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Banking & Credit

The Perils of Skipping Loan Payments This Holiday Season

by sshrx_ns3li1
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The holidays are fast approaching and that means there are presents to buy, trees to trim and merriment to be made, all of which will cost you money. Fortunately, your credit union, bank or credit card issuer may be willing to let you skip your monthly payment in December or January.“Skip-a-pay [programs] are a popular way for banks to add quick fee revenue while giving their clients some extra cash in their pockets,” says John Oxford, a spokesman for Renasant Corporation, which operates 171 banking, investing and wealth management offices in the South. While Renasant Bank previously offered a skip-a-payment program, it does not currently have one.At other institutions, these programs allow customers to skip their monthly payment in exchange for a small fee. Some lenders may even donate a portion of the fee to a local charity so it seems like a win-win for all involved.Not so fast, say some financial experts. Skipping one payment might not seem like a big deal, but it can have a negative impact on your finances.5 Reasons to Skip the Skip-a-Payment OptionRich Hyde, the COO of Prestige Financial Services in Salt Lake City, works with clients trying to raise their credit score and finds some use skip-a-payment programs to stretch their money through the holidays to buy gifts for friends and family. Although skipping a payment may be preferable to racking up debt on a high-interest credit card, it doesn’t come without drawbacks.You lengthen the term of your loan. You may be skipping a payment, but you’ll still need to eventually make it. “They are essentially letting you take the payment from December or January and adding it to the life of the loan,” says Kelsa Dickey, owner of Fiscal Fitness Phoenix. Skipping a payment every year means you could be paying an auto loan for five to six months longer than originally planned.You add to the interest you pay. Not only will the term of the loan be longer, but you’ll pay more interest as well. A $5,000 credit card balance at a 24.99 percent APR accrues roughly $100 in interest each month. As a result, skipping a payment means you’ll end up owing more the next month even if you haven’t used your card.You might forget to make the following payment. Hyde is concerned skipping one payment might snowball into several payments. “Customer behavior can be impacted [by skipping a payment],” he says. “Anything that gets people out of the habit of paying is a bad idea.” You could ding your credit score. If you do happen to forget the next month’s payment, than you could see a drop in your credit score. Plus, you’ll likely get hit with a late fee which typically runs around $35. Dickey adds that some people might be tempted to skip payments even if their lender doesn’t offer a skip-a-payment program. However, doing so could negatively impact your credit score and damage your relationship with the lender, making it difficult to receive loans or lines of credit in the future.You are reinforcing poor money habits. While all the above reasons are enough to say “no thank you” to skipping a payment, Dickey says there is one more to consider. “By skipping a payment, you’re saying Christmas gifts are more important than something like a car that gets you to and from work,” she says. “There’s a much deeper rooted problem of putting things that are not essentials in front of things that are essentials.” Declining to skip a payment is one step toward creating healthy money habits and smart spending priorities.When Skipping a Payment Might Make SenseWhile experts say skipping a payment to buy gifts doesn’t make much sense financially, there may be a time and place for skip-a-payment programs.“If a consumer wants to free up cash for the holidays and doesn’t mind a minimal fee and an added month on their loan, it can be a beneficial short-term move,” Oxford says, “but it should not be used to avoid a payment just because the offer is there.” To minimize the impact of skipping a payment, he recommends people use a portion of their tax refund, if possible, to make an extra payment later in the year. For people who are in a bind and considering a payday loan or going into debt to pay the bills, Hyde says skipping a payment would be the lesser of two evils. Meanwhile, Dickey believes using a skip-a-payment program is understandable in cases of unemployment. “If it comes down to putting food on the table, yes [skip a payment],” she says.Skipping a payment may also be a good strategy if you are planning to use the money from that payment to wipe out a high-interest debt. Installment loans, such as those for cars, typically have a much lower interest rate than what might apply to a credit card. Financially, it might make sense to skip an auto loan payment for one month, and send that money to pay off a credit card account.However, Dickey says most people don’t skip payments for strategic reasons. Instead, they do so to spend more on gifts or holiday deals. She asks, “If your parents knew you were skipping a payment or going into debt to give them a gift, would they want it?” She’s betting the answer is probably no. .

