Should I obtain a home equity line of credit or a traditional second
  mortgage loan?
• How should I determine which of several loan alternatives is best?

TIP: Which card is best for you may depend on how you plan to use it. If you plan to pay bills in full each month, the size of the annual fee or other fees, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will be affected by whether or not there is a grace period.

The "annual percentage rate," or APR, is a measure of the cost of credit, expressed as a yearly rate.

The card issuer also must disclose the "periodic rate" applied to your outstanding account balance to figure the finance charge for each billing period.

If the credit card you are considering has a "variable rate" feature, the card issuer must tell you that the rate may vary and how the rate is determined. You also must be told how much and how often your rate may change.

A free period—also called a "grace period"—allows you to avoid the finance charge by paying your current balance in full before the "due date" shown on your statement. Knowing whether a credit card plan gives you a free period is especially important if you plan to pay your account in full each month.

If there is no free period, the card issuer will impose a finance charge from the date you use your credit card or from the date each transaction is posted to your account.

Most credit card issuers charge annual membership or other participation fees. These fees range from $25 to $50 for most cards, and from $75 on up for premium cards.

A credit card also may involve other types of costs. For example, some card issuers charge a fee when you use the card to obtain a cash advance, when you fail to make a payment on time, or when you go over your credit limit. Some charge a flat monthly fee whether or not you use the card.

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If a thief uses your card before you report it missing, the most you will owe for unauthorized charges is $50. This is true even if a thief is able to use your credit card at an automated teller machine (ATM) to access your credit card account.

To minimize your liability, report the loss of your card as soon as possible. Some companies have toll-free numbers printed on their statements and 24-hour service to accept such emergency information. For your own protection, you should follow up your phone call with a letter to the card issuer. The letter should give your card number, say when your card was missing, and mention the date you called in the loss.

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If you do not achieve satisfaction through the seller or credit card company, you can file a small claims court action—an informal legal proceeding that can be used to settle disputes. Check your local telephone book under your municipal, county, or state government headings for small claims court listings.

In addition, you have the following rights:

You have the right to have mail and phone order purchases shipped when promised, or to cancel for a full and prompt refund. If no shipping date is stated, your right to cancel begins 30 days after your order and payment are received by the merchant. If you cancel, the seller has one billing cycle to tell the card issuer to credit your account.

There are two exceptions to the 30-day shipment rule: (1) If a company doesn't promise a shipping time, and you are applying for credit to pay for your purchase, the company has 50 days after receiving your order to ship. (2) Spaced deliveries, such as magazine subscriptions (except for first shipment); items that continue until you cancel (e.g. book or record clubs, etc.); C.O.D. (cash on delivery) orders; services; and seeds or growing plants are not covered.

You have the right to a full refund--because of shipping delay--within seven working days (or one billing cycle) after the seller receives your request to cancel.

You may refuse a delivery of damaged or spoiled items.

	TIP: If there is obvious damage to a package you receive in the mail, and if you decide not to accept the package, write "REFUSED" on the wrapper (at time of delivery) and return it unopened to the seller. No new postage is needed, unless the package came by insured, registered, certified or C.O.D. mail and you signed for it.
	TIP: If you are ordering something to be delivered by C.O.D., make your check out to the seller, not the post office. That way, you may contact your bank and stop the check if there is an immediate problem with merchandise.

When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or requesting a refund (if the amount exceeds $1.00). To obtain a refund, write the card issuer. The card issuer must send you the refund within seven business days of receiving your request.

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You must notify the card issuer in writing at the address specified for billing errors when you find an error, and you must do so within 60 days after the first bill containing the error was mailed to you. (For this reason, keep your credit card receipts and promptly compare them when your bills arrive.)

In your notification letter, include your name, your account number, the amount of the suspected error, and the reason why you believe that the bill contains an error. The card issuer, in turn, must look into the problem and either correct the error or explain to you why the bill is correct. This must occur within two billing cycles and not later than 90 days after the issuer receives your billing error notice.

During the period that the card issuer is investigating the error, you do not have to pay the amount in question. (For further information, write: "Credit Billing Errors," Public Reference, Federal Trade Commission, Washington, D.C. 20580.)

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1.    Pay bills promptly to keep finance charges as low as possible.

