When you’re ready to apply for a credit card, you should know what factors banks consider important in deciding whether you’re creditworthy. You should also know what factors they are legally not allowed to consider in their decisions.
The Equal Credit Opportunity Act requires that all credit card applicants be considered on the basis of their qualifications for credit and not be rejected because of certain personal characteristics.
The Three Cs. Basically, banks look for your ability
and your willingness to repay debt. They speak of the three Cs: capacity, character, and
Capacity. Can you repay your debt? Banks ask for employment information: your occupation, how long you have been on the job, and how much your income is. They also want to understand your expenses: how many dependents you have, whether you pay alimony or child support, and the amount you spend on other obligations.
Character. Will you repay the debt? Banks will look at your credit history (see page on Credit Report and Credit Histories): how much you owe, how often you borrow, whether you pay bills on time -- basically they look whether you live within your means. They also look for a certain level of stability: how long you’ve lived at your current address, whether you own or rent your home, and the length of time you've been with your current employer.
Collateral. Is the bank protected if you fail to repay? Banks want to know what you may have that can back up or secure your line of credit, other than your income, such as savings, investments, or property.
Banks combine these facts about you to reach their decisions. Some banks set unusually high standards; others simply do not make certain kinds of loans. Banks also use different 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 card 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.
Different banks may reach different conclusions based on the same set of facts. One bank may find you an acceptable risk, whereas another may deny you a card.
The Equal Credit Opportunity Act does not guarantee that you will get credit.
You must still pass the bank’s tests of creditworthiness. But the issuer
must apply these tests objectively, fairly and impartially. The law bars
discrimination based on age, gender, marital status, race, color, religion,
and national origin.
The law also bars discrimination because you receive government 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 bank. This protection means that a bank may not use any of these grounds as a reason to do the following:
Banks may not discriminate on the basis of national origin, but if you are a resident alien (legal or illegal), they are allowed to consider your immigration status when making a loan decision.
Age. In the past, many older people were being denied credit cards because they were over a certain age. Or when they retired, they often found their credit suddenly cut off or reduced. Therefore, the law is very specific about how the age of the applicant may be used in credit decisions. A bank 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 bank may not do the following:
Banks 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 someones’ financial situations can change at different ages, the law lets banks consider certain information related to age, such as how long until you retire or how long your job will continue. An older applicant may not qualify for a very large line of credit, but might qualify for a smaller limit.
Remember that although declining income may be a handicap if you are older, you can usually offer a solid credit history to your advantage. The bank has to consider all the facts and apply the usual standards of creditworthiness to your particular situation.
You may not be denied a credit card just because you receive social security or government assistance, such as Temporary Assistance to Needy Families (TANF). But, as is the case with age, certain information on this source of income could affect creditworthiness. A bank may consider issues, such 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 eligibility requirements for receiving benefits. This information will help the bank determine the likelihood that your public-assistance income will continue to flow.
All applicants 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 it difficult for women to get their own
line of credit. For
example, denying a credit card or offering less favorable credit terms based on the
misperception that single women ignore their debts when they marry, or that a
woman’s income “doesn’t count” because she’ll stop work to have and raise
children, is unlawful in credit determinations.
The general rule is that you cannot be denied a credit card because you are a woman or because you are married, single, widowed, divorced, or separated. Here are some important protections:
Gender and Marital Status. Usually, card issuers may not ask your gender on an application form . You do not have to use Miss, Mrs., or Ms. with your name on a credit card application. However, in some cases, a bank may ask whether you are married, unmarried, or separated (unmarried includes single, divorced, and widowed). Childbearing Plans. Banks may not ask about your birth-control practices or your plans to have children -- they may not assume anything about those plans.
The bank must count all of your income, even income from a part-time job. Child support and alimony payments are an important source of income for many women. You don’t have to disclose these kinds of income, but if you do, banks must consider them in their decisions.
Banks may not consider whether you have a telephone listing in your name. This would discriminate against many married women (Note: you may be asked if there is a telephone in your home.) A bank 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.
In the past, many married women were turned down for credit cards in their own name. Or a husband had to co-sign an account, that is, agree to pay if the spouse did not pay. Also, single women couldn’t get a credit card because they were thought to be somehow less reliable than other applicants. You now have the right to your own credit card, based on your own credit records and earnings. Your own credit card means a separate account in your own name, not a joint account with your husband or a duplicate card on his account. Below are the rules:
Obviously, this last rule 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.
Married women have sometimes faced 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 today clearly states that banks may not make you reapply for credit 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 indication that your creditworthiness has changed. For example, banks may ask you to reapply if you relied on your ex-husband’s income to get a card in the first place.
Setting up your own card account protects you by establishing your own history of how you handle debt. You can rely on this record if your financial situation changes if you become widowed or divorced. If you’re getting married and plan to take your husband’s last name, write to your bank and inform them you want to keep a separate account.
Remember, your gender or race may not be used to discourage you from applying
for a card. And banks 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 you have
been approved or not. If credit is denied, this notice must be in writing, and
it must explain the specific reasons that 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 a credit card, be sure to find out why. Remember, you may have to ask the bank for an explanation. It may be that the bank thinks you have requested more money than you can repay based on your income. It may be that you have not worked long enough, or lived in the community long enough. You can discuss terms with the bank and ways to improve your creditworthiness.
If you think you have been discriminated against, cite the law to the bank. If the bank still says no without a satisfactory explanation, you may contact a federal enforcement agency for assistance (the federal agency you should contact should be included in the notice you receive from the bank), or you may bring legal action, as described in the Filing A Credit Complaint article on this site.