Mistakes in credit files are often the result of information about someone else with a similar name to yours being placed in the wrong file, and of delays, or poor information sent by creditors to the bureau. Having said all of that, creditors are also able to have judgments passed against you, (they sue you in small claims court and get a judgment) which could remain for up to 20 years by your personal credit file.

The credit bureaus and agencies will gladly correct mistakes, but they may also refuse to change your file(s) if the creditor disagrees with the change you want. If this is the case for you, then an opportunity to file a statement of your version of the situation will be taken and placed in your file. The statement may explain that you failed to pay your bills because you were sick or unemployed, or that you were withholding payment to a supplier in dispute over the quality of an item or service. If your poor credit record is well-deserved, then your options are more limited.

Information is generally kept in your file for 6 to 7 years for a bankruptcy. Bank and other lender electronic application process scoring models do not take these situations into consideration. It is very likely that if your situation is similar to the one explained above, your application will score poorly without further proof and discussion in person with a lender.

However, arrangements you have made with creditors to repay your debts can be reflected in your file. A person could request a creditor place a letter of reference and their credit file stating they are now paying bills on time. Do their research for them – do some research yourself. Obtain the necessary letters from creditors regarding errors and keep up-to-date files of your own to back up your story.

Do You Have a Bad Credit History?

There is no quick fix for a bad credit history if it is accurate and well deserved. Only consistent, positive behavior over time can reestablish your credit rating. If a lender is reviewing a poor credit history, they try to establish how long ago it happened, what the reasons were behind the problem, and whether repayment history has stabilized since then. You may be asked to provide evidence the issues have been resolved, or the errors corrected.

Divorce is a common reason for the credit of some people to become destroyed. Many banks understand this to be beyond normal conditions, and see past it. How recent the derogatory information is can still hold you back from getting what you want. If you’re divorce happened two years ago, but since then you have paid all your loans and credit cards on time, you are well on your way to establishing a very positive credit profile.

I believe it’s unlikely that a so-called credit repair firm could do anything more to improve your credit file. Be wary of any individual, or firm, that promises it will fix a bad file if you pay them a fee. It would be too good to be true if they promised the miracle needed to clean up your record and turn you into an A-1 customer. A credit clinic cannot assist a consumer to have accurate and true information removed from a credit file. It is there, and will remain there, for a very good reason.

If you do try to get some help with credit repair I urge you to look at some of the not-for-profit credit counseling agencies. You may still have to provide a small fee but it is limited in most cases, because they just need to cover their expenses as far as employees, administration, and basic overhead. If you have been bankrupt you will simply have to wait six or seven years before your credit file shows no record of it, and you can continue with a clean record going forward.

Most consumers who have claimed bankruptcy for personal reasons are very careful with their credit ratings in the future. Many times these consumers claimed bankruptcy because of marriage and divorce reasons. Many of these people with extremely bad credit ratings, that lead to bankruptcy, were only in trouble because they had joint accounts, and joint credit cards, with spouses that were completely out of control and irresponsible. It’s not fair that your credit score is intrinsically tied to somebody else who is completely off the wall, but unfortunately that is just the way it is. We must be careful who we decide to spend our life with, live with, and get married to.

Continued in the Carol’s Borrowing Series Category of Clf.

It is prudent to tell the truth early on in your discussions with banks, to establish trust in your relationship with them. Revealing all unknowns in your relationship upfront provides continual comfort going forward for financial institutions, referred to as “knowing” their client. Small details, later on at times, can be overlooked when they know you. (There is a great disadvantage to revealing all, which we will discuss later on in this series).

When you are offering your home as collateral security there is a title search performed. If you have lied about not having a mortgage (or bent the truth in any way if that sounds any better to you) it will be discovered and your relationship with the bank will be permanently compromised. You likely will be asked to find another bank for all of your needs. When trust has been compromised, they likely will not do business with you again.

Bnaks are not allowed to share what they know about you to other banks, or lending institutions. Your file is confidential to them, as they report your repayment history to the credit bureaus only. Many people don’t fully understand this, and will complain that the banks act as a collective “big brother” who is watching everyone – this is not true and the only information they share is with the credit bureaus regarding your credit limits and your repayment history.

This means that if you have a poor relationship with one lending institution, they will not be allowed to spread this information and share it with other banks to warn them of a possible high risk client walking through their doors. This also provides a second chance for you to start fresh with a new bank if you’ve had some problems with the one you are dealing with now.

