Help! I could really use a friend...

[Angelique]

I may not be able to shed too much light on the consolidation loan industry, but as a seasoned mortgage loan officer, perhaps I can help a wee bit.

Firstly, if any of you own homes and are looking to consolidate, I would recommend refinancing your home or taking out a Home Equity Line of Credit (HELOC). Those loans are made at a MUCH MUCH lower rate of interest than some so-called "consolidation loans." When approving or rejecting these applications, the industry has forced us to use a credit score obtained by mortgage companies from the three national credit bureaus.

Now, lemme tell ya', I've seen some shit cross my desk that you would NOT believe! For example, I've seen credit scores for people who have filed bankruptcy that are much higher than the person who has struggled through some tough times, had some late payments, and never filed BK. I'm asked daily how credit bureaus score...and to tel ya' the truth, I have no flippin' clue. It's one of the great mysteries of life.

If you do not own a home and still need to consolidate, I would HIGHLY recommend thinking twice before going to these companies that say they can help you "budget". The local one here is called "Consumer Credit Counseling". Once you walk into an agreement with these folks, you might as well hang up your credit for a good number of years, 'cause if you apply for a mortgage any time soon, the lenders treat that as if you just filed BK an hour ago and want to take out a loan for a home.

But there is hope. Depending on how much money you need, there are high risk lenders out there who will lend you money. I know this from experience as my credit was shot after my divorce 7 years ago.

If anyone's interested, I can give you more info.

To answer you question Harold, loans are always based on a debt-to-income ratio. For example, if you applied for an FHA loan to purchase a home, your mortgage ratio (calculated by using ONLY the mortgage payment against your total income) could not exceed 29%, and your entire debt ratio (using your total payments reported on your credit bureau and your new mortgage payment) could not exceed 41%, although with excellent credit scores, that percentage can be increased as an "exception." I have to assume that when looking for a consolidation loan that the same principle applies. If your debt ratio is 60%, then I'm sure you'd be denied credit because you have "too much debt."

Hmmm...was I a big help or what? I wonder how many of you I confused the hell out of?

Good luck all!
Angelique

 

[RonG]

Regarding credit acceptance and turn-downs, there is another little wrinkle that shows up in decision making: Actuarial Science. This is the branch of math that deals with the probability of bad things happening to people based on whatever criteria they spit into their models. This is the big driver in the insurance industry when they figure whether to cover you or what your premium ought to be. The relation to the credit/loan industry is that they have studied thousands of people and figured out that at a certain debt/equity ratio you make a bad bet for the moneylenders or if you have certain patterns that trigger red flags in their computers, you get rejected. All the high interest loan sharks do is up their original take to improve their likelihood of getting their money out of you as a bad risk.

When they do career counseling and ranking of the best jobs, actuaries come out on top income to stress-wise. The problem is that it is so deadly dull that accounting looks good in comparison.

My favorite credit story was getting turned down for a Discover card. We had no unpaid bills, no car loans, 50% equity in my house and had never been late. Discover decided that I was unlikely to ever pay them any interest based on my credit history so they turned me down. Hence, the models do have some unusual things buried in them based on statistics.