Habits matter!
Especially credit ones
By Steve Mariani
It’s not always about the credit score. Many times it’s the history that gets an approval. Anyone who’s been around me for any length of time must have heard the story of my first real job back in the 70’s well, if you’re doing the math, I was about 15. If I haven’t shared this in my writings in the past, I will today.
It was my first day at work, I was 15 years old and had done many things prior to earn money but not in a true employment setting. That very first day my new boss explained the “few” rules he had if I wanted to continue my employment. Keep in mind I was on my best behavior and thankful for the opportunity as jobs were scarce. That’s when” Lenny” explained that my work habits would be my work habits forever. Being a hard worker already, I had little concern. This job was pumping gas in the local town gas station (yes, we had to pump the customer’s gas every single time back then). He began, if you put your hands in your pockets you will be fired instantly. He then continued, if your friends stop by to say hi, you’ll be fired. If you sit around with nothing to do, again, you’ll be fired. Well, almost shaking in my sneakers I began working harder than ever. With no such thing as a cell phone and barely a pay phone I also made sure my friends were aware of these rules. I was told that at slow periods of the day I was to sweep the pavement, empty trash and even paint to keep myself busy, and I did exactly that. The first day I thought this guy was tough but now, some 40 or so years later I know that he was teaching me the habits I would have for life. Looking back, I am grateful for those rules and the opportunity that “Lenny” provided me. All in all, he was a great boss and I worked for him a long time.
SO, how does all this fit into SBA lending and securing acquisition financing, I’ll tell you. When I am reading through a borrower’s personal credit report what I’ve learned to look for is their “money management” skills and how they fair during the ups and downs of an adults financial life. This seems to be a closer picture of how this borrower handles their funds as opposed to just looking at a credit score. Things like current and past credit card debt is not the only factors we consider, it’s also late pays going back 10 years and it’s important to note, life happens and payments are missed but which ones and why? Here is a small list in the order of importance when it comes to missed payments. Beginning with the least important
- Car payment – One late payment with a reason is pretty much a given and no big deal at all, miss a few and it becomes more of a concern
- Credit card late payments – again, what was the reason and how big is their average balance. Typically a missed payment here was due to travel, etc. and not a reason to believe this is a life pattern.
- Medical bills – Are always a concern but much more understandable by every lender we know. The health care system in America has issues and credit people understand that. As long as it is not in collection and no liens have been filed, we are typically good to move forward.
- Mortgage payments- This is the biggest concern and especially if it happened more than once. The message this sends is that if we are not concerned enough to keep the roof over our head (or families head) why would a lender think our loan payment would be more important. Consecutive missed payments here are hard to recover from without expanded and detailed reasoning.
Getting back to the habits as they relate to credit scores, it all shows up in the end. After years of reviewing personal credit reports it doesn’t take long to recognize a previous divorce, a family medical crisis or other such life changing financial event that caused an upset to a potential borrowers credit score. We’ve all experienced them. The recovery of such an event makes all the difference.
To sum it all up, most lenders have shifted slightly toward the money management skills of a potential buyer and not just what the number on the report says. Is it still difficult (or impossible) to secure a million dollar loan for a buyer with a 540 credit score? Of course but when asked what our minimum credit score requirement is, the answer is always it depends. We always suggest you require each serious buyer to be pre-qualified by a true SBA lender upfront and take the guess work out of it and the burden off the broker especially if you have any credit concerns at all. It’s always better to know and early and as the saying goes, a quick no can save a listing.
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