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Banking & Credit

Goodbye FICO, Hello VantageScore?

by sshrx_ns3li1
written by sshrx_ns3li1

For more than 25 years, credit scores have been practically synonymous with FICO, the shortened name of the Fair Isaac Corporation. However, a new company, VantageScore Solutions, has emerged in recent years and is chipping away at FICO’s dominance in the credit score business. “VantageScore Solutions is an effort to provide more choice in the marketplace,” says Ezra Becker, vice president of research and consulting for the credit bureau TransUnion. The credit scoring company is the result of a combined effort of all three major credit bureaus: Experian, Equifax and TransUnion.The company was founded in 2006 and has gained traction. From 2014 to 2015, VantageScore credit scores were used more than 6 billion times, double the amount used from 2013 to 2014. Just as with FICO scores, VantageScore credit scores are used to determine the likelihood someone will pay back a debt. “Credit scores are a scaled representation of the probability of default,” Becker explains. Last December, House Resolution 4211 was introduced in Congress to allow Fannie Mae and Freddie Mac to use alternate credit scoring methods when making mortgage decisions. Jill Gonzalez, analyst for WalletHub.com, says if the bill is passed, it might result in the programs adopting VantageScore, a move that could be a major coup for the company.“What Fannie and Freddie do now is use outdated models,” Gonzalez says. A switch to VantageScore would change the way applications are evaluated and make it easier for borrowers who have low credit scores under the FICO model to purchase a home. Plus, it could further dent FICO’s hold on the credit score industry. Navigating the Sea of Credit ScoresBecker is quick to note Americans use the word FICO to describe credit scores in the same way they may use the word Kleenex to describe facial tissue. The word has turned into a generic term for how lenders evaluate creditworthiness, but Becker says there is actually a variety of credit scores that can be used.Each of the major credit bureaus has, at one time, created its own score. Other companies, like CreditXpert, are in the business as well. Even within FICO, there are numerous scores. While FICO Score 8 may be most widely used for credit card applications, student loans and other credit decisions, there are FICO Auto Scores, FICO Bankcard Scores and older versions of FICO’s main scoring model that may be used for mortgages.VantageScore seems to be making in-roads in the industry, in part, because it offers a simplified scoring method. “VantageScore has three scoring models,” says Bethy Hardeman, chief consumer advocate at Credit Karma. “For comparison, FICO has over 50 different scoring models.” While each credit bureau may use a different version of the FICO score for various lending scenarios – for example, for mortgage lending, Experian uses FICO Score 2, while Equifax uses FICO Score 5 – VantageScore is uniform across all three companies. The only reason a VantageScore could vary from one bureau to another is if a lender chooses not to report an account to all three companies, according to Becker.What It Means for YouA move to VantageScore could be good news for consumers, particularly those with a weak credit history. VantageScore 3.0 is the most current version and looks back 24 months at a person’s credit history, a feature that allows it to score more people who have little or no recent credit history. “[The company’s] latest scoring model can score up to 35 million more consumers compared to other models due to its broader consideration of credit data,” says Hardeman, adding that the free scores offered on Credit Karma come from VantageScore. The wider consumer net is also because the model can score people with as little as one month of credit history compared to six months for FICO scores, Gonzalez explains. Score models are created using anonymous sample consumer demographics and credit data. While VantageScore 3.0 is a relatively new model, older FICO scores may be based on decades old data. “A score created in 2002 may not be appropriate for the lending environment and consumers today,” Becker points out.The bottom line for borrowers is that VantageScore may make it easier for some people to get access to credit, but it won’t wipe away all financial sins. “If someone is undeserving of credit due to a history of not paying [bills], that won’t change [with VantageScore],” Gonzalez says.Rather than hope a change in score will make credit available, consumers should stick with the tried-and-true methods of paying on time and limiting the debt they carry. .

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Banking & Credit

Rising Credit Score but Rotten Credit Report?

