The first time I ever applied for credit I was eighteen, just finishing my first year of college and trying to get a loan to pay my school bill. I planned on paying back the loan with the proceeds from a summer job I had just landed the week before. A bank is an intimidating place for someone whose only reason for entering in the past has been to withdraw money from a small savings account and to open a checking account the month before.
"Can I help you?" the new accounts girl asked. "I need a loan," I responded.
She looked at me, sizing up my appearance and trying to ascertain my credit worthiness. "How old are you?" "Eighteen.” "Do you have an account with us?" "Yes." "Do you have a job?" "Yes." She continued asking me questions, writing the information on an application form. I was then led to the loan officer who was to score my application.
"Do you have any credit?" When I said no, the loan officer replied, "I'm sorry. I can't help you." "Why?" I asked.
"Our bank does not lend to anyone without a credit history." "Where do your customers get credit histories?" I inquired, not knowing any better.
"It's just our policy not to lend to anyone without a credit history."Lenders do not like to lend to someone who has never borrowed before. The first credit relationship is by far the most difficult to get; difficult, but not impossible. I decided to take a tenacious stand.
"Let me speak to your manager." I was led to the manager's office, a small, grey cubicle in the side of the building.
"I'm trying to get a loan to pay my school bill," I explained. " I will pay it back in three months. I have a job that will more than cover the payments. My father has dealt with your bank for forty years and all three of my brothers have accounts and mortgages with you. My grandfather opened one of the first accounts at this branch. Can I have a loan?" The branch manager explained that the bank had a policy against lending to people without credit and then proceeded to explain how we could circumvent the policy. I got the loan for $1,200 and didn't need a co-signer. "No" does not always mean "no." Don't be discouraged if you are having trouble establishing credit Even if your family hasn't lived in a small town for seventy-five years, you can still establish credit with a bit of knowledge of how lenders work, and a little tenacity. There are really four steps to establishing credit;
- Establishing a banking relationship.
- Creating a solid credit profile.
- Obtaining secured credit or easy-to-qualify credit.
- Getting a bank card.
YOU AND YOUR BANKER:
The banking industry has changed a great deal over the past twenty years. Once littered with small community banks, most areas now have only a few large regional banks and perhaps one or two smaller ones. Small banks that specialize in customer service and allow customers access to decision makers are slowly becoming a thing of the past. Bank managers have also changed from the days when they were able to make underwriting decisions on anything from a checking overdraft to a home loan. Credit decisions at most larger banks are now centralized. Only at smaller banks is there still some authority left at the branch level. If a bank has only one or two branches, you may even have an opportunity to speak with the president of the bank when applying for a loan. At the larger institutions, bank managers may have certain discretionary powers over such things as checking overdraft accounts, and they may carry some influence in the banks centralized underwriting department. A recommendation from a bank manager will certainly not hinder a loan application. The process of establishing credit, then, begins by choosing a bank, or perhaps a few banks. Small tanks often allow more interaction with higher-level employees, but large banks offer more consumer-oriented programs. They are also likely to report to credit bureaus, helping you establish your credit. Begin by opening a checking account Try to get into your branch as often as possible. Talk to the employees and try to get to know them. A well known customer is often perceived as a customer with more money. You would be surprised how many tellers will cash checks without identification from people they've seen around the bank several times. Find out who the manager is and who the loan officer is and try to get to know them. They can often help you to understand the underwriting criteria of the bank and may even help you to obtain credit.
The sharp dresser:
Have you ever noticed that a man in a suit gets better service than a guy in blue jeans? Merchants often judge a potential customer by his appearance. Driving up in a Jaguar makes a better impression on a new car salesman than puttering around in a VW Bug.
A businessman gets a better table at an expensive restaurant than a construction worker. Many people judge you by your appearance, not least of all creditors. If you don't look credit-worthy, they probably won't extend you credit, so if you have the opportunity to meet someone who could have an impact on your loan application, such as a bank manager, try to look professional.
When filling out a credit application, think like an underwriter.
How would the information you are putting down be viewed through pessimistic eyes? Emphasize your strong qualities and de-emphasize your weaker ones. If you're new on your job, make a note that you have been in the same profession for some time but happened to receive a better offer. If you've recently moved, don't forget to note that you lived ~ your previous address for some time. If you're a secretary, change your title to executive assistant. Don't be afraid of a little puffery. References are almost never checked, except for telephone numbers and possibly a confirmation that you are employed. The better you look, the more likely you are to walk away with a loan.