I don’t recommend anyone lie, or distort the facts. That doesn’t do anybody any good. I share these uncommon facts to illustrate that while most banks rely heavily on information your credit report file contains about you, sometimes it works against them through its incompleteness as much as it works against you when the information on your file is false. Though credit report information is weak at times, they are still the only regulated financial repayment history that modern banking systems have to rely on, that is arbitrarily collected from various sources.

The credit bureau was not designed to be a summary of all of your loans, credit cards or bank accounts. It was designed to simply act as a reference for would-be creditors to review what other lenders have experienced with you as their client. Banks still depend on their own ability to encourage you to “spill the beans” on all of the remaining details regarding your financial status, as they can’t review a complete picture solely from the credit agency reports. They need to get behind the information on the credit bureau agencies reports, while discovering the reasons behind the numbers that are only available through you, and what you say about them.

In a sales environment within a bank, it is also likely that they would not perform any extra diligence to search the title of your property to support your comments that you own it clear-in-free. They would simply make a note in your credit application that it was an earlier inheritance gift from your baby boomer parents (or whatever reason you could think of) and it is likely not to receive further attention so long as you don’t attempt to use the real estate as collateral.

Credit Agencies are Evolving in Modern Times

Records from a variety of businesses and their information are gathered by credit agencies. Financial institutions, retailers, and other credit issuers pay fees to belong to a credit bureau. They supply information about consumers as well as consult records of the bureau when considering their own applications for credit.

Credit bureaus such as Experian, Equifax, and TransUnion do not make the decision about whether a consumer receives credit of course. That’s up to the lender. Credit agencies only provide a historical picture, organizing all of the reported repayment history available on individuals, which has been collected over the years. Information can remain up to 20 years depending on what kind of information it is.

Their systems have evolved to include unbiased predictive scores to project a client’s future credit risk, or potential fraud. These predictions are driven by the information their file(s) contains on you. It also considers the number of times your file has been requested by creditors, how often your address has changed, your employment history, and any formal credit collection, judgment, or bankruptcy issues. They do not collect or exchange information regarding criminal records or charges (just in case you were wondering).

As credit bureau systems and filters continue to evolve, lending institutions depend on them more and more when making decisions in their own lending processes. Also, keep in mind that it doesn’t matter what state you live in, or move to. There is only one file with each credit bureau agency that contains your personal information. Any address changes you have made will be immediately be noted on their reports for all lending institutions to see next time you request more credit.

Credit agencies provide information to qualifying companies after being paid their fee. In some states auto insurance companies that request a copy of your credit bureau report to determine if they should raise your premiums or not each year, or even keep you as an insured driver. By doing this they are making the assumption that if you poorly manage your credit rating, something extremely valuable to the health of your financial future, then perhaps you are an irresponsible driver and are at greater risk of causing an accident. If the information was incorrect on your credit report, or out of date, your auto insurance rates could increase because of it. You must remain remain on guard that this type of financial profiling is not detrimental to you.

How to Get a Copy of Your Credit File (Report)

Unless you request your own credit file report and verify each trade line how can you be sure your credit history is accurate? A great question, is it not. Now I would like to speak a little bit about how to get a copy of your credit report from the agencies we have been discussing.

To obtain a copy of your credit file place a call to the primary bureaus or visit their webpage for further information on your file. In some states, your credit file information can be given out over the phone or received by mail. The local bureau’s telephone number is usually listed in the white pages of the telephone book. You will need proper identification and may be required to make your request in writing to assure your file is kept confidential. In most cases a copy of your credit report is available free of charge. If you’re not comfortable understanding how to read the information it contains, call to arrange an appointment by phone to review your credit file with a representative of that bureau. It is important to review and proof the information it contains regularly. This helps prevent people with similar spellings to your name having their credit information mixed in with yours. Believe it or not, this does happen from time to time.

Personally, I would stay away from companies who advertise their services as Internet-based credit report trackings which supposedly monitor your credit rating for you. These services charge a fee for them to access and monitor your credit report for changes. If a change occurs you are notified by e-mail. You are able to monitor your report personally for changes any time you want during the period of time you have paid for through their website.

I prefer to call the credit agencies myself, and monitor from the source. This way, I’m not completing personal information on the web site of a service provider I know nothing about. It would be hard to prove if these are legitimate companies. Inaccurate information collected from creditors will not be corrected on your file until you initiate the investigation – that is something you need to understand – fully and completely.

