When money’s tight, one tiny, unexpected expense has the power to topple your budget. So, like many people in similar positions, you look into short term personal loans.
Short term personal loans online can act as a failsafe when your normal budgeting and savings aren’t enough. If approved, you may receive the funds you need to take care of business today before paying them back later when you have the cash available.
But before you can see if you’re approved, you have to submit an application with a financial institution. This application shares financial information that determines your creditworthiness, but lenders can only use certain details to make their decision.
What is Creditworthiness and How is it Determined?
Creditworthiness gives a financial institution a good idea of whether you will repay their loan or default. It shows how worthy of credit you are by determining your ability to repay what you owe.
Most lenders make this decision using some (or all) of the following basic financial information:
- Credit score and history
- Income (size of paycheck and frequency)
- Employment history
- Debt-to-income ratio
- Collateral (if borrowing a secured online loan)
The type of online loan you apply for will determine how much of this information will be involved. However, there are some things you should never be expected to share.
9 Things Lenders Can’t Use to Determine Your Creditworthiness
The Equal Credit Opportunity Act has made it illegal for financial institutions to use any of the following information when determining your creditworthiness.
Asking about your ethnicity in an application is illegal. Before the ECOA, banks denied financial services to residents of certain locations based on race in a practice called redlining. Redlining is now outlawed, but it still impacts communities that were once discriminated against.
Your skin color should never be a marker of creditworthiness.
Financial institutions can’t ask about what you believe in or what faith you practice.
4. National Origin
As long as you are a permanent resident or citizen of the United States, your country of origin should never impact your creditworthiness.
Not long ago, women could be denied credit simply for being women. It wasn’t until the ECOA came into effect in 1974 that a woman could get a credit card in her own name without bringing a man to cosign.
6. Martial Status
Single, married, separated, divorced, widowed, or “it’s complicated” — it’s illegal for a financial institution to consider your relationship status.
As long as you’re the age of majority in your state, online direct lenders cannot discriminate against your age. Someone who is 91 years old should have the same opportunities as someone 21 years old.
8. Receipt of Public Assistance Programs
It’s unlawful if a financial institution discriminates against you if some or all of your income comes from public assistance programs, such as:
- Social security and supplemental security income (SSI)
- Unemployment compensation
- Temporary Assistance to Needy Families (TANF)
- Supplement Nutrition Assistance Program (SNAP)
9. Good Faith Exercises
Exercising any right under the ECOA in good faith cannot be counted against you.
Know Your Rights
If you believe you’ve been denied short term personal loans because of any of the above nine details, get in touch with the Federal Trade Commission, the Consumer Financial Protection Bureau, and your state attorney general or state consumer protection office.