TIP: Keep copies of sales slips and promptly compare charges when your bills arrive.

2.   Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your cards are lost or stolen.

3.   Protect your credit cards and account numbers to prevent unauthorized use.

TIP: Draw a line through blank spaces above the total when you sign receipts. Rip up or retain carbons.

4.   Deal only with reliable firms. In doubt? Check with your local consumer protection agency or the Better Business Bureau (BBB) nearest to where the business is located. Study the advertising offer carefully. Ask the company about its warranty, refund and exchange policies.

TIP: Pay by money order, check, charge or credit card so you have a record of your purchase.

5.   Never send cash. Keep the ad you responded to and a copy of the order form. If there is no order form, make your own notes with the company's name, address, phone number, date, amount, the item you purchased, and any delivery date that may have been promised.

6.   Never give out your credit, debit, charge card or bank account numbers unless you've checked out the company or have done business with it before.

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To protect you privacy and avoid being defrauded by credit card crooks, say "no" to a merchant who engages in these impermissible credit card practices:

• Writes your credit card number on your personal check,
• Writes your personal information on a bank credit card sales slip,
• Imposes a minimum sales amount for credit card purchases, or
• Charges extra for payment by credit card.

NOTE: Giving a discount for cash payments is allowed.

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Here’s how to register with the Direct Marketing Association: Mail a letter requesting removal from mailing or telemarketing lists to the two addresses below. Include your name, address, city, state, zip code, and phone number.

• Telephone Preference Service
  Direct Marketing Associations
  Box 9014
  Farmingdale, NY 11735-9014

• Mail Preference Service
  Direct Marketing Association
  Box 9008
  Farmingdale, NY 11735-9008

If companies you now do business with also remove your name, you can contact them directly to have your name reinstated. Keep records. If the marketer calls again, you can sue. You may have additional legal rights under state or local law.

TIP: If you receive unordered merchandise in the mail, consider it a gift and don’t feel pressure to pay for it.

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Equifax
Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
1-800-685-1111

Trans Union Corporation
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
1-800-851-2674

When writing, send your full name, including middle initial and generation (e.g., Jr., Sr., II or III); any maiden name; your current address; addresses for the past five years; Social Security number; and date of birth. Sign your request. In the case of TRW and Equifax, you must enclose proof of your current address (e.g., a photocopy of your driver's license.)

According to federal law, you are entitled to a free report within 60 days of being denied credit, employment, insurance, or rental housing. Ask which credit bureau supplied the information. You also are entitled to a free report once a year if you are unemployed, on welfare, or believe there are inaccuracies in your report as a result of fraud.
 

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TIP: Although the Fair Credit Reporting Act does not require it, submit your dispute in writing, along with copies (not originals) of documents that support your position.

In addition to providing your complete name and address, your letter should clearly identify each item in your report that you dispute, explain why you dispute the information, state the facts, and request deletion or correction. You may want to enclose a copy of your report with the items circled.

	TIP: Send your dispute by certified mail, return receipt requested, and keep copies of your dispute letter and enclosures. By doing so, you can document what the credit reporting agency received.
	TIP: Once you have corrected the mistake at one credit bureau, check others, since they do not correct each other's files. Find out the names of other credit bureaus to which the creditor involved reports, and have the information corrected at each of them.

There is nothing you can do to get a credit bureau to remove accurate information from your credit file until the reporting period has expired. Credit reporting agencies are permitted to report bankruptcies for ten years, and other negative information for seven years.

TIP: If you are divorced and suffering the consequences of a credit rating damaged during the marriage, you may be able to obtain relief if the bad credit rating was your spouse's fault and you can prove it. According to the Equal Credit Opportunity Act, a lender must consider any evidence you have showing that your spouse---not you---was the irresponsible one.

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Here are some steps you can take:

• Check with a credit bureau to find out what is in your credit report.

TIP: If you have had credit before under a different name or in a different location and it is not reported in your file, ask the credit bureau to include it. Although credit bureaus are not required to add new accounts to your file, many will do so for a fee.

