Be Honest, but not too Honest

Sometimes, telling the truth is looking for troubles. However, you are often better off telling the right things to the right people in order to gain their trust. Your relation with your banker is very similar than your relation with your girlfriend/boyfriend. He needs to feel that you are honest about what you are telling him. This doesn’t implicate you need to tell him all the truth. Only what he would be able to discover if he does a little bit of research. Lies are not suggested to both your spouse and your banker. There are things they will find out sooner or later, so you are better off telling the honest truth about them.

Credit Issues

Everything that lies in your credit bureau should be disclosed upfront. The main reason being your banker will find out the second he pulls out your credit bureau. All late payments (bad credit), maxed out credit or collection agency stories should be explain to the bank before your submit your credit request. There is no point in lying as they will find out that about your lies pretty fast and you can be sure to be declined at this point in time.

You are more than welcome to prepare a story regarding your late payments or other credit issues. Family issues such as divorce, moving, dispute with another institution regarding fees or just a bad period of your life in regards to other personal reasons might suffice. At least, you are being honest about your credit issues and if the story goes according to your credit bureau, the bank may be more lenient about your file. They might understand that it was an isolated case of bad credit and give you another chance to prove that you are trustworthy.

Income

In regards to income, the bank will see what you provide. While they are not dumb, you may be able to bump your income a little bit. If you are receiving big bonus or other declared income on a irregular basis, you might want to submit your year end summary provided by the Government (Notice of Assessment for Canadians, US Gov provides something similar as well). It will show your total income earned during the previous year without any breakdown. Therefore, your banker will have no other choice but to use this amount to calculate your Total Debt Servicing Ratio (TDSR).

If you are not able to provide sufficient proof of income in regards to one of your type of revenues, don’t mention it period. If you can’t prove your income, the bank won’t consider it. It would be just a total waste of time. If you are doing a lot of overtime, you are better off using your year end pay stub showing your cumulative income throughout the year or your Government’s year end statement.

Explain what is your plan, how you will pay back the bank

The most important part when the bank look at your credit request is that they want to know how you will pay them back. This is why the look at your credit bureau to find any bad credit loans and they calculate your Total Debt Servicing Ratio (TDSR) to make sure your can pay all your financial obligations, including theirs. They are more concerned about their own pocket than anything else, don’t try to fool them.

Prepare a plan and show them the money you will use to pay back the loan. Show them that you thought about your credit request before coming to see them. Like a first date, the bank wants to be reassured that you are not only there for one night but you will stay for the next following years. They love stability. By showing them a good reimbursement plan, you take care of all their concerns at the same time. You have to show them the way so they ask the least question possible.

Debts in general

A really good habit to make sure your credit bureau is in line with your real financial situation is order a credit bureau on a yearly basis. That will also give you interesting information. If you look at it carefully, you will notice that some of your debts are not reported to your credit bureau. Banks decide to not report all debts you have with them for competition and other reasons of their own. This matter will be discussed more deeply in the Get around the Financial System section. For this article, I am concentrating on the fact that some debts are not shown anywhere.

It is then up to you to disclose them or not. If you don’t, your TDSR will be lower and your net worth will be higher. These are two key points for the bank to qualify any application for additional credit. However, your credit inquiry to that financial institution will still who. If it’s old, nobody will bother about it. Nonetheless, if it’s recent, you are better off telling them upfront that you are “shopping around” for the best rate possible. It will put more pressure on your financial institution to get an approval and also give you’re the best rate possible.

As you can conclude, there are many things banks don’t know about you and there is no way that they verify everything. By looking at your credit bureau, asking question to your banker as of to which proofs of income they accept, you might find other way to get around the financial system and get an approval for your credit request.