What Is a Credit Agreement?

A credit agreement is a contract between a lender and a borrower that outlines the terms of an installment loan such as a mortgage or car loan, or a revolving account such as a credit card. It describes your responsibilities as the account holder; explains interest charges, fees, and payment due dates; spells out procedures for resolving disputes related to the account; and may establish a variety of other terms that govern your relationship with the lender.

Do I Need to Sign a Credit Agreement?

Yes, you need to sign a credit agreement for it to be valid. Before you receive a loan or can activate and use a credit card or other revolving credit, both you and the credit issuer must sign the credit agreement to indicate the terms are acceptable.

In the case of mortgages, car loans, and retail financing agreements, you typically sign on a hard copy or electronic screen to indicate acceptance of the credit agreement. With a credit card, your signature on a credit application binds you to the terms of the credit agreement if your application is accepted.

Are Credit Agreements Legally Binding?

Yes, credit agreements are formal contracts and signing one legally obligates you to meet its terms. Violation of those terms can give the lender recourse to file suit against you, seize collateral on secured credit such as mortgages and car loans, and have liens placed against your property.

Can the Terms of a Credit Agreement Change?

The terms of a credit agreement, much like the terms of any other legal contract, can be changed by mutual agreement between the parties, via processes known as loan modifications or amendments to the credit agreement.

One potential cause of credit agreement modification is a borrower’s request for relief in the face of unaffordable payments. Lenders are under no obligation to honor requests to modify a credit agreement, but they may:

• Offer a temporary reduction or suspension of payments known as loan forbearance, which does not alter the credit agreement.
• Make a permanent change to the credit agreement that lowers the monthly payment—perhaps by reducing the interest rate and/or extending the number of required payments on the loan.

Credit Card Term Changes

Credit agreements for most credit cards also allow for the card issuer to modify or amend the terms of the agreement itself anytime, without the borrower’s consent, provided they give advance notice in writing.

When changes in contract terms can cost you money, such as hikes in fees or interest charges, the issuer must give you 45 days’ advance notice. They also must notify you of changes that don’t affect costs, such as adjustments to bonus programs, but those changes aren’t subject to the 45-day notice requirement.

You have the right to opt out of any change to a credit card agreement—but if you do so, the issuer may close your account. Closure of an account under these circumstances may be noted on your credit report but has no direct negative effect on your credit scores.

Loss of a credit card account reduces your total available credit, however. And if you have other credit cards with outstanding balances, it will raise your credit utilization rate, which can have negative effects on credit scores.

The Bottom Line

As the fine print that comes with any loan or revolving credit account, credit agreements can make for challenging reading. Nevertheless, it’s prudent to review them before you borrow any funds. A credit agreement is a legal pact between you and your lender, and you should be familiar with its requirements, because violating them can bring penalties and legal liability.

If you’re shopping for a new loan or credit card, checking your credit score for free from Experian can help you understand how lenders will view your application and, in turn, how favorable the borrowing terms you are likely to receive.

Contact O1ne Mortgage for Expert Mortgage Services

At O1ne Mortgage, we understand the complexities of credit agreements and are here to help you navigate through them. Whether you’re looking for a new mortgage or need advice on your current loan, our team of experts is ready to assist you. Call us today at 213-732-3074 for any mortgage service needs. Let us help you make informed financial decisions and secure the best terms for your loans.