TIP: If you currently share a credit account with your spouse, ask the creditor to report it under both names

• When contacting your creditor or credit bureau, do so in writing and include relevant information, such as account numbers, to speed the process. As with all important business communications, keep a copy of what you send.
• Build a credit history by applying for credit with a local business, such as a department store, or borrow a small amount from your credit union or the bank where you have checking and savings accounts. A local bank or department store may approve your credit application even if you do not meet the standards of larger creditors.
• If you are rejected for credit, find out why. There may be reasons other than lack of credit history. Your income may not meet the creditor's minimum requirement or you may not have worked at your current job long enough.

	TIP: Wait at least six months before making each new application. Credit bureaus record each inquiry about you. Some creditors may deny your application based on your having too many credit inquiries.
	TIP: If you still cannot get credit, ask someone with an established credit history to act as your co-signer. Then, once you have repaid the debt, try again to get credit on your own. Alternatively, you may wish to consider a secured credit card.

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In addition, government agencies can obtain identifying information about you. This is limited to your name, current and former addresses, and current and former places of employment.

Every time someone requests a copy of your credit report, it is noted as an "inquiry" on your credit file. You are entitled to know who has requested your credit file within the past six months (or two years if for employment purposes). This information is provided when you order a copy of your credit report.

TIP: In addition to checking on the information in your report, review who has seen your file. Credit bureaus must establish procedures to keep anyone without a legitimate business purpose from obtaining your report, but unauthorized access to credit files does sometimes occur.

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Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

It is vital that you understand every piece of information on your credit report in order that you be able to identify possible errors or omissions.

Here is a summary of what the various codes mean:

The Equal Credit Opportunity Act (ECOA) requires creditors who report information about accounts to report it in the names of all people with a relationship to the account, including cosigners or authorized users. To help lenders identify your legal liability on all your credit accounts, credit bureaus add a code to each account, termed the ECOA code.

Each credit bureau lists ECOA codes differently, but these are the basic categories:

Individual. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history. You alone are legally responsible. This designation gives you a strong credit reference, assuming a good history.

Joint. You and someone else -- often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history. You and someone else -- often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history. You and someone else -- often a spouse – are both legally liable. A joint account is equal to an individual account for building your credit history.

Cosigner. You signed loan documents for someone else, to help them qualify for a loan.

Cosigner, primarily liable: You took out an account for yourself, but someone else co-signed for the loan to ensure payment.

Authorized user. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history. You can use the account, and may have a card in your name, but you did not sign the application and are not legally responsible. Because you have no legal obligation, this designation does not help you get your own credit history.

Undesignated.  No status was reported by the creditor reporting the account information.

Inquiries.  Inquiries, which appear at the end of your credit report, tell you who has seen it recently. They are very important when you apply for credit. Lenders almost always look at how many inquiries you have when evaluating your application. Consumers with "too many inquiries" are often turned down, due to a concern that they are applying for too much credit at one time, that they are on a spending spree, or that there is potential fraud.

The consumer credit laws do not cover inquiries, so once they are on your file there is nothing you can do to have them removed. It’s always worth trying to challenge inquiries with the credit bureau, but be aware that many credit bureaus refuse to investigate them. If you have too many inquiries, you may simply have to wait six months before applying for more credit.  Inquiries generally stay on credit reports for two years.

Some credit bureaus list inquiries by code, rather than by the name of the company. The Fair Credit Reporting Act requires that a credit bureau explain all information on your report that you do not understand, so request names for all the coded companies listed under the inquiries section.

If an inquiry is coded "PRM" or "PSC," or has the word "promotional" next to it, it means that a lender has paid the credit bureau to screen suitable prospects for a "pre-approved" mailing. The lender supplies the bureau with a list of names and addresses and a set of credit criteria, and asks the bureau to determine which candidates meet their criteria. The lender then receives from the credit bureau a list of the names that meet the qualifications, and those consumers receive a "pre screened" or "pre-approved" credit offer.

Inquiries noted as "csmr" or "consumer," indicate you have seen your own credit file.

It is the policy of the major credit bureaus not to include promotional or consumer inquiries when transmitting the file to a lender, so review of your own file or pre-screening will not hurt your chances of getting credit.

Tradelines. "Tradelines" is credit-industry jargon for "accounts." Tradelines are the listings of accounts that appear on credit reports. Each account you hold is considered a separate tradeline.

