Credit is a privilege, not a right. It’s something that needs to be earned – like respect. Don’t expect to receive it without qualifying why you are eligible. Simply having a good story and a bank account does not advance your opportunity for success, or getting the lowest rate.
To understand how to get a good hearing by a lender, you need to understand what they are listening for when you make your case for a loan. As you are telling your story (why you need a loan), they are listening for particular comments around key areas of risk they need to satisfy. The risk is in lending to you, which considers your employment, address and marital stability (marital so far as if you have child support payments to make, or if you’re splitting assets up that reduce your personal net worth), the amount of debt you carry, your net worth and your future plans or goals. Also, if you haven’t heard it enough already, they are listening for any indication as to the quality of your credit report before they spend the bank’s money to purchase a copy for themselves.
So what does this mean to you? Everything! The client interview is your first point of contact to begin hearing their language, and I urge you to have it become yours. We’ll call the language that bankers speak, “Sales Risk Assessment”.
Have you heard the saying KISS? That is an acronym that means, Keep It Simple Stupid, and to a borrower it means,”say only what needs to be said”.
Think through what you want to say before you push open their front door. I realize it’s impossible to plan an entire client interview without knowing the questions they’ll ask you, but it’s not impossible to be on your guard about what not to say. Say as little as possible, and stick to the point. The loan officer will remember the conversation with you in point form anyway, so don’t cloud their assessment with too many details and facts that are of interest to you that don’t concern them. Stay away from telling lengthy stories about why you need a loan. Stories like;
“My car broke down again and Christmas is just around the corner! I really need this money to fix my car so I can go shopping.”
Just tell them the basic reason why you are sitting across from their desk – tell them you are applying for a loan to repair your car. Period.
They will take quick notes on your employment history. Remember – it’s not important how long you have been on the job – but how long you’ve been in the industry. They’re looking for stability. It is accepted that a large amount of people nowadays float from job to job due to contract employment and layoffs, but they usually stay in the same field. The risk seen by the bank increases with lending to a person who moves from job to job while changing their field of focus. Increasing wage potential is a good reason to move but not always the best unless you can prove it.
Imagine you, as a carpenter, becoming a banker. Wouldn’t you like to see a three-year stability before you determine that they succeeded in their career change? If they don’t wait the three years, a person could lose their job, not get another job because they don’t know the marketplace well enough to work their network yet, and will likely switch to something else again. This sets up an unstable situation in the eyes of a lender. This is not to say unique circumstances can be pigeonholed, if presented properly. Spend time determining your response to clearly communicate a unique situation, which does not cause a lender to assume employment stability is a negative trend for you. Which one of these approaches do you think sounds better?
A) I was fired from my job because my manager didn’t think I knew what I was doing! What a jerk, huh? Well, anyway, I left that place and found a new part-time job through this temporary employment service. Good thing I’m was only unemployed for two weeks or I would not have been able to make rent. I went to the check cashing service for money, because the landlord would not take my check – sometimes they bounce. A few months later this new job really worked out well for me, they like my work and offered me a full-time position.
It’s only been about eight months but everything is going great for a change and I know I can meet the monthly payments for this new loan. I can even make the payment on my income alone in case my wife decides to really leave me this time…………want to see my budget?
Pretty bad huh? You never want to talk to a banker or a loan officer this way – their eyes will start to glaze over after about 20 seconds and you will be the last person they would consider for a loan. The next example shows you a better way on how to talk to your loan officer.
B) I have been working for my present employer for just over eight months time. I past my three month probationary period, working full time now, and have had the same type of employment for the past seven years working for various companies in the same industry.
So when you are asked about your employment background make sure you just keep it short and keep it simple – let them know that you have been X number of years in the same industry, currently working for the ABC Company earning a steady wage each year. End of story. Don’t start a conversation around how many times you change jobs unless they ask you, and then keep it very very brief. Never, never say anything like, “I had to leave the job because my boss was a real moron – so I quit”.
