Article:  The Loan Process

When you first apply for a loan or any type of line of credit there is a process that the lending company goes through when evaluating your application. Of course, each application is different in some way. Many will need information such as your full name including your maiden name, your Social Security number, and your annual income when applying for a credit card. However, when applying

for a home loan you will need to give the loan officer more detailed information regarding how much money you spend monthly, your employment history, and your bank accounts. The loan officer is hoping to learn that you are the type of person that will not default on your loan.

In the past, it was the loan officer that did the majority of the work, today it is pretty much all computerized. They use a system based on credit score and statistical data to make a decisions regarding your application. This does not mean the loan officer has nothing to do. However, his job is easier today. He compiles the information that he receives from your credit report. There are companies that report if you made payments on time, if you were in default, if you paid your utilities bills, and other such payments. All of this can be found on your credit report. This report will give the loan officer the information he needs to learn about your credit history.

What the loan officer looks for on your credit report are loans in which you made payments on time and paid off the entire balance. They also look for several late payments, collections, repossessions, charge-offs, and bankruptcies. Many lending companies today do not use anything else besides your credit report to decide whether to give you a loan.

Repayment

As stated above, if you are applying for a small loan or for a credit card your ability to repay the anticipated loan is not in question, however, when you are applying for a large amount of money the lending company needs to see that you can repay the loan. This is done by compiling together how much of your income you are paying out to other your debts. If your income is insufficient, the loan officer may help you with your application by suggesting that you borrow less or that you make payments for a longer period of time, thus lowering your payments so you can still qualify for the anticipated loan.

Income

If your income shows that you do make enough money to live comfortably and repay the loan, the loan officer will then look to see just how stable your income is. The ideal candidate will have been working the same job for several years. If your employment history shows that you have changed jobs several times over the last few years, then your income will not be considered stable. However, if you are highly trained or highly skilled and can show the moves in employment were beneficial you may still have a change at getting that loan. One thing to remember, no matter where you income is from, a trust fund, public assistance or other means of income, this information can only be used to show that you have a stable income history and that future income will not be affected. Along with your employment history, how many times you move says something about your stability.

Credit Scoring

The answers that you give to the loan officer concerning your income, employment, etc… will be given a score. The loan officer has in his possession a standardized credit-scoring sheet, which assigns numerical values or scores to every one of your answers. After you answer all the questions, the numbers are added up to calculate your credit score. Now, it is up to the lending company as to what they believe an acceptable credit score is to determine whether you should receive a loan. These computerized methods of calculating the credit score take out all human compassion and reason. You may score poorly if you have changed jobs frequently even if the move was for a better income or status. You may have to move several times in a year in your chosen field such as being transferred from one location to another to train employees. These moves will also score poorly. The loan officer however, can adjust the score if there are special circumstances to consider, but this does not mean he will take the time to do so.

Under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), mortgage lenders are required to tell you the credit scores they used in the process of providing the mortgage. For more information on FACTA, see Fair and Accurate Credit Transactions Act of 2003.