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• Whether you have a credit card or use another person's credit card,
• Whether you have a bank checking or savings account.
• Where you live.
• Your age.
• Your debt-income ratio.
• Whether you have declared bankruptcy or have had "charge-offs" to your account
• Whether you are delinquent in any child support payments.
• Whether you have "too much" credit available

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If you are an authorized user (someone who has permission to use a credit card, but is not legally liable for the bills) on someone else's account, the payment history will likely be reported in your credit file, but you won’t be able to rely on it to help you build your own credit rating. Usually, it will neither help you nor hurt you when you apply for a loan.

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Creditors may take into account your geographic location in scoring your length of time at one address. If you live in a city, where people move more often, the length of time at your address will probably count less than if you live in the country.

If your address is a post office box, you may find yourself turned down for credit. To fight fraud, some creditors screen out applicants whose addresses indicate commercial offices, mail drops or prisons.

Since post office boxes or rural delivery boxes are commonplace in rural areas, a lender may issue a card to that address, while rejecting applicants with a P.O. box in a large city.

People who own their homes usually earn a higher score than renters.

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However, the Equal Credit Opportunity Act (ECOA), a federal law intended to prevent discrimination in lending, does not allow lenders to discriminate against people age 62 or over. The ECOA requires creditors using a scoring system to give those aged 62 and older an age-factor score at least as high as the best score given to anyone under age 62.

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To find your debt/income ratio, total up your monthly payments on all bills. Then, divide these payments by your monthly gross income (before tax). This is your debt/income ratio.

If it’s less than 28%, you should have no trouble getting a loan (and can consider yourself successful at managing your debt and maintaining a good credit rating). If it falls between 28% and 35%, you have what’s considered high debt, and you may find it difficult to obtain some loans. If your debt/income ratio is 35% or more, you will probably not be able to get additional credit. More importantly, you are potentially in financial jeopardy.

Keep in mind that these are general guidelines. Some large card issuers will accept debt ratios as high as 40-45%. Others compare your net (after-tax) income to your debts to determine your debt ratio.

TIP: In determining your debt/income ratio, do not include payments for your mortgage, utility bills, doctor bills or other items that do not appear on your credit report: The creditor will not look at these.

If you should incur unexpected expenses, get ill, lose your job, or get divorced, you could find yourself unable to meet your obligations. Consider seeking credit counseling through a local non-profit consumer credit counseling service.

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In addition to the bankruptcy itself remaining on your report for ten years, each separate account that was discharged through bankruptcy can be reported in your file for up to seven years.

"Charge-offs" (accounts written off as "uncollectible") and "collection accounts" (accounts sent either to the creditor's own collection department or to an outside collection agency) are extremely negative.

	NOTE: If an account that has been charged-off (other than for bankruptcy), the creditor will usually turn it over to a collection agency, which will then attempt to collect. It then becomes a "collection account" for reporting purposes.
	TIP: If you pay the charged-off amount, make sure the creditor updates the account as a "paid charge-off."
	TIP: In exchange for paying off a collection account, you may be able to negotiate with the creditor or collection agency the permanent removal of the negative information from your credit bureau files. However, lenders are under no obligation to make such an agreement.

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State child support enforcement agencies must report overdue child support to a credit bureau that requests such information, as long as the amount exceeds $1,000. CSE agencies may also report delinquencies of any amount on a voluntary basis.

Before a CSE agency reports your delinquent child support debts to a credit bureau, it must tell you that it is going to do so and provide you with information on how to dispute the delinquency.

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Accounts you no longer use, or have paid off, can count against you if they are listed as "open" on a credit report. The act of paying off a revolving account does not, in itself, result in its being "closed" in the eyes of creditors. Further, some creditors do not report to credit bureaus the fact that accounts are closed.

TIP: Every time you close an account, ask the creditor to report it as "closed by consumer" to all credit bureaus to which the account has previously been reported. If a closed account appears on your credit report as open, dispute the entry with the credit bureau.

In determining whether you have too much available credit, creditors usually consider:

• The number of accounts you hold. As noted above, having too many credit card accounts can count against you.
• The total credit you have available. Having too much available credit can count against you.

Conversely, being at or near the limit on your credit cards (i.e., with little available credit) can also count against you if it suggests that you have incurred too heavy a debt load.