by sshrx_ns3li1
written by sshrx_ns3li1

If you have a dismal credit score, and you plan to apply for loan for a new house or car, you probably are doing whatever you can to bring your numbers up. You're paying your bills on time. You've been studying your credit reports and contacting the bureaus if you find any incorrect information. Maybe you've even taken out another small loan, just to show lenders that, yes, you've got this.But you may not have this. Not yet, anyway. A high credit score doesn't guarantee a loan. If you are planning on applying for a loan, keep the following in mind.[See: 12 Simple Ways to Raise Your Credit Score.]Your credit history has more to do with getting a loan than your credit score. According to Fair Isaac Corporation, which created the credit scoring algorithm that most lenders use when making lending decisions, excellent credit is when your score is 720 or more. Good credit would be 690 to 719. Fair credit is 630 to 689. Bad credit generally includes scores from 300 to 629.Credit scores and reports do tend to go hand in hand. If you have a high credit score, you probably have a positive credit report. But not always. You may have been a financial disaster up until a few years ago when you completely turned things around, and ever since, have watched your credit score climb.And while a few years of good financial behavior may be enough to get you a loan, lenders may nevertheless be scared by your past.[See: 10 Easy Ways to Pay Off Debt.]"Ultimately, the approval process is different for each applicant and lender," says Carla Blair-Gamblian, a consultant at Veterans United Home Loans, a mortgage brokerage in Columbia, Missouri.And whoever is looking over your loan may not be really looking at your credit history; instead he or she may be using a software program to make the decision."Many lenders use an automated system from Fannie Mae or Freddie Mac to get an approval status, so even if you have a great credit score but had really poor credit in the past, you may not still be able to get a mortgage loan," says Jeremy David Schachter, a mortgage advisor at Pinnacle Capital Mortgage Corporation in Phoenix, Arizona.If you do get approved for a loan, it's then that the credit score kicks in and becomes relevant, according to Schachter."Whatever your credit score is at the time of the application is what's determined for the interest rates," he says.Some items look bad on a credit report; others, don't look as bad. This won't shock you, but the longer you take to make a payment, the worse your credit report looks in the eyes of a lender. If your debt winds up in court, or you have a bankruptcy in your past, or a lien on your home, that could definitely derail your attempt to get a loan.But if you have a lot of late bills in your past, but you always managed to get them paid within 90 days, a lender typically won't be too horrified by that.David Hosterman, a branch manager with Castle & Cooke Mortgage LLC in Greenwood Village, Colorado, says many financing companies have specific guidelines when it comes to "derogatory credit items," and often the guidelines are tied to a specific time."For instance when it comes to home loans, in regards to an FHA loan, [lenders] typically require that a customer is two years discharged from a bankruptcy before obtaining new credit," Hosterman says. "For conventional loans – Fannie Mae and Freddie Mac – they typically require a four-year waiting period."Hosterman adds that these are just guidelines, and if a customer can prove that a bankruptcy was due to extenuating circumstances, like being laid off from work, you might have a better shot of getting a loan with some lenders.[See: How to Live on $13,000 a Year.]Other factors can come into play when it comes to your loan's terms. If you get an approval, and you have that high credit score, you're almost certainly going to get a loan with good terms. But you may not get the best terms possible.When it comes to a mortgage, "interest rates are based on many different factors," says Schachter, adding that several of those factors include your credit score, what kind of property you're buying and how much your down payment will be.If you are denied a loan. You can always apply for another loan with someone else. You have probably heard that applying for multiple loans can make a credit score drop, just what you don't need, but according to MyFico.com, Fair Isaac Corporation's website, if you apply for multiple mortgage, auto or student loans within a 30-day period, your score won't be affected. The company recognizes that you're shopping for a loan, and that it isn't as if you're going to wind up with three car loans and two mortgages. If you apply for multiple credit cards, however, that could drop your score.If you keep getting turned down, however, then at some point you'll need to bow to reality and put off applying for a loan. Fortunately, time heals all financial wounds – eventually. For instance, a bankruptcy will be removed from your credit report, typically after seven years, if it's a Chapter 13 bankruptcy. A Chapter 7 bankruptcy will be removed after 10 years.So you may have to bide your time while you wait for another year or two to go by, and your credit report and its history becomes less worrisome to lenders. The good news is that as long as you keep doing what you're supposed to be doing, and paying off your debts and staying on top of your finances, your credit score will likely keep going up. When you are eventually approved for a loan, the terms you get will probably be even better than they would have been had you received your money today.12 Habits to Help You Take Control of Your Credit.

