Credit Card Deals and the Equal Credit Opportunity Act

Have you ever wondered what would happen if you gathered up all the credit card deals that appear in your mailbox over a week or so and applied for all of them? They sent you the credit card deals. Would you get approved for a credit card with all of them? Do you even know what a credit card company looks at when they decide whether or not to give you a credit card?

Although it doesn't guarantee that you'll get a great credit card deal, or even that you'll be approved for credit, the Equal Credit Opportunity Act (ECOA) determines what a credit card company can legally look at when they are deciding whether or not to give you a card. The act determines what kinds of questions lenders can ask when you are applying for credit, what information they can use when deciding whether to grant credit and outlines some of your rights with regard to credit.

What credit card companies can't ask

        It is illegal for a credit card company or any other lender to discriminate against you on the basis of age, gender, marital status, race, color, religion or national origin. They also cannot discriminate against you because you receive income from a public source, such as veteran's benefits, social security or Temporary Assistance to Needy Families (TANF). (In some states this is called Aid to Families with Dependent Children or AFDC.) In order to prevent discrimination, when you are applying for a consumer credit card or other loan, lenders cannot ask:

• Anything about your gender, race, religion or national origin.
• About your marital status, unless you are co-applying with your spouse and/or plan to use his or her income or resources to qualify, or you live in a community property state.
• When they are permitted to ask about your marital status, they may only ask if you are married, separated or single. These are legal categories that could affect the creditor's right to collect the debt. They cannot ask if you are widowed or divorced.
• Ask about your children or plans to have children.
• Ask if your receive child support or alimony, unless you plan to use them to qualify for the loan or consumer credit card. The lender can ask if you pay alimony or child support.

What credit card companies can't consider

When a credit card company or lender is deciding whether or not to extend credit to you, they are only allowed to consider things that would affect your ability to pay off the debt. They cannot treat you any differently than they would treat any other person with the same means to repay that you have.

The law addresses some very specific areas where people have been discriminated against in the past when they applied for credit. Specifically, the lender cannot consider:

• Your gender, marital status, national origin, race or religion
• Your age, unless you are too young to sign a contract (usually under 18) or unless you are over 62 and your age counts in your favor.

They also have to evaluate your income just like they would anybody else's. They can't have different rules if your income comes from public assistance, or from child support and alimony. They can't count your income differently because you are a woman or because of your marital status.

If you apply for all those credit card deals and anybody turns you down, they have to tell you why, and they have to be specific. They can turn you down for valid reasons, such as you don't make enough to pay your bills or you have poor credit. They can't give you vague or non-specific reasons, like, "You didn't meet our standard."

So, just supposing that some day, in a fit of insanity, you did apply for all the credit card deals you could find. What would each credit card company be looking for when they decided whether or not to send you a card? For the most part, they'd be evaluating the "Three C's of Credit: Capacity, Character and Collateral."

Capacity

Each credit card company would pull your credit report and would look at your capacity to pay your bills. They would evaluate your income and your regular expenses. They'd look at whether you have a history of making your payments on time, or if your credit report is studded with late payments and your bank account shows a bunch of overdraft notices.

Character

They would look for evidence that you are accustomed to paying your bills and that you don't abuse credit or overextend yourself. They'd ask questions to evaluate your stability, like how long you've lived at your current address or how long you've held your job.

Collateral

This "C" isn't always pertinent to credit card companies. Most of the time you'll have at least one unsecured credit card, which means it isn't backed up by any collateral.

If you've had some credit problems, however, the credit card company may not offer you an unsecured credit card. They may, however, ask you to put up some collateral, like a savings account, in order to grant you a secured credit card.

When considering the three C's, creditors use different parameters for determining who gets credit and who doesn't. As long as they evaluate everybody with the same parameters that's okay.

One credit card company may have very high standards and require their card holders to have an income to expenditure ratio of 3:1, and not grant you a credit card.

Another company may require that you have lived in the same place for six months and have a FICO (Credit) score over 350, and give you a high credit limit card.

If, however, you had that moment of insanity, each credit card deal you applied for would be noted on your credit report, and it wouldn't look good. If any of them denied you credit, that would count against you and lower your credit score. So, it's not a good idea. If you're going to apply for any of the credit card deals, gather them together and compare them. Choose one or two and shred the rest.