Getting a Loan - The Homer Fund

More documents

Recommendations

Info

SELF-ASSESSMENT 41. To complete a loan application, you will need to provide (check all that apply):❏ a. the loan purpose.❏ b. your name and Social Security number.❏ c. copies of your income tax returns for the last two years.How did you do?: 1.a,b,cStudy ObjectivesUnderline/highlight theanswers to these questionsas you read:1. What is the purpose ofthe credit interview?2. What is credit scoring?3. What are commonreasons for credit denials?4. What are some ways towork toward getting aloan?Credit InterviewAfter you complete a loan application, you will go through aninterview with a loan officer. It is the loan officer’s job to reviewthe loan application with you and be sure that it is complete. Theloan officer will probably ask you some specific questions aboutyour loan request. For example, the officer will want to knowhow you will use the money. It is the loan officer’s responsibilityto establish that the loan will be used for a legal purpose. Becooperative and provide all of the information requested.Credit ScoringMany lenders use computer models to evaluate loan applications and give them a creditscore. A credit score is used to predict how likely an individual is to repay a new loanbased on the financial institution’s experience with millions of consumers. There aremany different computer models used to calculate a credit score. In general, however,the computer model assigns points to information in a credit report. For example, makingpayments on time every month is a positive credit score. Regularly charging themaximum amount available on a credit card is negative. The computer adds the positiveand negative points, and the resulting number is a credit score. Each lender decideswhat credit score range it considers to be a good or poor risk.16Creditors use credit scoring because it is a fast, objective way to evaluate a credit report.Credit scoring also protects you. This is because your age, health, race, religion, gender,national origin, marital status, income, and employment are not considered in determiningyour credit score.
If a lender has turned you down for a loan because of a poor credit score, you should:• Request a written explanation from the lender. Law requires the lender to explainthe reason for the denial.• Make a plan to address the issues.Also, remember that the lender, not a credit score, makes the final decision to approve a loanapplication. A credit score is simply a tool used by the lender. The lender may take intoconsideration any special reasons for your past credit problems. In addition, the lender will lookat more than just your credit score—such as your equity investment in a home, job history,income, savings, and the type of loan you are requesting—before making a decision.Credit DenialsSometimes credit applications are not approved. Some common reasons that loanapplications are denied are:• Poor credit history: Lenders review an applicant’s credit history to evaluate his or herrecord of paying bills on time. A credit history is seen as a good indicator of whethersomeone will repay a loan. Take the time to review your credit report and correct anymistakes.• Too many open credit cards: Credit cards may be viewed as opportunities for theapplicant to acquire additional debt. If the account stays open, the lender considers thecredit available to the applicant. Discuss with a lender whether closing out old credit cardswill positively affect your credit application.• Too much debt: Lenders compare the applicant’s debt and income. If a lender feelsthat an applicant is carrying too much debt relative to income, the lender is not likely tomake a loan and add to the applicant’s debt burden. Pay off some debt.• Employment history: To a lender, steady employment signifies an income stream torepay a loan. Stay in your job or a job in a similar field for at least two years.• Loan request is too high: An applicant’s financial situationdetermines the size of the loan that will be approved. If anapplicant requests more than this amount, the application will bedenied. Discuss an appropriate loan size with your lender.• Too many credit report inquiries: There are two types of creditinquiries. Promotional or “uninvited inquiries” are a result of creditorspurchasing your name from a credit bureau because you fit a desiredprofile for their product. When the creditor sends you a promotional offer, a“promotional inquiry” is placed on your credit report. Other inquiries resultwhen you express interest in using credit for a purchase. Lenders look at thenumber of this second type of inquiry on your credit report within a six-monthperiod. Too many inquiries signify that an applicant may be trying to get credit from anumber of places. Lenders worry that people are either denying the applicant credit or the17
Page 13: Evaluating a Loan Application Exerc
Page 16 and 17: Study ObjectivesUnderline/highlight
Page 20 and 21: applicant is amassing credit from a
Page 22 and 23: Loan Rates, Terms, and FeesStudy Ob
Page 24 and 25: Payment Factor TableYou can calcula
Page 26 and 27: Personally Evaluating the Deal Exer
Page 28 and 29: Study ObjectivesUnderline/highlight
Page 30 and 31: InsuranceWhen you take out a loan t
Page 32 and 33: SELF-ASSESSMENT 81. What type of in
Page 34 and 35: Knowledge Review32To review the con
Page 36 and 37: Juan is applying for a $1,000 loan
Page 38 and 39: Personally Evaluating the Deal Exer
Page 40 and 41: GlossaryAccount statement - This is
Page 42 and 43: Forgery - When a person purposefull
Page 44: 42Notes
Page 48: 4000 Wisconsin Avenue, NWNorth Towe

Getting a Loan - The Homer Fund

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?