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Banking & Credit

5 Clues That You're Dealing With a Predatory Lender

by sshrx_ns3li1
written by sshrx_ns3li1

Consumers are often told to stay away from predatory lenders, but the problem with that advice is a predatory lender doesn't advertise itself as such.Fortunately, if you're on guard, you should be able to spot the signs that will let you know a loan is bad news. If you're afraid you're about to sign your life away on a dotted line, watch for these clues first.You're being offered credit, even though your credit score and history are terrible. This is probably the biggest red flag there is, according to John Breyault, the vice president for public policy, telecommunications and fraud at the National Consumers League, a private nonprofit advocacy group in the District of Columbia."A lender is in business because they think they're going to get paid back," Breyault says. "So if they aren't checking to see if you have the ability to pay them back, by doing a credit check, then they're planning on getting their bank through a different way, like offering a high fee for the loan and setting it up in a way that locks you into a cycle of debt that is very difficult to get out of."[See: 25 Fast Financial Fixes.]But, of course, as big of a clue as this is to stay away, it can be hard to listen to your inner voice of reason. After all, if nowhere else will give you a loan, you may decide to work with the predatory lender anyway. That's why many industry experts feel that even if a bad loan is transparent about how bad it is, it probably shouldn't exist. After all, only consumers who are desperate for cash are likely to take a gamble that they can pay back a loan with 200 percent interest – and get through it unscathed.Your loan has an insanely high interest rate. Most states have usury laws preventing interest rates from going into that 200 APR territory, but the laws are generally weak, industry experts say, and lenders get around them all the time. So you can't assume an interest rate that seems really high is considered normal or even within the parameters of the law. After all, attorney generals successfully sue payday loan services and other lending companies fairly frequently. For instance, in January of this year, it was announced that after the District of Columbia attorney general sued the lending company CashCall, they settled for millions of dollars. According to media reports, CashCall was accused of offering loans with interest rates around 300 percent annually.[See: 11 Money Tips for Women.]The lender is making promises that seem too good to be true. If you're asking questions and getting answers that are making you sigh with relief, that could be a problem.Nobody's suggesting you be a cynic and assume everybody's out to get you, but you should scrutinize your paperwork, says David Reiss, a professor of law at Brooklyn Law School in New York."Often predators will make all sorts of oral promises, but when it comes time to sign on the dotted line, their documents don't match the promises," Reiss says.And if they aren't in sync, assume the documentation is correct. Do not go with what the lender told you."Courts will, in all likelihood, hold you to the promises you made in the signed documents, and your testimony about oral promises probably won't hold that much water," Reiss says. " Read what you are signing and make sure it matches up with your understanding of the transaction."You're dealing with pushy sales people. Maybe you went into an office of your own power and free will but suddenly you're feeling as if you won't be able to leave the premises without taking out a loan?That is a very bad sign. Get out.John Henson, a vice president at LendingTree.com, says one red flag is "overly aggressive sales tactics, including using language which obfuscates the actual terms of the mortgage."He also says you could be in trouble if a lender can't explain some of the vocabulary associated with the loan, especially around fees, or if you're having trouble getting the loan terms from the salesperson right away, such as the interest rate, payment amount or number of payments.[See: 10 Ways to Feel Better About Your Money.]The loan is really easy to get. Borrowing money, especially a lot of it, should be difficult. After all, if you're going to borrow tens or hundreds of thousands of dollars for a car or house, a lender would be crazy to not vet you thoroughly and take a look at your credit score and report and make sure you can pay. Not doing that, of course, is partially how the country got into a recession about 10 years ago. Mortgage companies weren't doing enough to learn if consumers could afford to pay back what they were borrowing.So if you're in the process of getting a loan, especially a big one, and you're thinking, "Wow, this is easy, almost too easy," you're probably right. Breyault says you should be especially wary when you're on a car lot, and you're seeing signs like, "Guaranteed loan," and "No credit needed." Those dealerships are notorious for having predatory lending practices."The point of those car lots is as much to sell you on a high interest loan as it is to sell you a car," Breyault says.And if that's the case, it raises another question: If you're paying a fortune on a loan with crummy terms, how much confidence can you have that the same company is selling you a quality product?Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.

