Getting a loan from a creditor can be difficult. Getting the paperwork in is just the beginning of the process. Below are fives things that all potential creditors do before they make a decision about lending money.
Lenders always check your credit. According to Dave Ramsey, a credit score is exclusively a measure of borrowed money that was paid back on time. If a creditor gives you money, they want to make sure they are getting it back, and your past performance is one indicator of that. They will usually pull your credit from at least one of the three major credit bureaus. Every company has its own system of determining how the scores are weighted, so no two lenders are really alike when it comes to how credit impacts your future. Either way, you need to know what your score is and how accurate it is before you apply for a loan.
FICO scores aren’t everything. While more and more lenders are getting lazier and looking only at a credit score, according to SFGate, most lending companies will check to make sure you are employed and receiving regular income before making any decisions. In most cases, this might be as simple as making a quick phone call to your place of work. In others, they will simply verify that your last pay stubs were actually legitimate. This is usually a very perfunctory check, but one that is still important to the overall process.
According to JD Palentine, landlords, employers, and many creditors are also very diligent about checking your references. They know that these are the people they can call if you disappear, so they’ll do what they can to get in contact with them early on. Your employer is a common reference, but some lenders also want a character reference. These conversations are often very short but also very informative.
Creditors also tend to check to see if you have a pre-existing relationship with their company or one of their subsidiaries. In many cases, lenders try to avoid lending too much to any one person. You might have great credit, but a creditor will often avoid lending to you if you already have an outstanding balance.
Sending it Up the Chain
The creditor will ultimately send your paperwork up to its corporate office to determine whether or not to give you a loan. While you might have a great conversation with a local lender, it’s a corporate underwriter who will have the final say in what happens with your potential loan.
Remember, creditors always do their due diligence to make sure they’ll make a profit on your loan. If they can’t get the information they need, it’s sure that you present too much of a risk to work with. Once they gather everything they need, though, they can make a reasonable lending decision. If you want to understand and repair your credit, consider investing in yourself with our Credit 101 Workshop! You are guaranteed to come away with an actionable strategy to improve your credit immediately.