Continued in the Carol’s Borrowing Series Category of Clf.

Every credit card, loan, line of credit, or lease you have ever had is recorded on a Trade Line of your credit bureau report. Each trade line has a repayment summary which calculates the number of times your payments were late (30, 60 and 90 days), the amount of the authorized limit (or your credit limit on your cards), their balances and monthly minimum payments as well as an overall credit rating for that lending product. It also reveals if bankruptcy was ever filed for, and so on.

From this report lenders are able to verify the loans you tell them about that are with other banks. As mentioned earlier there are also items that don’t show up on your credit bureau report that you might think should be there such as cable and telephone companies. These companies do however, keep records, so be cautious before withholding payment. If you are disputing a charge or refuse to pay, the amount may appear as a collection item on your credit file, which is seen by all bankers that pull a copy of your report.

Most banks don’t report overdraft credit facility on your regular checking and savings accounts either. So even though you have access to an overdraft, lenders most often can’t confirm this from your report alone. You need to tell them the name of each bank where you have an overdraft.

Keep in mind you will be asked to answer a question relating to other loans or additional credit not reported in an effort to gain full disclosure from you about your financial affairs. It is looked upon with favor when everything is disclosed. If they discover you withheld important details purposely, they begin to lose confidence in you as a client (perhaps flag you for possibly committing fraud) and the application process becomes much more difficult as you go along now and in the future with this bank.

Your credit rating is likely the single most influential factor in the lending process over which you actually have a large degree of control. I know that most people believe it to be the other way around and that their fate is intrinsically tied to these mysterious bureaus of financial data. It is the cumulative result of your borrowing decisions and past history of debt repayment, reflecting the degree of responsibility you have placed on your commitments. A credit file is a portrait of a consumer’s financial history with virtually every blemished exposed. Your credit rating is yours and yours alone, and must be guarded as the valuable commodity that it is.

Credit nowadays is a necessity, carrying with it the shadow of your past behavior. It is a necessary tool when trying to get a cell phone activated, new loan advanced, credit increased, car rented, flights books, or hotel rooms reserved, so it should be monitored closely.

10 Tips to Avoid Identity Theft

Now is a good time to discuss a growing and widespread fraud that is affecting many individuals personal security and destroying their credit reputation. Be aware that it could impact your life and your credit one day, and guard against it. It’s called “identity theft”.

This kind of fraud involves someone changing your mailing address to receive the credit card applications you normally receive in the mail. Once they have these mailings, they are able (over time with the following specific steps) to pretend they are you. With a credit card in their hands with your name on it, they can do many things, including destroying your credit rating in the process. If any statements stop arriving in your snail mail box, look into it right away!

Some people have experienced this type of identity theft so harshly that they have had to change their names to start a new credit history. Do not become naïve about crooked people out there who chose to earn a living stealing other people’s identity. They are using your stolen credit rating for the purpose of maximizing borrowing to the hilt, and then leaving you to deal with the problem (or bankruptcy).

Be very aware that you must closely inspect every line of all your monthly statements and that they arrive on time each month, or be suspicious. I recently learned of an unfortunate experience an individual had when they lost (or had stolen) their wallet. This US attorney experienced first hand how swiftly identity thieves actually are able to infiltrate personal information, obtain credit, and an identity. Within a week, the thieves ordered an expensive monthly cell phone package, applied for a visa credit card, and had a credit line approved to purchase a Sony computer, received a pin number from the Department of Motor Vehicles (DMV) to change his driving record information online, and much more.

10 Protective Measures Against Identity Theft

Here are 10 protective measures you can take to help secure your personal identity, and information, from these types of ruthless criminals.

1) The next time you order checks have only your initials, not your first and middle name, put on them. If someone steals your checkbook they will not know if you sign your checks with just your initials or your first name, but your bank will. Put your work phone number on your checks (not your home phone number) to further secure your personal life from someone using a reverse phone directory (a phonebook which is organized by phone numbers, and not last names) to learn your address. If you have a P.O. Box number, use it instead of your home address. Never have your social insurance number (SIN) printed on your checks.

2) Photocopy all the contents of your wallet, and keep this record in a safe place. If your wallet is ever stolen you will know exactly what was in it, including all your card and account numbers. Include a photocopy of your passport to this file for when you travel. Keep this file in a very safe place in your home, or safety deposit box at your bank.