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Banking & Credit

Payment Etiquette: The Ps and Qs of Sending Money Online

by sshrx_ns3li1
written by sshrx_ns3li1

If you’re still forking over cash to pay back your co-worker for your share of last week’s lunch, you might want to get with the times. A growing number of apps are making it simple to instantly transfer money electronically to others with what are called person-to-person, or P2P, payments.“What we’re seeing is a major once-in-a-lifetime change,” says Stuart Sopp, CEO of Current, a debit card for teens that also allows digital P2P payments. The widespread adoption of P2P payment services could mean we are inching ever closer to a cashless society.A Bank of America survey of 1,005 adults who have a checking or savings account as well as a smartphone found 36 percent of respondents currently use P2P services. Among millennials, usage jumps to 62 percent. For those who don’t currently make electronic person-to-person payments, half expect to do so in 2017. Seniors are the one exception, with only 25 percent of non-users in that group saying they will make P2P payments in 2017.“We think P2P is the new social norm,” says Mark Monaco, head of enterprise payments for Bank of America. If you’re ready to get on the bandwagon, here’s how to do it right.[Read: What Millennials Want From a Bank.]Choose the right payment method. There are lots of options for making P2P payments. PayPal and Venmo are two popular services that link to external bank accounts to transfer money. Bank of America, as well as eight other major institutions, use Zelle, a P2P service that is integrated into mobile banking apps. “You can use it without ever leaving the safety of your financial institution,” Monaco says.When selecting a payment service to use, think of the recipient. “You should pay someone in the mode that works for them,” says Greg Lisiewski, a former director with PayPal and CEO of Blispay, a company that helps small and medium businesses finance consumer purchases. That means people shouldn’t send a Venmo payment to someone who uses PayPal or a PayPal payment for someone who prefers a check.Remember the sender pays the fee. Some P2P services are free, while others charge a fee, particularly if a credit card is used to fund the transaction. “The clear etiquette is that the person receiving should get the full amount they are expecting,” Lisiewski says.Before hitting send, know whether a fee is charged and how it is applied. If the fee is taken out of the amount delivered to the recipient, adjust your payment to compensate for it.[Read: 3 Payment Platforms for Parents.]Understand the expected timeline for payment. Just as payment methods are evolving, so too are people’s expectations. “The expectation of paying someone back is no longer 'when I see you next,'” says Michael Landau, payments research lead for global financial firm PwC. Instead, people want to be repaid almost immediately.The Bank of America study found 53 percent of those requesting money via a P2P platform expect to be paid within 24 hours. Fifteen percent want it within minutes. To avoid hurt feelings, get on the same page with the other party about the timeline for payments. If the money will be delayed, the right thing to do is communicate, rather than avoid the subject.Exercise some discretion. Most P2P transactions are conducted privately, but there may be instances in which others see a payment. Most notably, Venmo maintains a feed for users that includes who was paid along with a brief description. The privacy settings for transactions can be adjusted to limit who sees them.Lisiewski stresses that discretion must be considered. Some friends may not want the details of their finances made public, even if it’s for something as inconsequential as a coffee. In other situations, such as a birthday or wedding gift, a public transaction could ruin the surprise.[Read: 7 Banking Services That Can Save Retirees Money.]It’s nice to send a note. Person-to-person payments are easy, but they can also be impersonal. “We can’t forget there is a human element behind it,” Landau says. “It would be off-putting to send a request for money before the reason is communicated.” This can be achieved, on many platforms, by including a brief note with the payment request.As for acknowledging a payment, there is no easy way to do so within most apps. Sopp says it would make sense to include the ability to “thumbs up” or “like” a transaction as a thank you. Until that feature is developed, the only way to acknowledge money would be through a separate email, text or call.That level of communication might be appropriate for a large sum, but Sopp says it isn’t needed for most routine P2P transactions. “A physical contact – a call – would almost defeat the purpose of it,” he says.While P2P payments are relatively new, they still benefit from old-fashioned social norms. Be polite when making requests, pay promptly and if there is a problem, follow up with a personal contact rather than letting a digital payment ruin a relationship.10 Money-Saving Websites to Check Before Shopping.

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Financial Advisors

Which Universities Burden Parents With the Most Federal Debt?

by sshrx_ns3li1
written by sshrx_ns3li1

Compare the average Parent PLUS loan received in the 2015-2016 award year, the percentage of parents who borrowed and other important financial data on a school-by-school basis in this table, based on New America's Education Policy Program analysis of data from the Department of Education. Institutions with fewer than 100 Parent PLUS loan borrowers in the 2015-2016 school year are not included. Click the headers to sort the data or type a college's name into the Search bar to see how it measures up. Click the links to learn more about schools ranked by U.S. News & World Report.Note: N/A means Not Available. Graduation rates reflect those graduating within 150 percent of the normal time, typically six years. Data were gathered from the Integrated Postsecondary Education Data System, the Federal Student Aid Data Center and the College Scorecard. Some university main and branch campuses may be aggregated into a single data point, depending on how they report loan data to the Federal Student Aid Data Center..