Never put anybody down and this includes yourself. Not a good opening line if you want to convince the loan officer that you will keep up your commitments and your monthly installment payments. In banking language a comment like that would mean; Doesn’t like his boss, quits, won’t like paying his loan each month, won’t pay. Don’t lend to this client.
Make sure you have taken the time to thoroughly review your own credit report before the client interview, so you will be prepared to give a simple answer to any derogatory information. The lender may even pull your credit bureaus file while sitting across from you, reading every line while they listen to see if you disclosing everything. I would recommend giving them a copy of your credit report in advance to illustrate full disclosure, and add confidence to the lender with your state of readiness. When well prepared, you leave a lasting impression, because so many people are ill prepared when walking into a banker’s office.
It is truly refreshing for the lender to work with someone who has taken the time to prepare before entering into the client interview. Lenders, at times, grow complacent when the client does the work in advance. There is a hidden benefit to being well prepared as a lender may quickly note the details for your application and send it on to their credit granting department for final review, assuming for the most part they your information package was complete. With all the facts in front of the lender, whose focus on translating your situation and financial affairs into managing their risk to meet sales targets, they can help position your application for success. You will see this step alone saves you the greatest aggravation as fewer questions need to be asked, which means fewer answers need to be given, which means less negative perceptions are created. Failure normally follows a poorly presented application, which is a result of not telling the lender everything they need to know or by telling them too much.
When you place in front of them a copy of your credit Bureau report, attached to a list of your assets and your monthly liabilities (PSOA), your income verification slip, notice of assessment, and/or recent pay stub and a letter from your employer if you have been working less than one year at a new job, and your response to any negative credit items – their questions will be few.
Bankers are focused on things they can prove. This means that if you have an arrangement with your ex-spouse to pay child support each month and it is not a legal agreement, there is no way a bank will know of this unless you offer the information. They also have no way of determining any private loans you may have outstanding to family members as these usually aren’t noted legally either. So again, keep it very simple. But if they do ask, you are obligated to disclose any of your liabilities – and again, keep it simple.
When asked what liabilities you have, hand over your Credit Bureau report (the copy that you reviewed prior to making your loan appointment) and let them keep their records current to those items alone. These are the only items they can prove you are committed to repay, and you have already proven that the items on that report actually belong to you. They will pull their own copy to verify that yours has not been altered, isn’t outdated, and is correct.
Banks are primarily concerned with items you legally must pay. If your child support or private loans aren’t legally registered, you actually could stop paying them at any time by choice. Who’s to say next month the the family member you owe money to won’t forgive the loan altogether, or you paint their house, or barter something else to repay them like trading your time to help them move? Maybe your parents will grant you an early gift of inheritance to help out? Or maybe you and your spouse reconcile differences to get back together only a month after separation. You know the old joke right;
“How do you make God laugh? Answer: Make Plans”
If it’s not a legal separation or divorce, it’s a personal choice. If it’s not on your credit bureau report, don’t start talking about it unless the lender asks point-blank, but then be positive about the situation. When, and if that occurs, look at those circumstances accordingly while thinking through your response. It is prudent to go prepared. Preparation creates a perception of being complete and that you manage your affairs properly, and it is unlikely that surprise questions will be raised. When the lender can review all your affairs before asking a single question, they feel that much closer to completing the interview quickly and moving on to their next appointment – as should you.
When you have started a new job, and you are past the probationary period (usually 3 to 6 months), ask your employer to put in writing your date of hire, how much you are earning, and the expected number of hours you will likely work in an average to week. and that they are pleased with your performance. This letter has a number purposes that are of a benefit to you.
Not only does it affirm you are in good standing with your employer, but it also establishes a starting wage for you in writing, as well as a commitment to the number of hours they expect you to work with them in a general pay period. It also becomes the tool you’ll need when you’re applying for credit in the future, and it looks better when obtained before it is needed. Keep in mind most people don’t receive an offer of employment from their employer before accepting their new job. This letter becomes a confirmation of employment for the individual, and is considered by a lender as a form of income verification. This letter, along with a current paystub, IRS slip, and a current notice of assessment, is enough to prove your rate of income.
