Customer relationships with banks are almost nonexistent today. There was a time we knew our bank manager and staff ––they stayed working at the bank. The ‘Family’ bank was a comfortable place were relationships were built and trust established. Fathers took their sons and daughters to make their first small loan to commence building up their credit rating. In most cases the bank manager would come out and say hello and welcome young customer to the branch. Not today.
Forms are filled out increasingly online… Applications processed by faceless people in another city.. And machine based on pre-set formulas determine if the loan will be granted and if so what rate of interest will be offered.
To improve your chances success these four variables need to be nurtured. They are the determinants of your creditworthiness.
Character. This used to be the most important variable. When I was a young man my father took me to make an application for my first loan at 16. We were known to the Bank. Often banking staff were your neighbours. This was the prime variable upon which loans were granted. Not so today.
Today your character analysis comes primarily comes from the credit bureau agency.
Regretfully very little human factors will be found in the credit report. Generally silent as to what stresses or successes you may have experienced during the credit reporting period. Events that when known provide the context incorporated into the credit report would provide a more accurate insight into the character of the individual. Unfortunately today this information is not forthcoming.
To improve your chances be prepared to share some of this information within the institution early on to their forearm and forewarned the bank’s decision-makers when determining whether or not to grant the loan.
Capacity. Pre-set formulas such as the debt to equity ratios. Percent of income available? Are your credit cards more than 30% committed?
It is important here while interest rates remain low to consider consolidation of your loans into one global amount possibly via a bank’s homeowner’s loan. The rate will be as attractive in those faded. To the current rates you’re paying on credit cards etc. Indeed if you extend the term loan resulting in a lower monthly payment that will enhance the ratio and thus improve your credit score. Windfalls come in and paid on the principal in lump-sum payments
Collateral. Institutions are transparent as to what percentage they’re willing to finance on property. Investment property, raw land, and other selected categories are more challenging.
This requires negotiation skills. Often there is little discretion — but you must asked for it to get it.
Do your best not to use the family home to finance your small business. Indeed many small businessmen find it a better practice to transfer the matrimonial home to the spouse.
If the economic situation turns worse as it has for many with this current global flu, inflation and a great disruption between ‘the haves’ and ‘have nots’ is I’m confident many borrowers wish they not use the family home as collateral. If collateral is required inquire whether or not it. A fixed time the bank is satisfied in making your payments can the asset be removed as collateral. It is a matter of negotiation.
Condition. Banks analysts determine how much of their portfolio she be made up of home mortgages, small business loans, and car loans, student loans etc… If you watched the literature the banks produce you will see what is “the special of the day” — are they pushing the credit cards? Are they suggesting a homeowner’s loan to consolidate debt? Watch for the specials– they generally easily obtained approval. As an aside if you’re buying or leasing car wait till the last two days of the month. The sales managers are under great pressure to make their quota — best time to negotiate.
There is a larger challenge generally for the self-employed. Banks shy away from these loans– I suspect it’s too much work– and risk for the loan officer—easier applications. They prefer applicants with cash flow from a government job, a property, a car, a student in grad school rather than a middle aged person working on commission. Very little consideration will be given to the character of that person notwithstanding decades of contribution to the community or banking with that institution.
Most pundits agree interest rates will continue upwards accordingly remember to consider what you can afford at the higher rates, consolidate where you can, pay down what you can and contact the credit reporting agencies. They will provide you a free credit report that will enable you to work towards improving you score in preparation for your next loan.
In closing we might do well to heed the advice of Will Rogers: ‘Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.”
