@RLFLOWS wrote:I recently applied for a line of credit with a Northern California credit union. A rep called me after I applied online & asked what the LOC was for. I told her debt consolidation but actually I wanted it to pad my utilization. By telling her what I thought she wanted to here she stated that I would have to close my credit cards if approved. I told her to cancel the application. Is this a standard question to be asked?
Yes, specifically for the very reason you stated here. A LOC isn't necessarily the product, it's the interest accrued from use of a that LOC that is the product. Underwriters have heard it all from applicants before and they do track performance (loans approved vs utilized). Using a different reason would most likely yield a different response such as a major event coming up, planning travel, improvements to your house etc.
As you found out it's generally never a good idea to list debt consolidation as the reason for use or desire to have the loan. Many people would think it's a good thing. Unfortunately, it's simply not looked at in a favorable light by lenders as it signals trouble in your finances, or the management of your finances. I'd agree with @fury1995 that you could have told them a multitude of other uses, such as you were planning on refurnishing your home, going on a bucket list vacation, etc...
@JoeRockhead wrote:As you found out it's generally never a good idea to list debt consolidation as the reason for use or desire to have the loan. Many people would think it's a good thing. Unfortunately, it's simply not looked at in a favorable light by lenders as it signals trouble in your finances, or the management of your finances. I'd agree with @fury1995 that you could have told them a multitude of other uses, such as you were planning on refurnishing your home, going on a bucket list vacation, etc...
I forgot which lender, but I was playing around with their pre-approval for a personal loan a couple of months ago.
When I put in that it was to consolodate debts I got a pre-approval for a lower dollar ammount, and higher interest rate, than when I put in that it was for an emergency expese!
Based on posts I've seen, and that experience, I've come to suspect that it is generally a bad idea to tell the lender that it is for debt consolidaion, though may be best in some circumstances.
I had no intention of taking the offer either way, as I was only a few days from closing on my HELOC.
@RLFLOWS wrote:How can you ask for a LOC using home improvement as a reason if you're not a home owner?
How do they know your not a homeowner? The deed and mortgage for our house is in my wife's name but for all intents and purpose it's my house as well. I've never had anyone question that.
Both times in my life I have ever got a personal loan I used the "vacation" answer, was approved both times for the amount that I wanted with no further questions asked. This was a long time ago now but I used that because I really didn't think it was the banks business what I decided to use the money for. I certainly wasn't going to tell them it was for a lawyer/court cost on a reckless driving/racing/speeding ticket...lol
(for what it's worth I wasn't actually racing anybody, don't get yourself in a tizzy)
But yeah, no way I'd tell a bank I need them to loan me (more) money so I can give it to other banks to pay them money I owed...seems like a bad idea on its face if you spend even 5 seconds thinking about it.
8/22/24
3/09/25