3) Keep a list of all the phone numbers needed to call each card company in the event you need to call them to cancel their card. It is a common error that most people make, then find themselves fumbling through phonebooks and 1-800 numbers to cancel credit cards where they also have not kept a record of contact numbers, and account numbers. The sooner you cancel your cards the less time these theives have to drill into your personal affairs. Request your replacement card(s) be sent to your bank branch for your pickup. Don’t have them mailed.

4) If you experience missing statements in your mail, visit the post office outlet that services your community to ensure your address has not been forwarded to somewhere else without your knowledge. If it has been, notify the authorities immediately.

5) Try canceling your credit cards once a year and have a replacement card issued to you. This will prevent old credit card information from being used by thieves, or protect you from a thief who already has your credit card information but hasn’t used it yet. I know this sounds extreme but if you take extra steps like this, it’s very difficult for thieves and identity theft criminals to ever take advantage of you.

6) Make sure you file a Police report immediately in the community where your wallet was lost or stolen. This proves to credit providers you were diligent and is the first step toward an investigation should one be launched.

7) Call the main credit bureaus in your country (i.e., Trans Union, Experian, and Equifax) to have a fraud alert placed on your credit Bureau report. The alert means any company checking your credit Bureau report knows your information was stolen and they have to contact you personally to authorize any new credit. This prevents the identity thief from completing online credit applications in your name, as the adjudicator reviewing the application would review your credit report as part of their process and observe the alert. This step alone could save your identity, and stop the thieves in their tracks.

Change your pin and passwords regularly. Try to stay away from using numbers that a thief could easily try that they found in your wallet, i.e., your social insurance number, or birth date. If possible, incorporate combinations of letters and numbers into your passwords, especially for Internet banking. Identity thieves have also been known to transfer entire bank balances to other accounts, withdraw the cash, and then close the account to avoid detection. Don’t keep a copy of your pins or passwords in your wallet or purse – ever!

9) Buy a personal office paper shredder. They are not expensive and in your humble narrator’s opinion are necessary personal devices. Any document that contains personal information should be shredded before you throw it into the trash. This includes utility bills, bank statements, and other invoices you don’t retain your files. Identity thieves are not below stealing your trash if you put it out the night before. They may even steal it in broad daylight. Don’t make their job easy, because these bottom feeding dirt bags will go to any length to steal your identity. I remember back in the 1970s when my parents would do their tax return every year by themselves to save money, and they were burning all of their garbage that had any of their personal information written on it. They were way ahead of the curve on the identity theft problems.

Another thing you can do, if you have a fireplace, or firepit, you can go one step better by burning any papers that have your personal information on them. This is the ultimate “in your face” to identity thieves.

10) When you travel anywhere away from home (and this includes locally when you go shopping etc.) keep your credit cards and debit cards in different places and it’s a great idea to have a credit card with a very low limit on it when you are out and about. Always use the safe services in Hotel Rooms when you can, and hide all your important cards, and passports, etc., from the hotel staff (chamber maids and the like) when you are out of the room. I know it sounds ugly to suspect good and decent hard working people, but when it comes to identity theft and strangers you can’t be too careful. Don’t leave important cards and information in your car for passersby to see. If you can avoid it, don’t leave any credit cards, passports, and debit cards in your car at all. I have one credit card just for traveling, and hide my high credit cards at home in a safety deposit box, or a safe inside the house. A very big and heavy safe.

Continued in the Carol’s Borrowing Series Category of Clf.

The lenders who have a direct data connection with the 3 main credit bureaus will use their software to find out exactly how your credit rating stacks up against their lending criteria. The banks can set their software to so that you are approved based on varying degrees of credit worthiness. Since the great recession of 2008 to present time (early 2010 at the time of this writing) most banks have adjusted their lending data and software applications to accept less and less applicants. This is bad news for borrowers who have bad credit ratings, or LOW FICO scores. There are a few options though.

If you really want to get approved for a loan in 2010 and you have a very bad credit rating, you will need a co-borrower, and not to be confused with a co-signer – these are two entirely different terms and mean two entirely different things. A co-signer is just backing you up as someone will be responsible to pay back the loan if you default on the payments. It’s a simple trust matter. A co-borrower is actually on the application and their bank account numbers are attached to the loan – meaning that if you don’t make a payment, the funds will be paid from the co-borrower’s account(s). Basically, you and the co-borrower have taken out the loan together.