Secured loans:
Very often the only way a first-time borrower can get credit is through secured borrowing. In fact, the only exception to this is you are in college or graduate school. Believe it or not, many credit card companies would rather extend credit to a student without a job than a stable, steadily employed worker. For some reason lenders consider college students extremely good risks. Credit card sign-up table1 abound in campuses across the country. If you are a student, take advantage of these easy qualifiers while you are still in school; you may not be able to qualify after you graduate. If you are not a full-time student, you might wish to consider taking a class at a local Junior College. Many of these special college programs could then be available to you.
For those not academically inclined, a trip to your neighborhood bank may be a good start. Inquire into your bank's "savings secured" loan. This is a loan secured by a savings account or certificate of deposit Ask whether loan information is reported to credit bureaus. If it is, consider depositing some money in the bank and borrowing against it You may have to pay 2 to 4 percent above what you are earning on the account, but the account will be reported to a credit bureau, helping to establish your credit Repay the loan and ask for a second, this time only 50 percent secured by the account. This is where a smaller bank will often have more latitude than a larger one. Continue this process, faithfully repaying each loan until you are finally able to borrow unsecured.
Checking overdrafts can also be easy to obtain. Sometimes they are even offered without a credit check. But before taking out any secured loan, be sure it will be reported to a credit bureau. Otherwise, no one but your banker will know about your payment habits.
CHARGE!
Once you have established a few positive pieces of credit, you may be ready for a credit card. Contact the issuer first and ask to speak to an underwriter or credit analyst Ask them what their underwriting criteria are. Many banks, especially savings and loans, offer credit cards only as a service and have stringent credit requirements. Don't waste your time and a credit inquiry on such places. Look for a consumer-oriented bank or savings and loan that don’t view consumer credit as a necessary evil. Citibank, Chase-Manhattan, and Bank of America are examples of banks committed to consumer lending as a primary business. Their cards will probably be easier to obtain than those of a smaller, more specialized institution.
Department store cards are often even easier to obtain than bank cards and most are reported to credit bureaus. Gas company cards are also fairly easy to obtain but are usually not reported to credit bureaus.
Another source of credit references often overlooked is mail-order catalogue companies. Many, like Swiss Colony, offer payment plans for purchases through their catalogue. Swiss Colony offers gift packages for the holidays. The company reports its credit accounts to all three of the major bureaus and does not run extensive credit checks on its customers. Other mail-order companies extend credit also.
A LITTLE HELP FROM YOUR FRIENDS
If all else fails and you can't obtain any credit on your own, consider asking someone to co-sign for you. A co-signer takes responsibility for your debt if you don't pay, so you probably won't want to ask a casual acquaintance for this kind of favor. The most common co-signers are parents and siblings, but a very, very good friend might agree to help you out. A co-signed account appears on the credit reports of both the primary signer and the co-signer, so you would want to make sure all the payments were made on time. A co-signer can be used on any kind of debt, from a credit card to a home mortgage. The person applying for the loan with you would be required to qualify in the same way you would.
Don't get discouraged if you are turned down the first time you try to get credit. Start small, with a secured loan, and work your way up to larger and larger balances and unsecured credit. Remember to follow these basic rules:
- Make sure any loan you apply for will be reported to a credit bureau.
- Find out whether you are likely to qualify before you apply. If you have too many inquiries on your credit report, you won't be able to get additional credit for two years, when the inquiries are removed.
- Make sure you pay the companies that report to credit bureaus on time and you will soon be able to borrow for whatever you might need.
- If you are turned down, write and ask the lender to reconsider.
If you are turned down because of a lack of credit, list the credit relationships you have and any other personal factors (employment, length of residence, etc.) that might add credibility to your case. Be tenacious. Credit card companies are looking for a reason to give you a card. After all, credit cards are extremely profitable to the company: they borrow at 5 percent and lend at 19 percent or higher.
Once you've established your credit, treat it as a valuable asset.I Try not to pay late and don't go over your limit. If you have made mil takes in the past, don't despair. Contrary to popular belief, you can get second (or third) chance.
RE•ESTABLISHING CREDIT:
Most of the strategies given in this chapter can work equally for someone recovering from a bout of debt. Although a bad credit port is usually much worse than no credit at all, most lenders are willing to listen to explanations. It is wise, however, to resolve you’re old before attempting to acquire new debts. A lender is not likely to stand why you would want to take on new obligations when your ones have not been satisfied. Responsible debt management will you obtain future credit, regardless of what your circumstances been in the past.
