Applying for Credit

Applying for Credit

Here are some tips on how to approach filling out a credit application. Start out by having copies of your bankruptcy discharge notice and your three credit bureau reports with you when applying for credit. Be ready to explain orally and on paper, exactly why you were forced to resort to bankruptcy. Don’t lie but you should emphasize those factors that others can sympathize with. If illness or a legal problem not of your making was involved even in a minor way - mention it. But be positive, not negative.

Don’t get into the ‘blame game’ in an attempt to transfer blame for your acts to others. Admit that you made mistakes but mention the other factors also - not as an excuse but instead as an explanation. If your past includes problems with drugs, arrests or booze, don’t even think of mentioning it now.

If you’re at a loss as to what to say exactly, you might want to ask the loan officer for some suggestions. After all he/she has seen tons of these applications and will know what kind of language will help grease the skids. Or you might want to ask their opinion of what you write. They may be willing to edit your comments in helpful ways.

You will also be required to list your recent (since discharge) credit history. Have this information with you preferably typed up on a single page that you can show a loan officer. Be truthful (except for one question we’ll discuss later). The more organized and truthful you appear now, the better. This will increase creditor confidence in your sense of discipline.

Loan officers are like cops when they conduct interrogations. Should they uncover a small lie, they will automatically assume there are others perhaps even bigger ones. When every little detail is truthful, neat and proper, they’ll assume they’re dealing with an honest man.

Be sure to answer all questions. Leave no blanks as that will subtract from the image you want to project. Should the form include the dreaded check box with the question ‘have you ever filed bankruptcy??. You’ll need to decide the best course.

I’ve found it constructive to leave the block unchecked and honestly reveal my personal situation to the loan officer. That way you’ve been open and honest and have placed the whole matter in his lap. Some ‘company men’ will fill check the box for you but many loan officers will white-out a checked box simply because they want the deal approved and know that the empty-headed paper shufflers back in the home office will automatically reject any application they receive with that particular box checked.

Your employment record should show two trends. First, even though it’s fast becoming a dominant trend, you should avoid changing jobs too often. And secondly, be sure to stay employed in your same field. Loan officers hate to see applications from job hoppers who also hop fields. Stay put for now, at least until you get the car(s) and home you need, then you can change jobs whenever you like.

Before applying for credit you might want to call the firm and ask which credit reporting bureaus they use. You may find that most businesses in your hometown use one of the three majors almost exclusively. Each area has it’s favorites.

On an application the following can cause you problems and should be avoided as much as you can:

Self-employed (you can still borrow but it will require more paperwork)
No telephone listed in your name
Carrying too much debt (over 35% of your income)
Not a US citizen or permanent resident alien status (you might flee)
Lack of good employment skills (minimum wage jobs won’t work here)
Unverifiable employment
Lack of good banking reference (both checking and savings account)
Gaps in working history/too much job switching

Here’s the best way to handle being self-employed. Loan officers accept W-2s as proof of your income and job security. W-2s make them feel all warm and fuzzy. Any other proof is suspect. This is really very stupid when you stop to realize how many people are being laid off or down-sized each and every day in this country. But this is their attitude nonetheless. As a self-employed person you’re at a disadvantage if you can’t give them what they want.

If your business is an unincorporated sole proprietorship or partnership, perhaps you should consider forming a corporation. Check with your lawyer or accountant first and if it’s in your interest - go ahead and create a new corporation. Be sure your new firm has a business-like name that doesn’t include your name. ‘National Transportation Associates, Inc.’ sounds much better than ‘Sam Johnson Enterprises, Inc.’

Then you can set yourself a fixed salary and cut your own W-2s. Your corporate address should be one of those rented PO box outfits like Mailboxes Etc... where you can use their street address which will conceal the fact that you’re using a PO box. Then call your local phone company and request a ‘stand-alone phonemail’ number.

This will give you a number that acts like an automated answering machine. Over your phone you access the menu and record a greeting. The stand alone version of phone mail differs from an answering machine in one critical way - it isn’t connected to your home phone and has it’s own discreet local number (or a toll-free number for a higher fee). People call and leave messages. You call a separate number to retrieve your messages.

But the important thing here is that you now have an verifiable business phone number which adds to your image as an employee, not a self-employed person. And if someone should call for a credit reference, you will get the message yourself and can handle it any way you choose.

If you make a mistake and get declined for a loan, be sure to question them carefully to find out exactly what happened and why. Ask them what factors went into their decision and then be sure to obtain the free copies of your credit reports you’re entitled to.

Credit unions are great if you want a low-interest rate car loan or a low-rate credit card but there is one problem with them. Call the one you are considering and ask them if they report their loan payments to the credit bureaus. If they waffle on their answer, ask to talk to a supervisor or branch manager. If they can’t give you a solid answer, move on to the next one.

You should also note that some creditors are more eager to deal with you than others. Generally the largest single bank in town is probably the most difficult place for you right now. Smaller banks launch promotions aimed at landing new loans and accounts. Watch your paper for ads. You’ll find a much more willing
banker in one of these smaller, hungrier banks.

When you’ve chosen a bank you wish to open an account with, call them first. Ask if they offer a secured Mastercard or Visa. Do they automatically issue a debit card on new accounts (or do they require a credit report?). Do they charge for ATM use? (some banks charge incredible fees for simple ATM use)

After you’ve opened your account, you should be aware that some banks won’t allow you to have checks printed with any other starting number above 001. This is a problem as retailers can balk when presented with a low-numbered check. Always start your checks off with 301 or 401 for this reason. If the bank won’t allow it, tell them you’ll have your checks printed by your favorite printer. Almost all printers print checks and couldn’t care less what numbers you use. (checks ordered through banks are prohibitively expensive anyway)

How can you find a flexible banker? Call your bankruptcy lawyer and ask for a reference. Call any friends you have that have had financial problems in the past. Don’t worry if you have to travel cross town to get the account deal you want. Chances are that same bank has a branch near your home which is where you’ll be doing your banking.

One tactic is to boldly tell your hopefully flexible banker that you have a bankruptcy in your past but are eager to rebuild your credit. Can they offer any advice as to how their bank could help you? You may be pleasantly surprised to discover they have special programs designed for people just like you! (some particularly friendly banks offer various packages they call ?Credit Builders’) Ask if they offer secured credit cards or secured loans which can provide you with a royal road to a great new credit rating.

A secured credit card will help you obtain a traditional unsecured card and a secured loan will require that you open a savings account. Most credit applications ask if you have a savings account and now you’ll be able to say yes which will help boost your credit rating.

Be sure to ask your new banker how much you’ll have to have deposited in your new account before they will waive your monthly fee. Around $1,000-$1,500 is the norm. Some smaller savings and loans offer fee-free banking to any and all comers. Few banks charge ATM fees for their own ATMs. And you should always fill out an application to cash checks at your favorite supermarket which is a handy way to buy food and get some spending cash at the same time.

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