If you really want to get approved for a bad credit loan you have to give the lender an air-tight, solid form of security. Nothing less will do in these days of skittish bankers and lending institutions. I’m not seeing this change in 2010 and on to 2015. The banks have learned some hard lessons at the community level because of their direct attachment to the huge failing banks in the United States.

If you want to get approved for a bad credit loan in the near future, you will have to find a local community bank and make sure you have 100% security for the loan. This can be very difficult if you have a seriously damaged credit rating, or you are unemployed. Without a job you are not likely to get approved at all, or even “looked at” by a loan officer. They can’t approve any kind of loan unless you can prove a stable employment history. If you have been employed steady with the same employer for over 5 years, and you have lived in the same address for over 5 years, you have a better chance of getting approved. It used to be the magic number for lenders was two years employment with the same employer, and two years living at the same address – that has all changed now – and I would have to say this is a change for the better.

The fact is that the lender is NOT helping you out when they approve a loan you can’t really pay back. They are doing nobody a service (you or them) when they approve high risk persona loans. They need to tighten their belts now to try and get back on track. The lenders if today and into the next decade are going to be much more conservative. Even if they try and charge crazy high interest rates (APR), they are still going to lose if they approve extreme high risk financing. If the borrower (perhaps you) default on their payments soon after getting the loan, and skip town, the bank is still out even if they charge extremely high APR. The banks used to think that they would recoup all loses if they just over-charged all of the other borrowers on the books at high APR. That presumption is no longer valid. Most conventional lenders can’t take that chance any more, no matter how high the interest rates are on the note.

Where this all goes in 2010 and beyond is any-body’s guess, but my guess is that getting credit when you have bad credit is going to get tougher and tougher and tougher. If you have been bankrupt due to a divorce, a bad business decision, or simple over-extension of your personal finances, you will have to find a good friend or family member to act as a co-borrower. This is likely going to be the case for some time.

The entire lending apparatus is currently being changed so that is more difficult to get an reasonable installment loan over time, and with a high FICO score on your record. I believe we are going to see a complete overhaul of the personal lending apparatus in the next 20 years. The credit bureaus are going to be revamping their software applications and they will be talking to the lender’s computers in a different way. Borrowing money is going to be completely different in the future. It will likely be more akin to the Canadian banking system, whereby the borrower has to a very solid low-risk borrower before any monies are dispursed. The United States will no longer be able to play high risk casino style games in their borrowing practices.

Even if there is no regulation from the State and Federal level, the big and small banks are going to have to incorporate their own in-house regulations (lending value points) to protect themselves and their shareholders from future financial ruin.

A more blunt way to put it is that the banks have to smarten up and the borrowers have to smarten up – and quickly, or we will see more financial bubbles growing and bursting at a more rapid pace.

For many reasons this is no longer widely accepted, and I would be surprised if hundreds of major American banks still advertise and promote this type of product. I know there are some banks that do supply and provide a 100% secured credit card, but there isn’t a large profit margin in this kind of financial product.

Student credit cards are sometimes easier to get, as it is understood this age group is attempting to establish their initial credit. If you are a student, I recommend you apply for this type of credit to help establish your credit history early on. If you are not a student, unfortunately you won’t qualify.

For most people it is easier to obtain credit from a department store, or retail outlet your first time, versus applying with your bank. Buying a piece of furniture from one of the stores that doesn’t need to be paid for a year is a good way to establishing credit. Though this type of buying can be expensive, it is an easier credit the most obtain. Financing for these promotions will usually be at higher interest rates than banks, and carry penalty charges should you not meet your commitments and make your payments on time. You are in effect establishing a good credit reference by using this type of financing so the next time someone looks at your credit file they will be able to see your furniture debt paid in full.

Your phone, cable, and general utility bills will likely not appear on your credit bureau record. The only time (presently) these trade lines will appear on your report is when you don’t pay them and they go to collection. They currently are not members of the credit bureaus and therefore don’t publicly report your account information. This tells us unfortunately, that even though you may be meeting your commitments with these services, there is no way to improve your credit score because of it. To your benefit, it also does not reveal if you pay them slowly (take 30 or more days to pay your bills).