To your direct benefit as well, this letter becomes your proof that your new employer has to pay you that amount of wage or salary. It becomes your proof of engagement should there be a conflict with your pay check(s) later down the road. When speaking to a bank, keep in mind the few things pointed out below.
They have sales targets just like any other business. They have lending guidelines and rules to abide by. They have had bad experiences with some clients that have made them cautious, and the loan officer you will see during your appointment will likely have never met you before.
Sales targets are set by the bank for lenders to reach. Their goals are also measurements of their productivity and are subject to review with their manager or supervisor. They want to sell you that a loan, credit card or mortgage you’re asking for. They want to position your application for approval through the credit granting process and can’t do that if you provide poor or inadequate information. If the lender can’t get all the information needed to process your application, it may fall to the bottom of their to do list until you follow up on your interview.
Incompleteness prolongs your application, so be ready. Lenders need approvals as bad as you do, or they may not get a year-end sales bonus for reaching their targets. Give them what they need to help you, by being prepared. This issue is set before you to provide a better appreciation for what drives a lender nowadays. Lenders have to prove they contribute to the bank’s goals, or they are replaced with people who are more sales focused.
Knowing this information, it is safe to say that they want you to get that loan too, and will try as hard as they can to get it approved without knowingly making up a lie about you or defrauding the bank. When you come prepared with your credit information in hand, employment letters, and income verification, you are more likely to not be questioned about things – the lender has the necessary information required to complete their application. Problems start when the lender asks a simple question and the client goes into detailed or long-winded answer, often telling the lender more than they need to know.
If you volunteer that you and your spouse have agreed to seperate for a time, questions arise about issues of potential child support payments, assets being sold off to pay out a spouse, as well as the risk that either spouse could charge every joint family credit card to their maximum limits buying for themselves before finally admitting to a legal divorce. This happens all the time. Remember, it’s no-one’s business if your marriage, or common-law relationship is going through a tough time, and who’s to say that you both won’t work it out once a little time has passed?
A legal divorce is final, then usually a lender will have a question on your marital status. They prefer to think you are either married, or single. After all, a divorce document legally declares you are single from that individual. If you sign an agreement that you are to pay child support as a condition to the divorce/separation, it will show on your credit bureau so it is wise to disclose in advance your changed marital status. Don’t give details on any assets that may be sold. Stick to the facts – keep it simple by describing only what is legally binding. If your divorce agreement states that the marital home is to be sold, be prepared to discuss the details of the legal agreement. Will one spouse buy the other one out? Is the property expected to be listed through a Realtor? If there is a mortgage against the house, you will be asked about the details. If you own your home free and clear, you also may want to share this to entice the lender that you will be coming into some substantial cash from home equity once the house sells.
The lender may begin to think you might bring that cash to them as a deposit and help them reach their sales targets. Remember, they will probably ask to see a copy of the divorce/separation agreement to verify all that you just related. If you start telling stories that are untruthful or can’t make clear sense, the lender will be more diligent in the client interview to ensure you are telling the truth about everything. Don’t raise any yellow or red flags. Stick to the facts, and don’t make up stories as you go along.
Keep in mind they are not making personal decisions for (or against) you. They are making risk decisions. What is the risk that the bank won’t be repaid? That is the primary question they are answering throughout your application. The information they request from you is put through a language filter, translating what you say into risk for the lender who will review your stated information to understand the lender’s recommendations to support you. The lender either agrees, or disagrees, with how the loan officer determined how acceptable the risk is in lending to you.
And one last note – don’t sign anything you haven’t read through completely, and understand. If a lender explains something you are not sure of, get them to write it out, sign and date it, so you will have proof of the conversation should they be wrong.
Continued in the Carol’s Borrowing Series Category of Clf.
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