Credit and the Law
A number of laws deal with how lending institutions are to offer credit. Two important US laws for the protection of consumers are the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
The Equal Credit Opportunity Act provides that all lenders are required to apply the same credit standards to all the consumers no matter what their race, sex, marital status, national origin, religion, age, or participation in a public assistance program. This does guarantee that the loan will be approved or you must be able to get credit. It simply means that the same standards must be used for every person who applies for credit, no matter who they are. There is only one standard that can reasonably measure a person's creditworthiness, and that is their ability to repay their debt from the income they can reasonably be expected to earn over the life of the loan.
Many applications will contain questions related to some of the above protected categories, but these are typically used by lending agencies to collect statistics that will allow them to demonstrate that they are complying with the Equal Credit Opportunity Act and other Federal and state laws regarding fairness in business or housing. However, due to the sensitive nature of the information, you are not required to answer those questions on an application for credit and cannot be denied credit solely on the basis of refusal to disclose your membership in a protected category. You should not be asked about your marital status unless your spouse or partner will be co-signing the loan and their income will be taken into account in determining your ability to qualify. You may be asked your age, but only to determine if you are over the age of 18, which is the age of majority in the US for signing binding contracts such as the promissory note of a loan.
Creditors must tell any applicants of their decision within 30 days. If the application is not approved, the creditor must provide a written statement that fully details the outcome or decision along with the reason for the denial and information on the applicant's rights under the Fair Credit Reporting Act to obtain and review a copy of their credit report. Unfortunately, false or erroneous information on one's credit report can result in people being turned down for loans for which they should have qualified. By getting and checking their credit reports, rejected applicants can take the appropriate steps to get errors on their credit report corrected and possibly re-apply for the loan on the basis of the corrected credit report.
The Fair Credit Reporting Act also gives people the right to see their credit report even when they have not been turned down for a loan. Under this provision of the law, everyone is entitled to a free credit report every 12 months. However, it is important to avoid fee-charging credit report services and outright scammers and deal only with the legitimate federal website, http://www.annualcreditreport.com/. When you are reviewing your credit, you can dispute items on the credit report and require that the credit bureau investigate the claim and verify that the loan is indeed owed. If you cannot obtain a correction (for instance, if the information is factual but there are extenuating circumstances that are not obvious), you can also add a statement of 100 words or less to your credit report to help clarify the situation.
The Fair Credit Reporting Act was created to protect the accuracy and privacy of a person's private information in their credit report. It was passed in response to the growing incidence of identity theft, in which criminals take advantage of other people's good financial reputations in order to steal money and commit other crimes. By reviewing one's credit report each year, a person can detect identity theft before serious damage is done to one's credit history, and hopefully capture the thief.
Both of these acts will protect you by ensuring that lending is done in a fair and equitable way and allowing you to take control of your credit history and making sure that it is accurate. If you want to maintain good credit, you need to learn as much about how credit works as you can. Understanding these laws is important to knowing what rights you have as an applicant for credit and as a person using credit.
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