Has anything like this ever happened to you?
- John needs to find a new apartment. He sees an ad in the paper for an apartment he can afford. He fills out an application and pays for a credit check. A few days later he receives a call telling him his application has been rejected because he has “bad credit.” (Two years ago John couldn’t pay his bills on time for several months because he had been laid off.)
- Maria also needs a new apartment. She is a nursing home worker making $8.50 an hour. She has been told by many landlords that she doesn’t make enough money to pay the rent for a two-bedroom apartment (usually around $900 per month). Then Maria gets a Section 8 housing voucher. The voucher guarantees that she will be able to pay the rent. But she is still rejected by landlords because her “credit score” is not high enough, meaning she has bad credit. (Maria’s former husband had failed to pay some of the family’s debts while they were married.)
- Barbara and James own a home that needs some repair work. The home repair contractor sent them to a loan company to borrow money to pay for the repairs. The loan company says they have “bad credit." But the company also says that it will lend them the money anyway if they agree to pay a higher interest rate, plus some additional fees and charges. This means that their loan payments will be a lot higher. Barbara and James don’t really think their credit is bad, but they feel that they have no choice because the work on their home needs to be done.
- Shamiqua just bought a car from a local car dealer. A few weeks later, the dealer calls her and tells her that the “financing didn’t go through.” The dealer claims that, if she wants to keep the car, she will have to sign new loan papers. The new loan papers will give her a higher interest rate, higher monthly payments, and a higher total of payments than she agreed to pay for the car.
- Pearl and Lee are thinking about making an offer to buy their first house. They want to make sure they are pre-qualified for a mortgage first. When they talk to a mortgage broker, she tells them that they would have to pay a rate that is a lot higher than the rates advertised in the paper, and three or four “discount points” and large application and origination fees as well. The lower rates and fees, the broker tells them, are only for people with “perfect credit.”
- Shanti has always been an excellent driver, and her car insurance rates have always been low. One day, she gets a letter from her insurance company telling her that her rates are going up because she has a low “credit score,” and the company claims that drivers with low credit scores are greater risks as drivers. Shanti is puzzled, both because one thing seems to have nothing to do with the other, and because, as far as she knows, her credit is fine.
These kinds of stories happen all the time. Having bad credit or a low credit score has kept people from being able to rent apartments; get a fair loan to buy a home, a car, or a washing machine; or even get auto insurance at fair rates. The problem is especially bad—and really unfair—for people who have worked at low-wage jobs for many years, even if they are making more money now.
It costs a lot of money to live in New Jersey. Low-wage workers often do not make enough to pay all their bills, including rent, transportation, food, and doctor visits. And if they have to pay for child care, too, the situation is even worse. It is no wonder that low-wage workers have trouble paying all their bills on time—or at all. At the same time, credit cards and other types of expensive loans are being marketed extensively in low-income communities. So, although it’s not a good thing to do, often low-wage earners use credit cards to pay their bills—and then have trouble making their credit card payments. Although everyone wants to avoid being caught in the credit card trap, bill “juggling” is part of life for low-income people. And bad credit can be the result.
Companies called credit bureaus keep track of missed payments and other things that are reported to them by stores, utility companies, doctors, and others. They then take all this information and turn it into a single number, often called a “FICO score.” The highest score a person can get is around 800 or 850. Many landlords, banks, finance companies, department stores, and other businesses and lenders will reject people—or charge them higher rates or fees—just because they have scores below 650 or 600. This is not fair. Each person’s story is different, and your “creditworthiness” should only be judged after considering your whole story. Most people who have worked hard but for low wages—and have still been able to pay most of their bills most of the time—know how to manage their money. They just don’t have enough of it. There is even a federal law, the Equal Credit Opportunity Act, that requires sellers or lenders to take a person’s whole story into account.
Don’t give up if you are trying to buy something, or rent an apartment, and are rejected because of your credit. And don’t pay high rates or fees just because a lender shows them to you on some papers or tells you “those are the rates.” There may be some things you can do to get what you need without paying more than you should:
- Shop around if you can. If you are looking for an apartment, you might have to take the first one you get because apartments are so hard to find. But if you are trying to buy something else, or get a loan—or even if you are lucky enough to be in an area where several apartments are available—check out several stores or banks or businesses before you make a deal. You should be able to get a better price, a lower interest rate, or lower payments by doing this.
- If a seller or lender rejects you because you have bad credit, or says you have to pay higher payments or higher fees, don’t give up. Your credit score and credit report could be wrong. They could contain incorrect information. You can get a free copy of your credit report, as well as an “unofficial” version of your credit score. And if you think the report is wrong or does not tell the whole story, you can ask for a reinvestigation of the information in your credit report. (See the article Fair Credit Reporting: Making the Most of Your Credit Report for a summary of how to do this.) If the wrong information is not corrected, you may be able to take the credit bureau, and sometimes the creditor reporting the wrong information, to court. You can go to Legal Services if you are eligible, or hire a private attorney to represent you.
- Always ask if you qualify for a lower priced loan. If the lender claims you don’t, find out why, and what you need to change to get a better rate and lower charges. And remember: shop around. Talk to other lenders to find out who is offering the best deal.
- If you have a Section 8 voucher, a landlord cannot use your FICO score or credit report as the main reason to deny you an apartment. If a landlord tells you that he or she won’t take your voucher because you have bad credit or a low credit score, you can file a complaint with the New Jersey Division on Civil Rights. (See the box below for the phone number of the Division office nearest your home.) You can also go to Legal Services if you are eligible, or hire a private attorney to represent you. (See Housing Discrimination for more information about this.)
- If you now have enough income to pay all your bills on time plus make the payments on a new house, car, apartment, or other item—but you are still denied anyway, or charged high rates or fees because you have bad credit—ask to meet with the person who made this decision. Explain how your situation has changed. Ask them to judge your creditworthiness based on your whole story, not just on a single number or report that only shows part of the picture.
- Bankruptcy and credit counseling through a nonprofit credit counseling agency may be options to consider. A good source for more information on these options is the book Guide to Surviving Debt (2002 Edition) (see link below) published by the National Consumer Law Center. This book is available at many public libraries and bookstores.
- If you think the real reason you are being denied credit—or being charged too much to get a loan—is your race, religion, or national origin, or that you are a woman or have a family, you should contact the Division on Civil Rights and file a complaint. (See the box below for the phone number of the office nearest you.) Or talk to an attorney who has experience handling lending discrimination or predatory lending claims.
New Jersey Department of Law and Public Safety
Division on Civil Rights
Atlantic City Regional Office
26 S. Pennsylvania Avenue, 3rd Floor
Atlantic City, NJ 08401
Newark Regional Office
31 Clinton Street, 3rd Floor
P.O. Box 46001
Newark, NJ 07102
Camden Regional Office
1 Port Center, 4th Floor
2 Riverside Drive, Suite 402
Camden, NJ 08103
Paterson Regional Office
100 Hamilton Plaza, 8th Floor
Paterson, NJ 07505-2109
Trenton Regional Office
140 East Front Street, 6th Floor
P.O. Box 090
Trenton, NJ 08625-0090
Jersey City Neighborhood Office
Housing Resource Center
574 Newark Avenue
Jersey City, NJ 07306
Walk-in office only
Every Wednesday, 9 a.m.-5 p.m.
This article originally appeared in the November 2003 edition of Looking Out for Your Legal Rights®.