What should I know about getting credit in Georgia?

Contents

• What is credit?
• What are sources of consumer credit?
• What are my rights and responsibilities?
• What are the government’s rights and responsibilities?

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What is credit?

Suppose you're out of school and have a new job and your own place to live. You need a lot of things: furniture, a better car, appliances. You will need credit to borrow money.

 

Credit plays a major role in today's economy. Large businesses, such as auto manufacturers, borrow millions of dollars. Governments borrow money. Individuals use credit when they get loans from banks and use credit cards.

 

The person who loans the credit is the creditor. The second person, who must pay back the debt, is the debtor.

 

A credit transaction happens when:

• one party provides services, goods, or money to another party,

• based on the second person's promise to pay later.

 

Keep in mind that credit transactions are contracts. The general laws affecting contracts also apply to these transactions.
 

Is credit free?

It is important to understand that credit is not free. One reason is that when a creditor extends credit to a debtor, the creditor gives up use of that money for a period of time. The creditor does not have it to spend or invest. For example, if you lend a friend $100 for three months, you will not have that cash available to use, nor will you be earning interest on the money you loaned.

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What are sources of consumer credit?

• Banks: Banks offer:

  • loans (low cost),

  • home loans (variable cost),

  • mortgages (moderate cost), and

  • credit cards (cost regulated by law).

Banks typically offer loans to people who are safe credit risks and often have a minimum amount for loans.

• Savings and loan associations: Savings and loans offer:

  • loans (low cost),

  • home loans (variable cost),

  • mortgages (moderate cost), and

  • credit cards (cost regulated by law).

Savings and loan associations typically offer loans to people who are safe credit risks.

• Credit Unions: Credit Unions offer loans (low cost) to members. Credit Unions cap the amount they will loan members.

• Finance companies/ small loan companies: Finance and small loan companies offer loans. These companies offer loans to greater credit risks, but the cost of credit is moderate to high.

• Merchants: Merchants offer:

  • credit sales (moderate cost) and

  • credit cards (moderate cost, regulated by law).

Merchants offer credit to fairly safe credit risks but are only useful for buying goods.

• Pawn brokers: Pawn brokers offer small loans for collateral at a high cost.

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What are my rights and responsibilities?

If you are the borrower, you can choose where to apply for credit. Before you sign up for a credit card, the creditor must disclose the following information to you:

 

• Annual percentage rate (APR) for purchases: The APR may be a percent fixed rate or variable rate.

• Variable rate information: Your annual percentage rate may vary. The rate is determined by various factors.

• Grace period for repayment of balances: You have a certain amount of time (usually a number of days) to repay your balance for purchase. After that time a finance charge will be imposed.

• Method of computing the balance for purchases: The method will either be:

• the average daily balance including new purchases,

• the average daily balance excluding new purchases, or

• another method, which must be explained.

• Annual fees: Your credit card may have an annual membership fee or another type of fee.

• Minimum finance charge: This amount will vary.

• Transaction fee for purchases: The transaction fee is calculated as a purchase amount times a percentage of the purchase price.

• Transaction fee for cash advances and fees for paying late or exceeding the credit limit. Transaction fee for cash advances are set as either a set amount or a percent of the amount advanced.

 

If a creditor’s finance charges exceed the maximum amount of interest that can be charged to consumers, the creditor is guilty of making an abusive or excessive loan. You have a right to sue the creditor for usury in a civil court. In Georgia, if the suit is won, you can recover all the interest that you paid.

 

Will the creditor run an investigation to check my credit?

 

Before deciding whether or not to give credit, a creditor will want to know how likely it is that you will pay back the money on time. To decide, the creditor will need certain information.

 

The application used to obtain credit asks about your job, other sources of income, and debt. In asking these questions, the creditor is trying to determine what kind of risk you will be. The creditor knows that people who are good credit risks have steady jobs and records of paying back previous debts. If you are a good risk, not only will it be easier for you to get credit, but the interest will be less.

