What Credit Law Applies?

EQUAL CREDIT OPPORTUNITY ACT requires that all credit

applicants be considered on the basis of their actual

qualifications for credit and not be turned away because of

certain personal characteristics. This is the credit law of U.S.A.

What Creditors Look For

The Three C's. Creditors look for an ability to repay debt

and a willingness to do so--and sometimes for a little extra

security to protect their loans. They speak of the three C's of

credit-capacity, character, and collateral.

Capacity. Can you repay the debt? Creditors ask for

employment information: your occupation, how long you've

worked, and how much you earn. They also want to know your

expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations.

Character. Will you repay the debt? Creditors will look at

your credit history (see chapter on Credit Histories and

Records): how much you owe, how often you borrow, whether you

pay bills on time, and whether you live within your means. They

also look for signs of stability: how long you've lived at your

present address, whether you own or rent, and length of your

present employment.

Collateral. Is the creditor fully protected if you fail to

repay? Creditors want to know what you may have that could be

used to back up or secure your loan, and what sources you have

for repaying debt other than income, such as savings,

investments, or property.

Creditors use different combinations of these facts in

reaching their decisions. Some set unusually high standards and

other simply do not make certain kinds of loans. Creditors also

use different kinds of rating systems. Some rely strictly on

their own instinct and experience. Others use a

"credit-scoring" or statistical system to predict whether

you're a good credit risk. They assign a certain number of

points to each of the various characteristics that have proved

to be reliable signs that a borrower will repay. Then, they

rate you on this scale.

And so, different creditors may reach different

conclusions based on the same set of facts. One may find you an

acceptable risk, while another may deny you a loan.

Information the Creditor Can't Use

The Equal Credit Opportunity Act does not guarantee that

you will get credit. You must still pass the creditor's tests

of creditworthiness. But the creditor must apply these tests

fairly, impartially, and without discriminating against you on

any of the following grounds: age, gender, marital status,

race, color, religion, national origin, because you receive

public income such as veterans benefits, welfare or Social

Security, or because you exercise your rights under Federal

credit laws such as filing a billing error notice with a

creditor. This means that a creditor may not use any of those

grounds as a reason to:

-- discourage you from applying for a loan;

-- refuse you a loan if you qualify; or

-- lend you money on terms different from those granted

another person with similar income, expenses, credit

history, and collateral.

Special Rules

Age. In the past, many older persons have complained about

being denied credit just because they were over a certain age.

Or when they retired, they often found their credit suddenly

cut off or reduced. So the law is very specific about how a

person's age may be used in credit decisions.

A creditor may ask your age, but if you're old enough to

sign a binding contract (usually 18 or 21 years old depending

on state law), a creditor may not:

-- turn you down or offer you less credit just because of

your age;

-- ignore your retirement income in rating your application;

-- close your credit account or require you to reapply for it

just because you reach a certain age or retire; or

-- deny you credit or close your account because credit life

insurance or other credit-related insurance is not

available to persons your age.

Creditors may "score" your age in a credit scoring system,

but:

-- if you are 62 or older you must be given at least as many

points for age as any person under 62.

Because individuals' financial situations can change at

different ages, the law lets creditors consider certain

information related to age--such as how long until you retire

or how long your income will continue. An older applicant might

not qualify for a large loan with a 5 percent down payment on a

risky venture, but might qualify for a smaller loan--with a

bigger down payment--secured by good collateral. Remember that

while declining income may be a handicap if you are older, you

can usually offer a solid credit history to your advantage. The

creditor has to look at all the facts and apply the usual

standards of creditworthiness to your particular situation.

Public Assistance. You may not be denied credit just

because you receive Social Security or public assistance (such

as Aid to Families with Dependent Children). But--as is the

case with age--certain information related to this source of

income could clearly affect creditworthiness. So, a creditor

may consider such things as:

-- how old your dependents are (because you may lose benefits

when they reach a certain age); or

-- whether you will continue to meet the residency

requirements for receiving benefits.

This information helps the creditor determine the

likelihood that your public assistance income will continue.

Housing Loans. The Equal Credit Opportunity Act covers

your application for a mortgage or home improvement loan. It

bans discrimination because of such characteristics as your

race, color, gender, or because of the race or national origin

of the people in the neighborhood where you live or want to buy

your home. Nor may creditors use any appraisal of the value of

the property that considers the race of the people in the

neighborhood.

In addition, you are entitled to receive a copy of an

appraisal report that you paid for in connection with an

application for credit, if a you make a written request for the

report.

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