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What lenders consider.

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Anonymous
Not applicable

What lenders consider.

I'm new to the forum. I have noticed while there is a lot of knowledge of credit scores here. However, there seems to be alot of common misconceptions as to what lenders consider when extending credit and industry terms.
 
A little background: 5yrs in consumer lending; auto, credit cards, & mortgages; currently I'm an underwriter at JPMorgan in the HomeEquity division. I review applications all day and decide whether or not to extend credit and if so how much and what the rate be as well as any stipulations.
 
Consideration will varry depending on the lender and the type of credit you are looking for.
For secured loans, ie mortgages, home equity lines of credit, auto loans. When reviewing an application I consider: DTI (monthly debt as shown on the credit report divided by monthly income), Equity or LTV (loan to value - how much you owe on the home or car divided by the property's value), Credit scores, Time at residence, time at employer, type of employement.
 
Since I work at a bank rather than for a broker or institution that provides only loans. I also consider deposit relationship (does the customer have a checking or savings account or any other loans or credit cards with the bank and are they in good standing). As far as checking accounts go: does the customer keep funds in the account or does money go in and right back out. A customer who keeps funds in the account is worth more to the bank than one just uses the account to cash checks.
 
Mortgage brokers will be primarly concerned with: DTI, FICO, and length/type of employment
 
 
If someone is applying individually then only their income and credit may be considered. If they are applying w/someone else; either a co-applicant or co-signer (coapps & cosigners are basically the same) then both incomes and credit history will be considered.
 
Do not confuse co-app with AU (authorized user).
A coapp or cosigner is also liable for the account. So if you apply for a loan with someone else you are BOTH resposible for the payment. If one doesn't make the payment the lender may go after either party for the entire amount. That is called sole & several: it means if one person can't pay the other is resposible for full payment, not just "their half". If you apply for credit elsewhere that loan will show up as yours even though you "only cosigned". That lender might require proof that the other person has been paying it for 6mths or a yr. Or they might say "tuff... that is your debt". When applying jointly it does not matter who is the primary. You both have equal liability.
 
An authorized user, AU. Is only applicable to credit cards and lines of credit (unsecured lines of credit not HomeEquity lines of credit as HELOCs are a type of mortgage). Basically, if you have a credit card and add you spouse as an AU, You are saying to the credit card company "my spouse has my permission to charge on this account". But that AU is not liable for repayment of that account because they were not added as a coapplicant or joint account holder at the time the account was created. In other words their credit and income was not considered when extending you credit. Though their credit may benefit from being on your account. The account history will show on the AU's credit report, this is what Largo and other ICB's are selling to bring up people's FICOs. The fico of the cardholder (the original applicant) does not effect the AU's credit in anyway. Rather the AU now has a "seasonded" account in good standing on their credit.
 
 








Message Edited by 3rd325 on 06-07-2007 12:14 AM
Message 1 of 20
19 REPLIES 19
Anonymous
Not applicable

Re: What lenders consider.

Keep in mind that FICO is not the end all. The most extreme example I can think of is two customers I had recently. The 1st had a fico of 608 with several charge offs and the 2nd was in the 720s with not one late. I was able to lend more at much lower rate to the 1st customer than the 2nd. The reason was: the 608 customer had lived in the same home for 35yrs, been at the same employer for 33yrs, had a checking & savings with my employer as well as several loans and credit cards that had all been paid on time. While the 720 customer had moved twice in the past yr, changed employers 3 times in two yrs and did not have any accounts with my employer. The 720 was not stable the 608 was stable and showed loyalty to my employer so I gave her a lower rate and more money.
Message 2 of 20
Boswd
Valued Contributor

Re: What lenders consider.

Great post,  I hope this helps alot of people.   I think too many people get so focused on just their credit score they lose focus on other aspects.  
 
Also how do you consider people, since not all lending institutions have the same requirements, but how do you look at people who have a large number of credit cards? 
Message 3 of 20
Anonymous
Not applicable

Re: What lenders consider.

Thank you for taking the time to share the benefit of your knowledge and experience! 
 
I have a question along these lines that I hope you'll again share your educated opinion.
 
Do you have an idea at what point a lender will look at your length of employment as negative if it's too long?  Meaning they stop and think "uh oh, this person may be on the cusp of retirement."
 
For example, I've been with the post office for 28 years and in I'm in my early 50's.  I'm eligible to retire in 2+ years but I'm not sure if I'll stick around a couple of extra years or not. I'm also thinking of selling my current home and purchasing a new one prior to when I actually decide to retire. 
 
If I did not mention I'm eligible to retire soon, would a lender not even think to add that to the equation?
 
As long as I'm employed, wouldn't it be age discrimination to disqualify me because they think I "might" retire soon?
  (These are the questions keeping me up at night.)
 
Thanks for your input!

3rd325 wrote:
I'm new to the forum. I have noticed while there is a lot of knowledge of credit scores here. However, there seems to be a lot of common misconceptions as to what lenders consider when extending credit and industry terms.
 
A little background: 5yrs in consumer lending; auto, credit cards, & mortgages; currently I'm an underwriter at JPMorgan in the HomeEquity division. I review applications all day and decide whether or not to extend credit and if so how much and what the rate be as well as any stipulations.
 
