Over the course of your financial journey, you've certainly heard terms such as banker, issuer, lender, creditor and others. While some of these may sound self-explanatory, there is some nuance when it comes to credit and creditors.
In this article, you will learn about:
- What a creditor is
- What a debtor is
- The Fair Debt Collection Practices Act
- The Fair Credit Reporting Act
What is a creditor?
A creditor (sometimes called the "original lender") is an individual or a financial institution that offers you credit. Think of your typical bank — the place you go online or in person to make your credit card payments, pay monthly installments towards loans and more. A creditor can be called a lender or issuer as well if you've been extended a credit card.
A bank can be a creditor when they extend personal loans, business loans, mortgages and other lines of credit. When you take out a credit card through your bank, this bank can also be classified as your creditor.
Creditors can add fees and interest when you borrow money from them, but not all creditors do. Technically, anyone who extends you a loan can be classified as a creditor. So if you borrow money from your friends or family members, they may be seen as an unofficial "creditor" (and perhaps give you interest-free loans).
However, most creditors usually have an agreement (such as a written contract with terms and conditions) with the person or party who is borrowing the money from them.
Examples of creditors
Some examples of creditors include, but are not limited to:
- Banks (including Chase)
- Credit unions
- Credit card issuers
- Mortgage lenders
- You, if you allow a friend to borrow money from you
- Savings and loans institutions
- Brokerage firms
- Online payment companies (like PayPal®)
- Friends or family members who extended a loan to you
- Auto dealerships that offer you a car loan
What is a debtor?
In contrast, a debtor is the person or party that owes the creditor money. For example, you would be a debtor if you took out a loan with your bank. You are "in debt" to the institution or person you've borrowed money from.
You may have more familiarity with the term "borrower" if you've taken out loans from your bank. Generally, if you are in debt to a bank (which would be the "lender"), you would be known as a "borrower" — this is the same as being a debtor.
Who are debtors?
A debtor can be a person, government entity or company. Debtors owe money per an agreement, such as a loan. Examples of debtors include, but are not limited to, people or parties who owe money towards:
- Auto loans
- Personal loans
- Student loans
- Credit cards
If you are a debtor and you're wondering how your financial decisions could be affecting your credit score, enroll in Chase Credit Journey®. This free online tool gives you access to educational resources about what your credit score means, factors that affect it and ways you can adjust your current situation to continue to establish your credit.
What are examples of laws that protect consumer debtors?
The Fair Debt Collection Practices Act, enacted in 1978, is a federal law that prohibits debt collectors from taking certain actions when trying to collect certain debts. It limits certain ways a debt collector can reach out to you. For example, the FDCPA includes limitations on the hours in which a collector can generally call, prohibits collectors from engaging in harassment or misleading practices when communicating, and restricts communications with a debtor who is represented by an attorney.
The Fair Credit Reporting Act (FCRA) also helps to protect you, the consumer. For example, if you find inaccurate information on your report, you have the right to dispute that information. It also helps prohibit those who do not have a permissible purpose under the law from acquiring your credit report. Protect your information from those who should not be seeing your report — only those permitted by law can have access to it.
Monitor your credit score with Credit Journey®
Having debt in your life is normal — we often need to take out loans to pay for important purchases such as cars, homes and engagement rings. However, not paying back your debts can lead to potential consequences, such as late fees, lower credit scores and collection activity.
That's why monitoring your spending and credit is essential when it comes to borrowing money. When you enroll in Credit Journey, you can opt-in for credit monitoring services, which can help you keep track of your credit score and the factors that affect it.