Finding credit needs to be approached as if you are trying to find a really good job. Anybody can fire out a dozen resumes around hoping someone calls them back. Fewer people research the type of job they prefer doing and whom they prefer doing it with. These people are better prepared to land a job they want, and where they want. Finding credit for the first time is similar to finding a really good job. It needs to be done smartly, and you need to be prepared.

On occasion, it is very sensible to borrow in advance of a need. This starts to establish a strong credit history because you will pay it back promptly, or could provide the needed cash prior to a financial concern. With this in mind I would like to discuss for easy steps you can carry out and comply with to make your borrowing process go smoothly.

Step One – Complete Your Personal Statement of Affairs (PSOA)

a) This is a snapshot picture of what you owe compared to what you own. If you don’t have credit this will be a simple list to make. When you have credit, be sure to list all your bank loans, credit cards and car payments beside the assets they help finance.

b) if after making this list, you find that the amount of debt is greater than the value of the assets you own, you have what they call a “negative net worth”. If this is true for you, it will grow increasingly difficult to obtain new debt without the value of an asset linked to it to maintain the balance. For example; a loan for a motorcycle may be easier to obtain than an unsecured line of credit, or additional hard security may be required (cash, investments, or collateral mortgage on your property will need to be taken).

c) on the same piece of paper include your monthly living expenses and all forms of income to determine whether you can afford new debt before applying. At the end of the day it doesn’t matter if the bank grants you a new loan or not, if you can’t pay it back. Be sure you can pay before applying. If you’ve decided you’re not likely to get the loan you want to apply for, then don’t apply! Make an appointment with the bank to review your situation. They will either confirm or deny your feelings with by requesting a copy of your credit report from the credit bureau agencies. (Continued)

So your credit application has been declined because of debt servicing. All you need is a cosigner, right? Wrong. Although each case may be reviewed on its own strength, a cosigner by definition is someone who is vouching for you on the assumption you can pay or service the debt on your loan. It is similar to someone putting in a good word for you but not taking responsibility to assist with the financial commitment each month. A cosigner does not mean that because they have great credit and income that you should be approved on those grounds. You, after all, are the one applying for the credit – not the cosigner.

Their income is not considered in the application toward servicing your debt – only your income. So if you don’t have the cash available monthly to service the new loan you are applying for, you likely won’t qualify even with a strong cosigner. Many young people who are desperate for a loan often think that if they have a cosigner with a strong credit rating (such as a financially solid parent) that is all that’s required for success. This couldn’t be further from the truth.

A cosigner adds strength to your application. If in the past you had some mild credit difficulties, i.e., for whatever reason your credit file may show numerous slow / late payments. A cosigner communiques to the lender that you have changed your ways and it’s all bad water under the bridge, and that you are able to meet your commitments going forward. If you are not, the cosigner will pay for you. Understand now that the bank isn’t as much concern about who pays, as long as they are paid. Your cosigner may be requested to obtain independent legal advice (ILA) before the bank will accept their signature in any legal way to your application.

What a Co-Borrower Is

So, what if the bank isn’t comfortable with your application because of more serious issues? Perhaps you started a new job, or have moved around a lot, or simply have no credit, or very poor credit, or very little credit history. Banks may be willing to review your application further with the strength of a co-borrower. A co-borrower agrees with you to share the responsibility of the debt equally. (Continued)