You will need to obtain some other form of credit to actually have it reported on the credit agency databases. Telling a lender that you have an excellent repayment history with the phone, cable or utility provider means nothing to them. It is expected, or you would not have the privilege of these services (the supplier would have cut your services off if you hadn’t made your monthly payments).

A gas, or major department store credit card is also easier than most others to obtain due to their low starting limits of about $500. (Banks don’t usually provide credit cards with limits lower than $1000). You will be putting up with a larger interest rate for the privilege of receiving a credit card to help establish yourself in the financial industry. Once your credit is established (at least one to two years) it’s a good idea to close the department store and gas cards after replacing them with a conventional bank’s lower interest credit card (examples: Visa, MasterCard, or American Express) – it’s entirely up to you – it’s your call.

Continued in the Carol’s Borrowing Series Category of Clf.

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.

d) banks usually provide options and actions you can take to better position yourself for the next time you apply. Write down all of their advice, read it back to them to establish a commitment from them that if you followed their direction, they would quite likely be interested in lending to you later. When in agreement, this list becomes a check list for you on what the bank needs to see in order to lend to you.

e) take time on this step to determine how you present yourself and sell your strengths (savings, assets, stable employment and address for more than a year or two) in a snapshot.

Step Two – Review Your Budget

a) once your personal statement of affairs has been completed, review your monthly budget against it to ensure you are able to meet the commitments you already have before taking on a new one. If you can’t afford a new loan payment, rethink your options before going to the bank. Any time they see a possible borrower come into their offices and ask for money when they are definitely not capable of being approved, it shows poor judgment and that you are a shaky borrower. Never forget home important first impressions are.

Step Three – Review Your Personal Credit Agency Report(s)

a) it is important to review your credit rating before you apply for any credit. Call the credit agencies for a free copy of your report. If you are not sure how to read it, call them for assistance. Try to completely understand the very document you’re attempting to build for your financial needs. Today, all you may need is a $5000 loan, but if you’re not focused on building strength in your credit rating what about later? What about your first car – what about your first home?

b) if there is derogatory information on your credit file that is in yours, call the credit bureau(s) and ask how to remove it. Get a letter from the company that reported the items stating it was reported in error. You will need this letter as an attachment when submitting your credit application.

Step Four – Prove Your Income

a) you will need to prove your income in any application for credit. Banks will ask for proof in the form of a recent employment tax slip, paycheck stub and / or employment letter, recent notice of assessment, and possibly a copy of your last tax return, depending whether or not you are self-employed or have an extra income supplementing your employment income.

b) I recommend having all of these available for your client interview. This is a very basic 4 step checklist you can carry out before you even walk into a bank. You will be in a much better position to be treated seriously, with dignity, and with respect. Hell, you might even get approved.

Continued in the Carol’s Borrowing Series Category of Clf.

Well, it really isn’t that simple as it depends on how much of your cash income goes towards covering principal and interest (P&I) payments each month. Mortgage and housing financial entities define gross debt servicing (GDS) and total debt servicing (TDS) ratios and provides acceptable levels in all of their outlines and guidelines for lending criteria. We’re assuming that we are talking about a legitimate and sound banking institution with acceptable ethical practices and procedures in place. We are not talking about these derivative swap morons and leveraging idiots we have come to know so well in 2008 and 2009. I am talking about REAL bankers and REAL professionals.

What Is Your GDS Ratio?

The borrower should not commit more than 32% of their gross household income toward the payment of the principal + interest + property taxes + heat and utilities. (For condominiums, this formula can also include 50% of condominium fees. For Chattel Loans / Mortgages, it must include site rent).

What Is Your TDS Ratio?

Successfully Approved for the Loan!!!

The borrower should not commit more than 40% of their gross household income toward housing obligations and all other debts. (total principal and interest payments + payments on all other debts X 100).

Self-employed individuals may find it a challenge when borrowing funds as they usually position their lifestyle around their business expenses. This reduces the amount of income they report to the IRS and the tax they are required to pay. Although this is a good way to reduce taxable income, it adversely affects GDS and TDS ratios. In most cases self-employed people need to review their tax returns with the lender when applying for credit. Usually they are able to add items back into income that were declared expenses such as: depreciation, amortization, capital cost allowance is, interest, and one-time expenses to name a few. It is most likely lenders will only add back depreciation, and authorization and capital cost allowance in when lending to a sole owner using their tax return as evidence of income. If they need to add back many small items in order to prove GDS and TDS your request may be reviewed as being too risky and declined out right.

