Protecting yourself from credit discrimination
In America, everybody is supposed to get a fair shot at landing credit. The Equal Credit Opportunity Act sees to that.
Under the law, creditors may not discriminate against you because of your sex, age, marital status, race, color or national origin, or because you receive income from public assistance.
This law protects you from discrimination in every aspect of a credit transaction from your application to the terms and interest rate of your loan to the servicing of your loan.
"It's really any stage of the credit process from application to collection," says Deanne Loonin, staff attorney at the National Consumer Law Center.
If you were turned down for credit or were offered less favorable terms, the Equal Credit Opportunity Act also gives you the right to find out why.
Originally designed to protect women
At that time, single women had trouble qualifying for credit without co-signers. Married women had trouble qualifying for credit without their husbands' help.
The law was expanded a couple of years later to offer protections for race, national origin and age. A lender may not consider any of these factors when deciding whether or not to grant you credit.
The Act also determines what questions a lender may and may not ask you.
Other factors considered
Your income, expenses, debts, payment record and credit history are all key factors that lenders look at when evaluating credit applications.
If you are turned down for credit or offered credit at less favorable terms, make sure you read every single word of the rejection letter.
Under the law, after receiving a completed credit application, a creditor has up to 30 days to tell you if your application is rejected or accepted.
A rejection letter may feel like a slap in the face, but as tempting as it may be to just tear it up, don't. If you do, you'll be ripping up some of your rights.
In a rejection letter, a creditor must either tell you the specific reasons your credit application was rejected or tell you how it can be contacted to find out those reasons.
Act quickly to exercise your rights
And thanks to the law, a lender must give you specific reasons as to why you didn't qualify for credit. Nothing vague will do.
"They can't just say, 'You didn't pass our credit-scoring system,'" Wilmore says. But a lender could say, "Your income is too low" or "You haven't been with your job long enough" or "You don't have enough revolving accounts" or "Your credit report shows late payments."
Those are all concrete reasons.
If a lender turns you down because of something in your credit report, you have the right to a free copy of your credit report, thanks to the Fair Credit Reporting Act. Again, don't put this off. Under the law, you must request your free report within 60 days of receiving a denial notice.
If there's a mistake on your credit report, you'll want to correct it. Bankrate's article, Correcting errors on credit reports, will walk you through the steps.
The Equal Credit Opportunity Act also gives you the right to know why you didn't get credit at the terms you applied for, as long as you turn down the offer.
For example, let's say you apply for a credit card with a $2,000 limit but are offered a card with a $300 credit limit instead.
If you accept the card and start using it, your lender doesn't need to explain why you were offered a lower credit limit. But if you reject the offer, you have the right to find out why you didn't get the credit deal you applied for.
If you're unhappy with a credit offer, turn it down and ask an issuer to explain why you weren't offered a better deal. You've got that right under the law and you might as well use it.
If your rights were violated
First of all, complain to the creditor and make it clear that you're aware of your credit rights. There may have been a mix-up with your application. A quick phone call could clear it up.
"It might just be there's a mistake or there was an error on the application," Wilmore says.
Check with the office of the attorney general in your state. Every state has a state law very similar to the federal Equal Credit Opportunity Act and you may have additional consumer protections in your state.
You also have the option of bringing a case against the creditor in a federal district court. If you win, you can recover damages as well as compensation for attorney fees and court costs.
For legal advice, contact a consumer attorney. To find an attorney near you, visit the Web site of the National Association of Consumer Advocates and search for an attorney in your area with expertise in credit discrimination.
It's also a good idea to report violations of the Equal Credit Opportunity Act to a federal enforcement agency. A creditor must give you the name and address of the appropriate federal agency to contact once you've been denied credit.
Many federal agencies don't investigate individual complaints, but they may decide to investigate a company based on a large number of consumer complaints.
This is not a commitment for a loan or an ad for credit as defined by paragraph 226.24 of regulation Z.