Having credit enables a person to buy a good or service now and pay for it later. When applying for credit accounts or loans, consumers need to know their rights.
Banks, department stores, credit card issuers, and finance companies are among the businesses that extend credit to customers. Creditors use various standards in deciding whether to approve a credit or loan application. These factors may include the applicant's ability to pay the debt, credit history, assets, and the number of years at a current job or residence.
The federal Equal Credit Opportunity Act prohibits creditors from using age, race, color, national origin, sex, marital status, religion, or receipt of public aid to: 1) discourage or prevent someone from applying for a loan; 2) refuse credit to a person who otherwise qualifies; 3) lend money on terms different from someone with similar credit risk; or 4) lend less money if another person with similar risk would receive more.
The law, however, does not guarantee a person will receive credit. The applicant must still meet the creditor's standards. Although creditors cannot use the above factors solely to extend or deny credit, those facts may have relevance in credit decisions. For example, if an applicant is nearing retirement age, the creditor may consider the person's future income levels and ability to repay a loan.
The Equal Credit Opportunity Act requires a creditor to notify the applicant of its decision within 30 days of the application's completion. The creditor must give written notice of credit denial, stating the reasons for the decision or how to obtain an explanation. If a bad credit report was the reason, the Fair Credit Reporting Act requires the creditor to name the credit bureau that supplied the report.
If a person is denied credit, does not receive a satisfactory explanation, and believes discrimination has occurred, he or she may contact a lawyer or file a complaint with the Federal Trade Commission.
In any event, federal law does allow a person to place a brief, written explanation of any debt or credit in his or her credit report. The credit bureau may charge a nominal fee.
Being approved for credit not only gives the consumer another payment option besides cash, but also establishes a credit record. Maintaining a good record through timely payments will help the consumer in future credit applications.