Think like a lender. Will he or she say yes? Carroll County, MD
Series part 4
Blog Series: Discover how to get your financial house in order.
Think like a lender. Will he or she say yes? A lot of planning goes into proposal, engagement and weddings. The Knot & Huffington Post both say, December is the most popular time of year to get engaged. It makes perfect sense, the warmth of the meaning of Christmas and Hanukkah, the love, selflessness and the cooler temperatures, well, normally Maryland is cooler this time of year. An engagement proposed by the crackling fire after a walk through the childhood neighborhood, looking at the twinkling lights, pondering the future and what is yet to come, how romantic. This would not be a good time to ask, “Oh, by the way, what’s your credit score?”
You have selected for the perfect diamond ring, you can recite the 4 C’s of diamond grading: cut, color, clarity, and carat. What about the 4 C’s of Creditworthiness? Lenders consider 4 factors when determining your creditworthiness none of them have to do with that precious gem you painstakingly chose. These four “C’s” are about your future, as a couple and as individuals. The four “C’s” focus on two principles, creditworthiness and the ability to repay.
The four primary factors lenders and creditors consider when determining your creditworthiness.
Capacity
Capital
Credit
Collateral
Capacity is another term for income. Lenders examine the ability of a potential borrower to demonstrate that his and/or her income is sufficient to repay the loan. Lenders also consider an individual's current debt load.
Income: The source of income, length of employment, will the employment continue.
Debt: Car loans, student debt, child support, alimony, credit cards, personal loans.
Debt to income ratios are the percentage of gross income that goes toward your housing expense vs your other expenses.
Capital refers to the cash reserves (savings), investments or assets possessed by an individual or couple.
Capital: Gift, grants, savings, or retirement funds.
Credit is the concept of using tomorrow's money to pay for something today. Credit is a promise to repay debt for goods and services. Credit may be extended via several means including credit cards, personal loans, car loans, and home loans.
Credit: Credit score, judgements, collections, charge offs, bankruptcy. 
Credit History is a record of credit use. It is comprised of a list of individual consumer debts and an indication of how those debts were paid back. A credit report is a complex system of documenting individual's credit history.
Collateral is the value of the property owned, or seeking to own, by the borrower. If the borrower, aka debtor, fails to repay the loan the creditor can force the property to be sold to repay the debt or foreclose, repossess the property to satisfy the debt.
Collateral: Car, house.
If you are planning on getting engaged, that’s a wonderful and exciting time, cherish every moment. You are both smiling like the Cheshire cat, calling everyone you know (everknown), changing your status on facebook and being hammered everyone for the details. Here’s a little more great advice from the knot, have an answer ready, “Once we come off our cloud, you’ll be the first to know...” Just remember, after a few weeks of reveling in the joy, have an honest talk about finances, credit and create a plan to make sure your future is bright and the lender also says yes!
Think like a lender. Will he or she say yes?
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