How to Make a Bank Want You

3 principles to solving your credit
Banking, debt, credit, saving
How to make a bank want you

There is good debt and bad debt, as I have previously explained in my previous post. This article is speaking from the perspective of accruing good debt, such as needed bank loans and mortgages.

When you apply for a loan, banks seek to understand you and your credit habits. They do this by “running your credit” which scans various factors about your credit history and your life. It may sound invasive, but imagine you’re loaning out your money to someone. You would want to be sure they can pay you back before you dish out $100k, right? Well that’s exactly what the banks are doing. They look at your credit report to understand you and your habits, and then make the decision to approve or deny your loan application.

You need to understand the factors that comprise your credit report before you apply, that way you can strengthen your case and chances of approval. Here are the top three credit factors banks look at in their decision.

#1 Credit History

Banks want to know how well you have dealt with creditors in the past. Did you consistently make payments on time? Are there any outstanding loans you are currently bound to or haven’t paid? What is the time span of your credit history? How much debt do you currently have? To check your credit report, I recommend using Credit Karma, a free and easy way to view all facets of your credit score.

What Banks Want to See:

Banks like to see that you have a long credit history where you have made full, consistent, on-time payments to all your creditors. This could include student loan payments, mortgage payments, auto-loan payments, credit card payments, and many others. Banks value long-term consistency and reliability, it shows them that they know they will get their money back. They also like to see that you do not have any accounts in collection (people hunting you down for money). Make sure you take a good look at your credit history!

#2 Income & Expenses

Banks always look at how much money you make and how much you payout. Why? Because they want to know you’ll be able to pay them back. Be sure you are aware of all your numbers! (Stay tuned in for most post on how to increase your income)

What Banks Want to See:

They like to see that you have consistently been earning a solid chunk of change. If it’s a house you’re looking to get, the bank will look at the taxes, utilities and expenses of the house. They compare these expenses to your income, in order to determine if you are earning enough to make your mortgage or loan payment. So basically… they like to see if you make enough money to afford what you are requesting.

#3 Current Assets & Down Payment

Assets are things you own. Current assets are things you own that could quickly be converted into Cash (cars, real estate, jewelry, etc.). Cash is king in many cases, especially when it comes to taking out a loan. It is important to know how much cash you have in the bank, and how much money you have in your assets.

What Banks Want to See:

In many cases, like a mortgage, being able to put down a solid or above average down payment can significantly increase your likelihood of approval. A solid down payment can decrease monthly payments and the overall amount paid in the long-run. Having the cash to do this, and having the collateral to pledge, if necessary, can increase your odds of getting the loan you want. Just be careful that you pay it back or else they’ll take your stuff. Save early, save regularly, save and don’t touch. Building up your savings will do wonders for you in more ways than one!

Remember:

Most importantly, you need to understand yourself as well as understand the banks. Understand your credit history, make sure to calculate your income and expenses yourself, and take inventory of your assets and savings. These three factors are critical when it comes to getting the loan or mortgage you want. If you’re not happy with how your numbers look, seek to make them stronger. Check out my other posts on Saving and Credit. Thanks for reading and feel free to chime in with your own experiences and opinions!

Cheers & God Bless

Matt

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