It is also important to note that most lenders will require you to be in business at least three years before using your self-employed income to service debt. Banks like to review historical information to establish likely trends. By reviewing three years of tax returns they are able to establish the direction in which you’re headed, and the average income likely to continue through the full-life term of the new loan for which you are currently applying.

If you are a self-employed sole proprietor (owner), consider carefully your tax structure and planning to include the necessary income required for personal and business debt combined. Also consider immediate and future needs to establish a historical ability to service future needs. This room can be found not only in net earnings, but also in draws, depreciation, amortization, and additional forms of receivables.

It is a good idea to have a meeting with your accountant and banker to review your three-year plan. Know now what you want to own in the near and distant future, and position your financial affairs to service that debt. Meeting with your accountant and banker helps add clarity to what everybody needs to do to help you reach your goals. We will be discussing this much further later in my series.

Let’s Discuss Equity Lending Shall We

Even though you may only be requesting to borrow approximately 50% of the value of an asset you intend to purchase, that doesn’t mean a bank will automatically finance the balance for you. Lending in this respect is referred to as Equity Lending (an EL), or lending against the value of an asset.

Financing such as Equity Lending reflects a strategy that if you don’t meet your commitments the lender will own the asset, then sell it to recover the money owned by the borrower (such as a foreclosure). This ensures that you have money invested in the asset as well, and likely don’t want to lose the equity you’ve built up and will be more willing to pay as agreed and avoid foreclosure. In true essence, the bank is your financial backing partner.

Equity Lending is commonly seen when financing mortgages, or lending to a business. At the end of the day, despite how small your loan may be compared to the value of the asset, cash is the only thing that repays debt. If you can’t prove that you have the necessary amount of cash to meet regular monthly payments you won’t get your loan or mortgage approved. Even if all you need is $5000 financing on a $1 million asset. Of course this is never likely to happen and would likely never ever occur within the financial industry, but it makes a point in which many people seem to have misinformation on.

Continued in the Carol’s Borrowing Series Category of Clf.

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.

Usually an account is set up in joint names of all the borrowers on the note from where the payment is to be taken. In the possible event of a nonpayment, the creditor can request full payment from all borrowers involved (also known as a joint and several guarantee). Each borrower and co-borrower’s income is taken into consideration to service debt, and adds much more strength to your application than simply having a willing cosigner. This is common for car purchases and mortgages. Banks usually like to ensure they have a backdoor should something turn wrong after the money has been loaned. In this case, the backdoor would be that the full payment could be demanded from any borrower on file, instead of the bank chasing down all borrowers for an equal portion of one guarantee.

So if you are ever in a position where you need a cosigner and you are requesting a cosigner from a family member, a friend, or a coworker (which I hope you never have to do), make sure that they understand that their credit rating is not on the line if you were to ever default on your loan payment. A cosigner is nothing more than somebody giving you a good word on your character.

Whenever someone is asked to be a cosigner the first thing they usually think is that they will be liable for any payments that are missed. This is not true. They are mistaking a cosigner for a co-borrower. Usually if you go to a bank with a cosigner in tow, the bank will try to convince you and the cosigner that they should become a co-borrower instead. Of course the bank is going to try to do this, but try to get your loan without a co-borrower status on your friend or family member.

In saying all of this, I want to stress the importance of not using a cosigner or co-borrower at all. Sometimes it is obviously necessary to use a cosigner or a co-borrower, but it should only be a last ditch attempt – a last resort.

Continued in the Carol’s Borrowing Series Category of Clf.

We will be providing different information from various writers and authors around the world who talk about such matters as raising cash quickly. There will be some obvious different areas of discussion involving quick cash, such as evaluating your need, cash flow and budgeting, raising quick cash, asking for money, borrowing money, selling items and assets that you have, earning more money, finding more money, making the right decisions, and quick cash cautions to be aware of – such as payday loans, scams, car title loans, loan sharks, and pawn shops.

This will be allot of fun writing and researching this material. Keep in mind that some of the quotes we will be using are from books discussing the same topics, and that we will be vigilant in making sure our material is somewhat original. We have various different editors and authors here at CLF, so we can’t always guarantee our ideas are not listed. If you do happen to see some material that you have read a book somewhere, please bring it to our attention by e-mailing us.