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• Have you run several credit cards up to the limit?
• Do you frequently make only the minimum monthly payments?
• Do you apply for almost any credit card you are offered--without checking out the terms?
• Have you used the cash advance feature from one card to pay the minimum payment on another?
• Do you use cash advances (or a credit card) for living expenses such as food, rent, or utilities?
• Are you unable to say what your total debt is?
• Are you unable to say how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you have been paying?

If you find several of these statements describe your credit habits, it may be that you need to take steps to manage your debt before bill collectors start calling and your credit history is endangered.

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1. Review each debt that creditors claim you owe to make certain you really owe it, and that the amount is correct.
2. Contact your creditors to let them know you're having difficulty making your payments. Tell them why you're having trouble. Try to work out an acceptable payment schedule with your creditors.
   

   TIP: Do not wait until your account is turned over to a debt collector. At that point, the creditor has given up on you. As soon as you find that you cannot make your payments, contact your creditors to try to work out a reduced-payment plan.

3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and expensive entertainment. Consider taking public transportation rather than owning a car. Clip coupons, purchase generic products at the supermarket, and avoid impulse purchases. Above all, stop incurring new debt. Consider substituting a debit card for your credit cards.
5. Use your savings and other assets to pay down debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense.
   

	TIP: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.
	TIP: If you are unable to make satisfactory arrangements with your creditors, there are organizations to help you with your financial situation. For instance, Consumer Credit Counseling Service (CCCS) agencies, which are local, non profit organizations affiliated with the National Foundation for Consumer Credit (NFCC), provide education and counseling to families and individuals. To contact a CCCS office for confidential help, look in your telephone directory white pages, or call 1 (800) 388-2227, 24 hours a day, for an office near you. Or write to the National Foundation for Consumer Credit, 8611 2nd Ave., Suite 100, Silver Spring, MD 20910.
	TIP: Some people with debt problems have found that Debtors Anonymous, General Service Board, Box 400, Grand Central Station, New York, NY 10163-0400, has provided helpful service.

Personal bankruptcy, a serious step, should be considered only if other means have been exhausted, and only if it is the best way to deal with financial problems. A skilled and trusted bankruptcy lawyer should be consulted.

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What to do: To stop a debt collector from calling you, write a letter to the collection agency telling them to stop. Once the agency receives your letter, it may not contact you again except to say there will be no further contact. Another exception is that the agency may notify you if the debt collector or the creditor intends to take some specific action.

If you believe a debt collector has violated the law by harassing you, you have the right to sue a collector in a state or federal court within one year from the date you believe the law was violated. The following practices are specifically prohibited.

Harassment, Oppression, or Abuse.  For example, debt collectors may not:

• Use threats of violence or harm against the person, property, or reputation;
• Publish a list of consumers who refuse to pay their debts (except to a credit bureau);
• Use obscene or profane language;
• Repeatedly use the telephone to annoy someone;
• Telephone people without identifying themselves; or
• Advertise your debt.

False Statements.  For example, debt collectors may not:

• Give false credit information about you to anyone;
• Send you anything that looks like an official document from a court or government agency when it is not;
• Use a false name;
• Falsely imply that they are attorneys or government representatives;
• Falsely imply that you have committed a crime;
• Falsely represent that they operate or work for a credit bureau;
• Lie about the amount of your debt;
• Lie about the involvement of an attorney in collecting a debt;
• Indicate that papers being sent to you are legal forms when they are not;
• Indicate that papers being sent to you are not legal forms when they are.
• Tell you that you will be arrested if you do not pay your debt;
• Tell you they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so; or
• Tell you that actions, such as a lawsuit, will be taken against you, which legally may not be taken, or which they do not intend to take.

Unfair Practices. For example, collectors may not:

• Collect any amount greater than your debt, unless allowed by law;
• Deposit a post-dated check prematurely;
• Make you accept collect calls or pay for telegrams;
• Take or threaten to take your property unless this can be done legally;
• Contact you by postcard.

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• Banks. If you have a complaint about a bank in connection with any of the Federal credit laws—or if you think any part of your business with a bank has been handled in an unfair or deceptive way—you may get advice and help from the Federal Reserve.

TIP: You should submit your complaint—in writing whenever possible—to the Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, or to the Reserve Bank nearest you. Be sure to describe the bank practice you are complaining about and give the name and address of the bank involved.

