APPLYING FOR CREDIT

APPLYING FOR CREDIT



Discrimination


When you're ready to apply for credit, you should know
what creditors think is important in deciding whether you're
creditworthy. You should also know what they cannot legally
consider in their decisions.


What 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.


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 quality; 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 creditscoring 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.


Discrimination Against Women


Both men and women are protected from discrimination based
on gender or marital status. But many of the law's provisions
were designed to stop particular abuses that generally made if
difficult for women to get credit. For example, the idea that
single women ignore their debts when they marry, or that a
woman's income "doesn't count" because she'll leave work to
have children, now is unlawful in credit transactions.

The general rule is that you may not be denied credit just
because you are a woman, or just because you are married,
single, widowed, divorced, or separated. Here are some
important protections:

Gender and Marital Status. Usually, creditors may not ask
your gender on an application form (one exception is on a loan
to buy or build a home).

You do not have to use Miss, Mrs., or Ms. with your name
on a credit application. But, in some cases, a creditor may ask
whether you are married, unmarried, or separated (unmarried
includes single, divorced, and widowed).

Child-bearing Plans. Creditors may not ask about your
birth control practices or whether you plan to have children,
and they may not assume anything about those plans.

Income and Alimony. The creditor must count all of your
income, even income from part-time employment.

Child support and alimony payments are a primary source of
income for many women. You don't have to disclose these kinds
of income, but if you do creditors must count them.

Telephones. Creditors may not consider whether you have a
telephone listing in your name because this would discriminate
against many married women. (You may be asked if there's a
telephone in your home.)

A creditor may consider whether income is steady and
reliable, so be prepared to show that you can count on
uninterrupted income--particularly if the source is alimony
payments or part-time wages.

Your Own Accounts. Many married women used to be turned
down when they asked for credit in their own name. Or, a
husband had to cosign an account--agree to pay if the wife
didn't--even when a woman's own income could easily repay the
loan. Single women couldn't get loans because they were thought
to be somehow less reliable than other applicants. You now have
a fight to your own credit, based on your own credit records
and earnings. Your own credit means a separate account or loan
in your own name--not a joint account with your husband or a
duplicate card on his account. Here are the rules:

-- Creditors may not refuse to open an account just because
of your gender or marital status.

-- You can choose to use your first name and maiden name
(Mary Smith); your first name and husband's last name
(Mary Jones); or a combined last name (Mary Smith-Jones).

-- If you're creditworthy, a creditor may not ask your
husband to cosign your account, with certain exceptions
when property rights are involved.

-- Creditors may not ask for information about your husband
or ex-husband when you apply for your own credit based on
your own income--unless that income is alimony, child
support, or separate maintenance payments from your spouse
or former spouse.

This last rule, of course, does not apply if your husband
is going to use your account or be responsible for paying your
debts on the account, or if you live in a community property
state. (Community property states are: Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and
Wisconsin.)

Change in Marital Status. Married women have sometimes
faced severe hardships when cut off from credit after their
husbands died. Single women have had accounts closed when they
married, and married women have had accounts closed after a
divorce. The law says that creditors may not make you reapply
for credit just because you marry or become widowed or
divorced. Nor may they close your account or change the terms
of your account on these grounds. There must be some sign that
your creditworthiness has changed. For example, creditors may
ask you to reapply if you relied on your ex-husband's income to
get credit in the first place.

Setting up your own account protects you by giving you
your own history of how you handle debt, to rely on if your
financial situation changes because you are widowed or
divorced. If you're getting married and plan to take your
husband's surname, write to your creditors and tell them if you
want to keep a separate account.


If You're Turned Down


Remember, your gender or race may not be used to
discourage you from applying for a loan. And creditors may not
hold up or otherwise delay your application on those grounds.
Under the Equal Credit Opportunity Act, you must be notified
within 30 days after your application has been completed
whether your loan has been approved or not. If credit is
denied, this notice must be in writing and it must explain the
specific reasons why you were denied credit or tell you of your
right to ask for an explanation. You have the same rights if an
account you have had is closed.

If you are denied credit, be sure to find out why.
Remember, you may have to ask the creditors for this
explanation. It may be that the creditor thinks you have
requested more money than you can repay on your income. It may
be that you have not been employed or lived long enough in the
community. You can discuss terms with the creditor and ways to
improve your creditworthiness. The next chapter explains how to
improve your ability to get credit.

If you think you have been discriminated against, cite the
law to the lender. If the lender still says no without a
satisfactory explanation, you may contact a Federal enforcement
agency for assistance or bring legal action as described in the
last chapter of this handbook.