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6) How a Loan Officer Looks at You

To most people in the general public, the evaluation techniques that loan officers use are an enigma. What compounds this situation is that no one attempts to clear the mystery that shrouds the evaluation of consumers. We want our customers to have better information so that you may save yourselves more money.

Right now, most pricing is risk based. Basically, that means the more risky you are the higher the interest rate you'll be charged and vice versa. The way to save interest when you borrow is to limit the amount of perceived risk loan officers see when they look at your credit bureau. How then exactly do loan officers look at your credit report?

Loan officers will use a scorecard that allows them to score potential borrowers. Financial institutions do a great deal of work compiling statistics on performance. As consumers, we can do ourselves a great service by understanding the criteria. UCMS has an illustrative example scorecard below.

Loan Officer Scorecard

Reprinted with permission, The Nilson Report, Oxnard, California

Look at how much weight is put into "Credit Card References". It is very important and is over 25% of your score. "Inquiries" is an area that generates a lot of questions. An inquiry is when you apply for credit and a financial institution asks a credit bureau for your report. As you can see, if you apply for a rash of five cards, you lose points.

As college undergraduates, you have a real opportunity here to save some money by doing some quick planning. Let's for one moment project ourselves six months past graduation to a time when we are buying a car. Let's look at our situation: we rent and have a fresh new address (we look volatile to a loan officer) and we are brand new at our jobs (lowest score possible). We can negate this effect by "using our credit card as a tool" to command a better interest rate loan. In the next section, we'll show you how to "save thousands when you borrow".

Learning how a loan officer looks at you will save money. It also allows for you to set some goals with how you want your credit report to look like. The money you save will make you happy!