• Credit Clinics. File a complaint with the Better Business Bureau, your state attorney general's office, and the Federal Trade Commission (FTC).
  
• Debt Collectors. Report any problems you have with a debt collector to your state Attorney General's office and the Federal Trade Commission.
  
• Other Institutions. The Federal Trade Commission enforces a number of federal laws involving consumer credit, including the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Fair Credit Billing Act, and the Fair Debt Collection Practices Act.

You may also take legal action against a creditor. If you decide to bring a lawsuit, here are the penalties a creditor must pay if you win:

• Truth in Lending and Consumer Leasing Acts. If any creditor fails to disclose information required under these Acts, or gives inaccurate information, or does not comply with the rules about credit cards or the right to cancel certain home-secured loans, you as an individual may sue for actual damages—any money loss you suffer. In addition, you can sue for twice the finance charge in the case of certain credit disclosures, or, if a lease is concerned, 25 percent of total monthly payments. You may also be entitled to reimbursement for court costs and attorney's fees.
  
• Equal Credit Opportunity Act. If you think you can prove that a creditor has discriminated against you for any reason prohibited by the Act, you as an individual may sue for actual damages plus punitive damages of up to $10,000.
  
• Violations by Debt Collectors. You have the right to sue a collector in a state or federal court within one year from the date you believe the law was violated. If you win, you may recover money for the damages you suffered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector's net worth, whichever is less.
  
• Fair Credit Billing Act. A creditor who breaks the rules for the correction of billing errors automatically loses the amount owed on the item in question and any finance charges on it, up to a combined total of $50— even if the bill was correct.
  
• Fair Credit Reporting Act. You may sue any credit reporting agency or creditor for breaking the rules about who may see your credit records or for not correcting errors in your file. A person who obtains a credit report without proper authorization—or an employee of a credit reporting agency who gives a credit report to unauthorized persons—may be fined up to $5,000 or imprisoned for one year, or both.

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TIP: The disclosed APR will not reflect the closing costs and other fees and charges, so compare these costs, as well as the APRs, among lenders.

Interest Rates. Home equity plans typically involve variable interest rates rather than fixed rates. A variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate). The interest rate will change, mirroring fluctuations in the index.

To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value.

TIP: Because the cost of borrowing is tied directly to the index rate, find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past.

Sometimes lenders advertise a temporarily discounted rate for home equity loans—a rate that is unusually low and often lasts only for an introductory period, such as six months.

Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable-rate plans limit how much your payment may increase, and also how low your interest rate may fall.

Some lenders permit you to convert a variable rate to a fixed interest rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.

Agreements generally permit the lender to freeze or reduce your credit line under certain circumstances, such as during any period the interest rate reaches the cap.

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• A fee for a property appraisal, which estimates the value of your home;
• An application fee, which may not be refundable if you are turned down for credit;
• Up-front charges, such as one or more points (one point equals one percent of the credit limit);
• Other closing costs, which include fees for attorneys, title search, mortgage preparation and filing, property and title insurance, as well as taxes; and
• Yearly membership or maintenance fees.

You also may be charged a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those charges and closing costs would substantially increase the cost of the funds borrowed.

On the other hand, the lender's risk is lower than for other forms of credit because your home serves as collateral. Thus, annual percentage rates for home equity lines are generally lower than rates for other types of credit.

The interest you save could offset the initial costs of obtaining the line. In addition, some lenders may waive a portion or all of the closing costs.

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TIP: Consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges.

TIP: Do not simply compare the APR for a traditional mortgage loan with the APR for a home equity line--the APRs are figured differently. The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges. The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.

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The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. In general, neither the lender nor anyone else may charge a fee until after you have this information.

You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not enter into the plan because of the changed term.

Credit costs vary. By remembering two terms, you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you—in writing and before you sign any agreement—the finance charge and the annual percentage rate.

The finance charge is the total dollar amount you pay to use credit. It includes interest costs, and other costs, such as service charges and some credit-related insurance premiums.

For example, borrowing $100 for a year might cost you $10 in interest. If there were also a service charge of $1, the finance charge would be $11.

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

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--before you sign a credit contract or use a credit card--so you can compare costs.

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