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Banking & Credit

Dealing With Rejection: 5 Things to Do When You're Declined for a Loan

by sshrx_ns3li1
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It's not you, it's me. You may hear that line sometimes if you're dating, and someone wants to let you down easy.But if you're rejected for a loan, it's you. Not them. It's definitely you.So what should you do if you're declined for a loan? Your strategies are going to vary, depending on what type of loan you're looking for. A mortgage? A car loan? A business loan? Still, you may want to try the following to help get your loan on track.[See: 12 Habits to Help You Take Control of Your Credit.]Find out why you were denied. This is important. If your credit score is in ruins, you'll want to fix that.Judy Woodward Bates, a personal finance author who also makes local television appearances on Fox 6 TV in Birmingham, Alabama, suggests checking your credit report at AnnualCreditReport.com."Errors regarding a person's credit aren't uncommon and can have a drastically negative effect on your ability to secure a loan. If your problems are due to errors, talk to the lender again, show him proof of the errors, and reapply."And, of course, if there are no errors on your report, you'll want to work on paying off debt and paying bills on time until your score begins to climb again.You could see if somebody is willing to co-sign for your loan. You could also rob a bank. Not every option you have is a smart one. If you're a young adult with a good job but not much of a credit history, asking you parents to co-sign for a loan may not be a bad idea. There are times when co-signing for a loan isn't such a bad plan.But often it is. Because if you can't pay the loan back, your co-signer will have to. If neither of you can, then you'll both see your credit score and credit history ravaged."I personally would never co-sign a loan," Bates says. "In my opinion, if you need a co-signer, you need to work on improving your credit and not borrow more money."[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]You could look for a lender that specializes in offering loans to people with bad credit. Korey Adekoya, the business development manager at Shabana Motors, a car dealership in Houston, suggests this – if you research the lender beforehand."There are plenty of places that offer bad credit loans, but some are better than others," Adekoya says. "Watch out for high interest rates that could put buyers in a pickle if they're already struggling with money."So how can you determine if a lender is ethical – or one that you should stay far away from?"You need to determine whether or not they actually want you to pay the loan back," Adekoya says. "A good lender always wants their money back, but there are some who charge large rollover fees to extend the life of your loan. This is usually a good indicator that you could be entering a cycle of debt."He also suggests asking a lot of questions and walking away if the answers aren't satisfactory."Predatory lenders prey on the weak, and your bad credit is an open invitation for them to lure you in. Take your time when configuring your loan and understand all of your options and consequences before signing the dotted line," he says.Request less money. Maybe if you were looking to get a smaller home, a less expensive car, a smaller amount of money for a personal loan – maybe your loan application, in that case, would be accepted.You might also want to try to get smaller loans from two or more lenders, to add up to what you need, suggests Raeshal Solomon, a Nashville, Tennessee author and speaker who specializes in teaching kids about the value of money."Sometimes you can get a little from more than one place to equal your total," she says.[See: 11 Money Moves to Make Before You Turn 40.]Try, try again. This is one path. Just because one lender said no, it certainly doesn't mean they all will. (It may mean that your credit isn't stellar, and you won't get the best rates. But if you need a loan, you need a loan.)"Too often people assume because one bank or lending institution denied them for a loan that they should just give up because they will be denied everywhere. This isn't the case. Lending institutions and banks all have a different set of parameters," says Ryan Fitzgerald, owner of Raleigh Realty in Raleigh, North Carolina.He says that one of his clients was denied for a home loan 10 times. He got a loan, however, on the 11th try."There were tears in his eyes when he was told he would not be able to receive a home loan. He didn't give up. He kept going and eventually closed on his house, albeit four weeks after the original closing date," Fitzgerald says.But do keep in mind, and this is just common sense, that if 10 lenders have shot you down, they probably see you as a credit risk. You may want to take that as a sign and get your finances in better shape before possibly taking on a loan you can't afford – or a loan that ends up having terrible terms.On the other hand, giving up just because you've been denied, say, once, probably is a mistake.Catherine Fiehn, who owns a photography studio in Milford, Connecticut says that she was declined for a business loan several years ago – not because she had bad credit, but because she basically had no credit."I was a ghost," she says. "I didn't use credit in any form because I never needed to."Fiehn mentioned that to her banker, who ended up visiting her studio and found a well-established storefront. Fiehn was granted her loan.8 Financial Steps to Take After Paying Off a Debt.

