Many individuals go through their early years of life without establishing a line of credit. In some cases, they do not even realize they need one until they come upon a life event, such as wanting to purchase a home.
An individual needs a line of credit so that they can qualify for loans, such as car loans, or for a mortgage. It is not always difficult to begin establishing credit, but individuals may not know where to start.
Currently, there are many companies that offer a type of debit card to children so they can begin establishing credit. They are typically controlled by the parents.
If an individual is already past this stage of life, there are other ways they may go about establishing their credit history. One option is to have a bill, such as a power bill, placed in their name. In order to establish good credit, they will need to make the full payment on time each month.
Another option may be to apply for a credit card. This can either be a major credit card or a credit card from a store, such as Amazon or WalMart. The same concept applies here as with a bill, it must be paid on time monthly, preferably paid in full.
If an individual does not take some steps to establish credit, it will be very difficult for them to obtain loans for larger items without having a good credit rating. Being debt free does not equal a good credit rating.
As noted above, there are steps an individual can take to begin establishing their credit. If they choose to open a credit card for this purpose, they should consider several factors before applying, including research and their budget.
An individual should research the different types of credit cards that may be available to them prior to applying for one. Each time an individual applies for a credit card, it causes an inquiry on their credit report, which may lower their score temporarily. Because of this, it is important not to apply for every card an individual finds.
Another important consideration when looking for a credit card is an individual’s budget. No two budgets are alike. Therefore, while an individual may want to seek advice from others, they must consider their own financial situation.
Most credit card companies approve an individual’s credit request with the hopes they will not be able to pay off their debt. The credit card company hopes that, like most Americans, the individual will end up using the card for more than they can afford and paying the high interest rates.
What Else Can I Do to Establish a Line of Credit?
As previously noted, there are other steps an individual can take to establish a line of credit. Typically, a utility company will allow an individual to open an account in their name with a small deposit.
If an individual has already established some credit, or has a potential cosigner, or individual who will sign to be liable for the debt as well, there are some other steps they may take to boost their credit rating.
If the individual is renting an apartment or paying utilities, they should make sure their name is on the apartment lease as well as the utility bills. If they are already paying these bills, putting their name on the bill will allow them to establish credit while making those payments.
If an individual can afford to do so, obtaining a car loan may also help boost their credit. The caveat is that they must make monthly, on-time payments.
In some cases, an individual may be able to obtain a minor credit card with a small limit. If they use it wisely and make timely payments for around 6 months, they may be able to obtain a major credit card.
Can I be Sued for Credit Card Debt?
If an individual falls behind on their monthly payments or stops making payments altogether, their credit card company may sue. A lawsuit can be filed by a credit card company under the Fair Debt Collection Practices Act.
Prior to filing a lawsuit, the credit card company will usually disable the account. During this time, however, interest will continue to accrue on the debt that was already on the card.
What if I was Denied Credit?
While there are laws that protect an applicant who is seeking credit, there is now law that guarantees they will be approved. There are several reasons why an individual’s application may be denied, including:
- They do not meet the creditor’s minimum income requirement;
- They have not been living at your address for the required amount of time;
- They have not been working at their job for the required amount of time;
- They are too near their credit limits on open cards; and
- The information contained on their credit report is inaccurate.
The Equal Credit Opportunity Act proves that all applicants should have an equal chance at obtaining credit. It requires the creditor to explain their reason for denying a credit application.
The Act requires that the creditor provide the applicant with a notice that explains exactly why their application was denied. It also gives the applicant the opportunity to request an explanation for the denial if requested within 60 days.
There are numerous factors a creditor may consider when reviewing a credit application. There are, however, certain characteristics that a creditor cannot use when determining whether or not to approve an application. These include:
- Sex;
- Marital status;
- Race;
- National origin;
- Child support; or
- Public assistance income.
In the event that an individual’s credit application is denied, it may be very beneficial to ask the credit company why. The creditor may be able to provide important information such as:
- How the individual can decrease their current credit obligation;
- Which reporting agency provided the individual’s credit report so they can request a free copy of their credit report to examine it for any problems or errors; and
- Whether or not the individual can reapply in the future.
What is Credit Discrimination?
In the United States, most necessities an individual needs access to are based on credit. Credit allows individuals to go to school, purchase homes, and build businesses. When credit discrimination occurs, individuals are prevented from accessing these opportunities.
As noted above, the Equal Credit Opportunity Act (ECOA) prohibits a creditor from discriminating against an individual in any aspect of a credit transaction on the basis of the factors listed above. An individual may have a case for credit discrimination if a creditor engages in the following acts:
- Offers an individual credit with unfavorable terms compared to someone else with similar qualifications;
- Refuses to extend an individual credit if they qualify for it;
- Keep an individual from applying for credit; or
- Closes their account.
Should I Consult an Attorney if I End Up with Dangerous Amounts of Debt?
Yes. There are times that you may end up falling into a dangerous amount of debt. This can easily occur if you are given large lines of credit and use them without thinking about the consequences when you do not pay them back.
It is important to seek the counsel of an experienced credit attorney. Your attorney can review your situation, advise you what protections you may have under state and federal laws, and help you decide what the best court of action will be.
On the other end of the spectrum, if you have been denied credit while trying to establish credit, and you feel you have been a victim of credit discrimination, your attorney can help. It is impossible to qualify for credit and begin establishing your credit history if you are unable to obtain any credit at all.
