loan speed bumps
You've got a job and never missed a credit card
payment. Yet, when you applied for a loan, you didn't get the lowest
interest rate. In fact, one prospective lender rejected your application.
In most cases, people who are denied credit have fallen
afoul of FICO. This is the name given your credit
score; it comes from Fair Isaac Corporation, the California
company that developed the rating system. Loan officers use FICO
scores to help determine who might or might not make a good loan
But occasionally, a lender can view someone with a
decent credit score as a risk. That's because lenders look at other
factors. Some of these issues are considered in developing your
FICO score, but your loan officer may review them again independently
when considering your application.
It's these loan speed bumps, as Fred Siegel, president
of the New Orleans investment firm Siegel Group Inc., calls them,
that can put a brake on a loan even when a credit score alone doesn't
disqualify a loan candidate.
Here are some of the bumps and how you can detour
around them to reach your financial destination.
Always on the move
People who frequently relocate could find they get looked at
a bit longer and harder when it comes to credit. Frequent moves
could indicate financial instability. Maybe you're moving to avoid
paying rent or because you can't hold a job.
But, in fact, those moves could be a good thing for
you and your potential lender. If your company relocated you and
each move involved a promotion and bigger salary, that means you
could qualify for a larger mortgage. Make sure your lender knows
your complete relocation story.
You'll lose lender points if you've frequently changed jobs.
Quitting the corporate life to go out on your own can be even more
problematic. Lenders want assurance that you can repay a loan and
that job changes don't result in a lower -- or no -- salary.
Smooth over this speed bump by giving the lending
institution additional information about your career moves. Explain
that while you've only been in business for a year, you actually
have 20 years' experience in your field. Or, if you've switched
fields, explain why your salary won't suffer.
Incorrect creditor complaints
If a company has complained about you, it'll show up in your
credit bureau report and be reflected in your FICO score. But if
the complaint wasn't justified or you can offer a credible explanation,
you might be able to convince the lender that you deserve the loan.
(Of course, you'll want to send this explanation to the credit reporting
offices, too, so it will become part of your record.)
For example, say you were caught
in a dispute between your medical insurance company and your
doctor. Because your insurer was slow in paying for your treatment,
your doctor turned the bill over to a collection agency. Guess who
the collector came looking for and whose credit reputation is now
suffering? If you explain the situation to the lender, your loan
request may get another chance.
Or maybe you thought that disputed charge on your
store charge account was cleared up. The store took it off your
bill and you subsequently charged other items there without a problem.
Unfortunately, that satisfactory resolution wasn't reported to credit
Avoid unexpected credit surprises by checking your
credit report at least once a year and clearing up any real or explainable
problems as soon as you discover them.
Too much credit already
If you have a fistful of credit card accounts, your loan could
be derailed, even if the accounts are paid up or you have them simply
in case of an emergency. That's because the lender looks at how
much debt you could rack up, and this includes the maximum debt
limit available on all those accounts.
The route around this speed bump is to minimize your
card accounts. If you switch card companies to take advantage of
a zero-percent interest card offer, close another one. Experts suggest,
however, that you keep the card that you've had the longest because
it demonstrates a long-term credit history.
Hey, big spender
People who are living too large generally aren't what lenders
look for. A consumer who's been on a spending spree, buying a car
and boat and then applying for a mortgage, may find himself shut
out of a loan. It's that total-debt-load consideration again.
It depends on the type of loan and how much money
you've put down, but, in general, if more than 38 percent of your
salary is going to payments, that's enough to trigger a red flag
to a potential lender, Siegel says. One solution is to pay down
your debt before applying for a big loan.
And if you just can't resist making large purchases,
try to space them out over a matter of years, not months.
"Hold out on buying the boat until after you
get your mortgage," says Siegel, author of "Investing
for Cowards" and "The Richest Man in Babylon Today."
Not telling the whole truth
Yes, you do need to answer all questions, cross all the t's
and dot all the i's. An incomplete loan application is just waiting
for the "denied" stamp from your banker. Even worse is
one that contains wrong information. The lender will check.
"Not providing required information in a timely
manner and the inability to verify information that must be confirmed
are the two major issues I see that can slow down or stymie a loan,"
says Janette Davis, senior executive vice president of the community
banking division of Florida-based BankUnited.
The key to getting around most of these loan roadblocks
is working with your lender. If a loan is denied, make sure you
Siegel recommends that you send a letter explaining
how perceived problems shouldn't automatically take you out of loan
consideration. Spelling out the issues, rather than letting your
lender read between the lines, could make the difference in whether
or not you get the money.
Jenny C. McCune is a contributing
editor based in Montana.