Jim Hane wants to dispel a myth about how bankers view credit. “Sometimes I meet people who get nervous to come in the bank, or who are nervous to talk with me about applying for a home loan, because they worry that they don’t have the best credit and that all I’m going to tell them is no,” he says.
“They can feel embarrassed and think that when I pull their credit that I’m going to judge them. But I always tell my customers – hey, life happens. My job is to help you get a game plan in place to build your credit score up, so that in a set amount of time, we can revisit this conversation and hopefully get you in a position to get a loan for a house.”
“I love helping folks that have no credit, or that have limited or damaged credit – that’s one of my greatest joys in this work.”
Hane notes that we are a credit-score driven society, especially when it comes to the ability to buy a house. For folks with no credit, limited credit, or damaged credit, he recommends three action steps:
1. To help build your credit, you need to use credit
Hane notes that while it sounds counter-intuitive, someone with no credit or damaged credit actually needs to establish new credit so that they can improve their score. “It’s a good idea to start with something like a credit card, or diversify the type of credit you already have. You can apply for an installment loan, like an unsecured personal loan, as a ‘starter loan’ – something for $500-$1,000, for example,” Jim says.
On installment loans – like an auto loan or a personal loan - you have to pay back the money that you borrow right away, usually through a recurring monthly payment, so the proof that you’re able to do so consistently helps build both your credit history and your credit diversity.
“Just make sure that you’re taking out a loan that you KNOW you can pay back, based on your monthly income and expenses, and then be timely with your payments to help build back that credit score,” Jim suggests. And be aware - too many credit cards can have an adverse impact on your credit. Use good judgement when considering store credit cards to get immediate discounts or rewards.
2. Work with the credit bureaus, and highlight what you’re doing well
“When I work with customers who want to improve their credit, I like to highlight the places in their lives that they’re doing really well, like being responsible and timely with rent payments, utility payments, cell phone bills, you name it. While those things don’t show up on a credit report to your advantage, you can contact any of the three bureaus and ask to get something like your cell phone bill, car or car insurance payments, or regular utility payments added to your credit report,” Jim says.
To get this kind of documentation included, you can request a printout for the last 12 months of payment (if you have a perfect history and haven’t been late) from your cell phone provider, landlord, etc. Then you can submit those payment records to the credit bureaus. For a renter, you can also submit 12 months’ worth of cancelled checks, or even a printout of your online banking statement.
Some bureaus might be more stringent than others in the types of documentation they will take, Jim notes. But no matter what, reach out to them and ask what they’ll consider as “alternative credit sources” to get a boost for what you’re already doing well, he says.
The easiest way to get in touch with each of them is through their websites: Experian, Equifax, or TransUnion.
3. Don’t use all of the credit available to you
“One of the factors that impacts your credit score is something called your ‘credit utilization percentage’,” Jim says. “It’s a big part of a credit bureau’s formula in determining your credit score, and they don’t like to see more than 40% of your current credit limit being used at any one time – primarily on your credit cards,” he adds.
“My customers say to me, ‘I make my payments on time. Why is my credit score low?’ And I tell them, you could be paying on time and your credit score could still be going down because the balance on your credit card is exceeding the 40 percent ideal limit. What happens if you’re at the limit of all of these cards and an emergency comes up? Creditors will think, hey, you can’t pay – and that’s a bad thing.”
Jim’s suggestion? Start paying down your credit card balance, and don’t just pay minimum payments - pay down the principal as much as you can. This way, Jim says, you’ll be under the 40 percent “ideal limit” that credit bureaus care about, and your credit score may improve.
With these three tips in mind, Jim says, his customers have had success in qualifying for loans, especially after overcoming their initial hesitation in talking with a lender about credit. “Some folks say, I went to this other bank and they just told me no. But I want to help folks get a game plan that’s tailored to them, and then talk through how they can work the plan. I always tell my customers, ‘Now you have your homework to do!’ and they’re empowered to go do it."
One customer even had 25-month plan, Jim noted, “and she followed it to the letter! When she came back, we were able to do a first-time homebuyer loan for her. Now she’s a homeowner for the first time.”
For Jim, that’s what Norry Bank is all about. “With our lenders, we’re taking that extra time, giving someone the personal service that they need to get where they want to be. I think that’s why folks choose us, and that makes me proud to represent Norry Bank.”
To learn more about improving your credit or to connect about loan options, visit norrybank.com/locations to find a lender at a branch near you.