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When we apply for a loan, lenders evaluate our creditworthiness based on a variety of factors. One of these factors is our source of income. However, not all income is treated the same, especially under the Equal Credit Opportunity Act (ECOA).
What is ECOA?
ECOA (Equal Credit Opportunity Act): This is a federal law that prohibits discrimination in any aspect of a credit transaction based on certain factors.
Income that can be disregarded
Under ECOA, there are certain sources of income that a lender may choose not to consider when evaluating a loan application. A clear example of this is the entry “from parents” (income from parents).
Why is this type of income disregarded? In many cases, a parent's income may be considered inconsistent or unstable. The lender can choose not to take that income into account without violating ECOA.
Conclusion
It is essential to understand how our creditworthiness is assessed and what considerations a lender has when doing so. Under ECOA, disregarding income “from parents” is an accepted practice, as it is perceived as a potentially unstable source of income.