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Banking & Credit

3 Ways the Credit Industry Is Changing How We Apply for Loans

by sshrx_ns3li1
written by sshrx_ns3li1

If all goes as planned, you will soon be able to apply for credit by sending a text.Experian, the credit bureau, recently announced what it calls a “groundbreaking innovation.” It isn’t mainstream yet, though several lenders and card issuers are involved in a pilot program in which consumers can initiate and complete a credit application process within minutes by sending a text message.Still, while one could argue this new way of applying for credit is groundbreaking, it’s really just a natural progression of the loan application process, which has been evolving ever since the internet took off. In fact, so much has changed in the loan application world that it’s worth reviewing key milestones, as well as what could be coming down the pike.[See: 25 Fast Financial Fixes.]Lenders are aiming for more accuracy on whether you can pay them back. This could be wonderful – or terrible – news for you. It all depends how you view the lending experience.Earlier this year, Steve Smith, CEO and co-founder of Finicity, a Salt Lake City-based financial data aggregator, announced a partnership with Experian. The two companies are coming together to develop new technology that analyzes a borrower’s cash-flow data to determine whether he or she is eligible for a loan.This could work well for many people, Smith says. “This will be beneficial to those consumers that are thin-file or no-file for credit scoring, but are otherwise completely capable of managing a loan," he explains.He also sees it as a boon for small business owners. Small businesses, after all, have no credit score.“In the past, small business loans have been tied to the business owner's personal credit history. Through cash-flow analysis, all data points can be used … and not just a limited set typically provided by credit or lending organizations,” he says.But, of course, if your cash flow is erratic – insanely up one month, but in the gutter the next – and you think a lender might hold that against you, this development may not be so awesome.[See: 12 Simple Ways to Raise Your Credit Score.]Paperless mortgage loans could become a thing. As technology advances, it isn’t surprising that loans are increasingly involving less paperwork. Still, it’s striking just how little paper is involved.“We went paperless for the underwriting process two or three years ago … Nowadays, we order approximately six boxes of paper per month. Before we went paperless, we were probably ordering six boxes per week,” says Josh Moffitt, president of Silverton Mortgage Specialists, a mortgage lender in Atlanta.But not all consumers want to drop paper, Moffitt says.“Many buyers still like to work closely with a real person throughout the process,” he says. “They like to meet in person, have a coffee and bring their documentation to us. It’s not necessarily a generational thing, as we see people in their 50s who want to use the digital process, whereas some buyers in their 20s are uncomfortable with the online approach.”And mostly, Moffitt says, closing for a house is still done in person with paper, but he thinks that eventually, if consumer desire is there, buying a house from start to close, and signing everything digitally, will enter the mainstream.[See: 10 Ways Millennials Are Changing Homebuying.]We’re applying for loans faster than ever. Sonja Bullard, a sales manager at Bay Equity Home Loans in Alpharetta, Georgia, has been working in mortgage lending for 16 years and has seen a lot of changes in how fast loans can be approved. In 2001, it wasn’t exactly the Stone Age, but Bullard says that most of her clients now sign initial loan applications from their phones within five minutes.“Only a few years ago,” she says, “we would have to meet in person and sign all of the same disclosures in person, or the borrower would need to print them out from an email and sign each one.” Boston-based Brendan Coughlin, president of consumer lending at Citizens Bank, headquartered in Providence, Rhode Island, agrees. He says that the process to get a home equity line of credit was 50 to 60 days just a few years ago.“Now, there are a handful of customers who we approve and close a loan in five to seven days by using better digital technology and leveraging all the data we already have from them. And they do all of this from their home without needing to get in a car and come see us,” Coughlin says.But texting for a loan will make things even faster. It may not be faster than sitting at your personal computer or tablet and getting a loan accepted or rejected. But it does make it easy for consumers to apply for loans ASAP. Consumers, after all, are more likely to have their smartphone with them at all times, and not their tablet, laptop or personal computer.Experian’s senior product manager, Brittanee Moss, says that the texting-for-credit concept came from talking to lenders, who wanted customers to be able to apply for credit faster.“Customers don’t want to fill out lengthy forms to apply for credit, nor do they want to discover they may not qualify for a credit offer at the cash register after being invited to open a store card,” Moss says.But Coughlin thinks that sooner or later, texting for credit won’t be fast enough.“Everyone wants a simpler digital experience,” he says. “I can imagine a scenario where you can apply for a loan with a fingerprint authorization over your phone, and we all use that data we already have to make a decision.”10 Completely Careless Credit Card Mistakes You're Making.

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