Basics of Obtaining Credit in Georgia
Authored By: Carl Vinson Institute
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Basics of Obtaining Credit in Georgia
This document tells you the following:
- How do you get credit if you do not have it?
- What happens if your credit report is wrong?
- What if you are denied credit because of discrimination?
- How much does credit cost?
- What does a creditor have to disclose to you before you sign up for a credit card?
- How do usury laws regulate credit cards?
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 think about borrowing some money but have never tried to obtain credit. You would like answers to a few questions:
1. Where should you look for credit?
2. How likely are you to get credit?
3. How much does credit cost?
4. What should you look for in the contract?
5. What will happen if you can't meet the credit payments?
Regarding the first question, there are a number of choices. Many factors must be considered: How much money do you want? What is it for? How good a credit risk are you? This document introduces some of the laws establishing rights that protect debtors and creditors and help answer the other questions.
Sources of Consumer Credit
|Source||Form of Credit||Typical Cost of Credit||Who Can Get Loans||Notes|
Moderate, regulated by law
|Safe Credit Risks||Often have minimum amount, for example, $500 for loans|
|Savings and loan associations||
Moderate, regulated by law
|Safe Credit Risks||Provide banklike services|
|Credit Unions||Loans||Low||Members - but risk is a factor||Often have maximum amount|
|Finance companies / small loan companies||Loans||Varies, moderate to high||Will take greater credit risks||Usually have a maximum amount, for example, $3000|
Moderate, regulated bylaw
Varies - greater risks than banks
Fairly safe credit risks
|Only useful for goods|
|Pawn Brokers||small loans||High, varying||Only loan money on collateral|
Investigating Credit Applicants
Borrowers can choose where to apply for credit. Before deciding whether or not to give credit, however, a creditor will want to know how likely it is that the borrower will pay back the money on time. To decide, the creditor will need certain information.
The application used to obtain credit asks about the borrower's job, other sources of income, and debt. In asking these questions, the creditor is trying to determine what kind of risk the borrower will be. The creditor knows that people who are good credit risks have steady jobs and records of paying back previous debts. If the borrower is a good risk, not only will it be easier for him or her 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.
Clearly, 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. 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.
It is important to know these rights regarding credit reports. The law gives the Federal Trade Commission the power to act against credit reporting agencies that violate its provisions. Also, an individual can sue for damages.
Protection from Discrimination
Other laws protect people seeking credit. In 1974, Congress passed the Equal Credit Opportunity Act prohibiting 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 unless they bear directly on income. Under this law, creditors must give applicants reasons for being denied credit. A 1975 Georgia law also allows a person to take legal action and ask for damages if he or she is discriminated against.
Note that these federal and state laws do not guarantee anyone credit. Nor do they keep creditors from using income, expenses, debts, and reliability to determine whether they should give someone credit. However, they do make discrimination on certain grounds illegal.
How Much Does Credit Cost?
Finding Out the Costs
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 significantly 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. For example, for many years, students have been able to get government-guaranteed loans for their college education at rates lower than are available for other purposes.
Shop around. 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.
Truth in Lending Laws
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, they must show the finance charges and the rate of interest. The rate must always be expressed 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 and make an informed decision before entering into a credit arrangement.
What Your Credit Card Application Must Tell You
|Annual percentage rate for purchases||Percent fixed rate or a 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 before a finance charge will be imposed.
You have no grace period in which to repay your balance for purchases before a finance charge will be imposed.
|Method of computing the balance for purchases||Average daily balance (including new purchases) or Average daily balance (excluding new purchases) or Other method (explain)|
|Annual fees||Annual membership fee: $____ per year
Other type of fee: $____ per year
|Minimum finance charge||Amount varies.|
|Transaction fee for purchases||($_____) (_____ percent of amount of purchases) Calculated as a purchase amount times a percentage of the puchrase price|
|Transaction fee for cash advances and fees for paying late or exceeding the credit limit||
Transaction fee for cash advances: ($___ ) or (___ percent of amount advanced
Regulating Credit Costs
Interest rates are largely governed by state laws. However, in some areas, such as loans for homes, federal laws override state laws.
Georgia and most states limit the maximum amount charged for interest or other finance charges. These laws are known as usury laws. The government imposes upper limits on the interest that can be charged to consumers. In Georgia, charging more than 5 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.) A creditor whose finance charges exceed these limits is guilty of making a usurious loan. The creditor can be sued for usury in a civil court. In Georgia, if the suit is won, the debtor can recover all the interest that he or she had paid.
* Excerpted from An Introduction to Law in Georgia, Fourth Edition, published by the Carl Vinson Institute of Government, 1998 (updated 2004). The Vinson Institute is not responsible for errors in the online text. Content is for information only; in no way should the information in the book be considered legal advice to anyone on any matter for which there are legal implications. Any such matter should be specifically addressed with an attorney. The book is available for purchase at or by contacting the Publications Program, Carl Vinson Institute of Government, University of Georgia, 201 M. Milledge Avenue, Athens, GA 30602; telephone 706-542-6377; fax 706-542-6239.