Denied Credit

From time to time, it may happen that you apply for a loan or a credit card, and are turned down by your bank or credit card company. When this occurs, you still have some rights under the Equal Credit Opportunity Act.

The Equal Credit Opportunity Act (ECOA) is similar to the Miranda Act in that it ensures that your rights are protected. The ECOA requires that the lending institution give you notice of why your application for a loan was rejected, or else inform you that you have the right to learn the reasons within 60 days of the decision. Although this might not seem to be that useful of a right, it can actually work in your favor, because reasons given must be specific, and cannot be vague or indefinite.

For example, the creditor may tell you that you did not meet their minimum standards, but without an outline of what those minimum standards are, this is an unacceptably vague reason. Or they may say you have not been employed for a long enough period of time, but this is also unacceptable as it is an indefinite answer.

They must indicate why they denied your application due to a specific reason, and give that reason. Examples of acceptable reasons include that you are not employed; that your income level is too low; that you are too near your credit limit already; or that your credit report is negative.

In the case of the first two reasons, being unemployed or having a low income level, there is little you can do, other than the obvious, if difficult, solution of finding a higher paying job, or perhaps reapplying for a lesser loan at another lending institution.

If you were denied credit because you were too close to your credit limit, you can always pay down at least part of your outstanding balance and then reapply for the loan. It might be wise to close any unnecessary credit accounts at this point, as well.

If you are denied credit because of your credit report, the Fair Credit Billing Act requires that the lending institution supply you with the name and contact information of the credit bureau that gave them the information on which they based their decision to turn down your loan. You may then apply for a free credit report within 60 days of being turned down so that you may check your credit report to see what, if any, negative information is contained in it.

You will also want to carefully read your credit report to ensure that there are no billing errors. If there are any, you must inform the credit bureau, who will then investigate your claim to see if there is any validity to it. If so, the error will be removed from your report. Similarly, any negative information older than seven years must be removed, with the exception of a declaration of bankruptcy, which can be removed after ten years.

If there is information contained in your report that you are unsure about, you may dispute it with the credit bureau, which must then prove that it is accurate information, or else remove it from your report.

However, any accurate, negative information newer than seven years can not be removed and must stay on your report until sufficient time has passed.

The credit bureau must send copies of any changes to all institutions that have received your report in the last six months, meaning the bank or company that denied your credit will be updated on your status and may change their decision.

If you are still being denied credit after you have taken the above steps, you may wish to ask the creditor if a credit scoring system was used in making the decision. A credit scoring system is similar to an insurance adjustor's actuary tables, in that it is a mathematical, statistical device for comparing the profiles of certain types of borrowers with each other to determine if a specific borrower (in this case, you) is likely to be able to repay his or her debt.

If a credit scoring system was used, ask what factors and characteristics were used in developing their model. Ask if there are specific steps you can take to improve your score in the system. Often these steps are simple and readily accomplished- things such as making sure you pay your bills on time, and keeping the amount of your outstanding debt to a minimum, which also entails not taking on new debt. Having a lengthy and positive credit history is also helpful.

If you feel you are being denied credit based on vague or false reasons, you may lodge a complaint with the Federal Trade Commission, which exists to aid the consumer in preventing fraudulent, unfair or deceptive business practices.