 

In addition, many creditors pay a credit bureau to investigate applicants. There are thousands of credit bureaus throughout the country. Financial and personal information about consumers is stored in bureau computers. The information is available to other bureaus and creditors and often to employers and insurers.

If there is anything undesirable in the report of the credit bureau, the creditor may decide not to give credit to the consumer.

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What are the government’s rights and responsibilities?

 

The government imposes upper limits on the interest that can be charged to consumers. These laws that limit the maximum amount charged for interest are known as usury laws. Interest rates are largely governed by state laws. However, in some areas, such as loans for homes, federal laws override state laws.

 

In Georgia, charging more than 7 percent per month in interest on a consumer loan is a misdemeanor crime. There are usually no legal limits on the interest rates charged to businesses.

 

Truth in Lending Act

 

The Truth in Lending Act helps consumers figure out the costs of credit. The act requires certain legal duties of creditors. When making a credit transaction, creditors must show the finance charges and the rate of interest. The rate must always be shown in the same way (as an annual percentage rate) so that customers can compare it with the rates of other lenders.

 

Also, the creditor must inform the consumer of the rules and charges for late payments. Certain terms of the contract also are required to be clearly visible. If creditors don't do these things, they can be sued.

 

In 1988, Congress amended the Truth in Lending Act with the Fair Credit and Charge Card Disclosure Act. This act requires stricter credit disclosures in open-end credit or charge card applications or advertisements. The purpose of the act is to help the borrower more easily compare the costs of credit. The act helps borrowers informed decisions before entering into a credit arrangement.

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Contents

• What can I do if my credit report is wrong?
• What can I do if I am denied credit because of discrimination?
• How do I pick which lender to use?

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What can I do if my credit report is wrong?

A person's credit standing can be damaged by an unfavorable report. What if the report were misleading, inaccurate, or out of date?

 

In 1970, Congress passed the Fair Credit Reporting Act to protect credit seekers. It is important to know these rights regarding credit reports. Under the act, if you are denied credit, insurance, or employment on the basis of a credit report, you have the right to:

 

• Know the name and address of the agency giving the report

• Know what is in the report, even though you can't see or handle it

• Know the sources of the factual information contained in the report

• Request reinvestigation and correction if the information is inaccurate or incomplete

• Formally object to information you believe to be wrong

• Request that corrections be sent to businesses that had previously received incorrect information

 

There is no cost for information in your file if you request it within 60 days of a denial of credit. The law allows the Federal Trade Commission to act against credit reporting agencies that violate its rules. Also, an individual can sue for damages.

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What can I do if I am denied credit because of discrimination?

In 1974, Congress passed the Equal Credit Opportunity Act. This act prohibits creditors from discriminating against credit applicants on the basis of:

• gender,
• marital status,
• age,
• race,
• color,
• religion,
• national origin, or
• receipt of public assistance income.

This law also prohibits creditors from requiring answers to questions along these lines. Under this law, creditors must give applicants reasons for being denied credit. A 1975 Georgia law also allows you to take legal action and ask for damages if you are discriminated against.

 

Note that these federal and state laws do not guarantee anyone credit. They also don't stop creditors from using income, expenses, debts, and reliability to decide whether to give someone credit. However, they do make discrimination on certain grounds illegal.

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How do I pick which lender to use?

Before signing a contract, you should know how much credit is going to cost you. The cost of credit is referred to as interest. Interest rates can vary depending on the source of the credit because they are affected by the national and local economies. They depend on how much of a credit risk the debtor is and the purpose of the loan.

 

You should shop around and find out which lender will charge you less. Be aware that a debtor may have to pay other charges besides interest. There may be:

 

• A late charge if payment becomes past due

• A service charge to cover the creditor's costs of sending bills, record keeping, etc

• A charge for insuring the purchased item against theft or damage or to guarantee payment if the buyer should die during the term of the contract

 

All of these types of charges taken together are generally called finance charges.

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