Consideration will varry depending on the lender and the type of credit you are looking for.
For secured loans, ie mortgages, home equity lines of credit, auto loans. When reviewing an application I consider: DTI (monthly debt as shown on the credit report divided by monthly income), Equity or LTV (loan to value - how much you owe on the home or car divided by the property's value), Credit scores, Time at residence, time at employer, type of employement.
 
Since I work at a bank rather than for a broker or institution that provides only loans. I also consider deposit relationship (does the customer have a checking or savings account or any other loans or credit cards with the bank and are they in good standing). As far as checking accounts go: does the customer keep funds in the account or does money go in and right back out. A customer who keeps funds in the account is worth more to the bank than one just uses the account to cash checks.
 
Mortgage brokers will be primarly concerned with: DTI, FICO, and length/type of employment
 
 
If someone is applying individually then only their income and credit may be considered. If they are applying w/someone else; either a co-applicant or co-signer (coapps & cosigners are basically the same) then both incomes and credit history will be considered.
 
Do not confuse co-app with AU (authorized user).
A coapp or cosigner is also liable for the account. So if you apply for a loan with someone else you are BOTH resposible for the payment. If one doesn't make the payment the lender may go after either party for the entire amount. That is called sole & several: it means if one person can't pay the other is resposible for full payment, not just "their half". If you apply for credit elsewhere that loan will show up as yours even though you "only cosigned". That lender might require proof that the other person has been paying it for 6mths or a yr. Or they might say "tuff... that is your debt". When applying jointly it does not matter who is the primary. You both have equal liability.
 
An authorized user, AU. Is only applicable to credit cards and lines of credit (unsecured lines of credit not HomeEquity lines of credit as HELOCs are a type of mortgage). Basically, if you have a credit card and add you spouse as an AU, You are saying to the credit card company "my spouse has my permission to charge on this account". But that AU is not liable for repayment of that account because they were not added as a coapplicant or joint account holder at the time the account was created. In other words their credit and income was not considered when extending you credit. Though their credit may benefit from being on your account. The account history will show on the AU's credit report, this is what Largo and other ICB's are selling to bring up people's FICOs. The fico of the cardholder (the original applicant) does not effect the AU's credit in anyway. Rather the AU now has a "seasonded" account in good standing on their credit.
 



Message Edited by Felicity on 06-07-2007 10:12 AM
Message 4 of 20
Anonymous
Not applicable

Re: What lenders consider.

Boswd  Having lots of credit cards isn't bad in and of itself. If your DTI is high I may want to pay some of them off and in extreme cases stipulate that they be closed. If your DTI is low then I don't really care. My main concern is "can this person pay all their bills and the payment on the loan". If someone just  openned a bunch of credit cards and they are maxxed out I will want to know why, however, usually that would be reflected in their credit score.
 
Felicity Being at an employer for a long period of time is never bad. Chances are if a customer has been there forever" then they will have a nice pension and IRA/401k. Being retired is actually good, as long as the retirement income is enough to pay the bills. The reason is that your pension or 401k or Social Security will not fire you or lay you off. If someone goes from making 75k a yr to living on 25k in Social Security that would be bad, but that is rare.


Message Edited by 3rd325 on 06-19-2007 09:07 PM
Message 5 of 20
fused
Moderator Emeritus

Re: What lenders consider.

3rd325:
 
Here is my current situation, please give me your assessment.Smiley Wink  Thank you
 
Income: 75k a year/ 5,770 monthly gross
Employment: Office Manager for a Surgeon since 11/99
 
Current Fico scores: EQ 772, EX 739, TU 770
 
All three clean, 0 baddies,
Inq's: EQ 8, EX 4, TU 1
 
TL's:
 
Auto Loan PIF opened 05/02 and paid 06/06
My personal Bank Gold Visa opened 12/05 cl 10K balance 450
Macys opened 12/05 2k cl limit balance 0
FIA Visa Plat opened 02/06 15k cl balance 0
Unsecured 5k loan with my personal bank opened 05/06 balance 1500 monthly payment is 158
Amex Blue opened 12/06 17.5k cl balance 935 monthly payment is 100
Amex Gold charge card opened 04/07 no limit, reporting high balance 4306, but real balance is 0
Unsecured 10k loan with a bank in my locale opened 06/07 first payment due 07/07 monthly is 259
 
Have no plans to apply for anymore credit until the end of the year when I will be house hunting again.


Message Edited by fused111 on 06-08-2007 11:26 AM
Message 6 of 20
Anonymous
Not applicable

Re: What lenders consider.

This is a good thread! And Barry should consider making it Sticky.
 
Thanks for the info 3rd325Smiley Very Happy
 
Take Care.
 
Rob
Message 7 of 20
fused
Moderator Emeritus

Re: What lenders consider.



FICO_Focused wrote:
This is a good thread! And Barry should consider making it Sticky.
 
Thanks for the info 3rd325Smiley Very Happy
 
Take Care.
 
Rob


I totally agree.  This forum his heavy on credit repair and cc's.  Nice to get the skinny on mortages.
Message 8 of 20
fused
Moderator Emeritus

Re: What lenders consider.

BUMP!
Message 9 of 20
Anonymous
Not applicable

Re: What lenders consider.

If mods won't float this and make it sticky, I'll try and keep it near the top of the lists... The OP is worth reading!!!!
 
Take Care.
 
Rob
Message 10 of 20
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