I recall several years ago a young woman came to my office wanting to know how she could get qualified for a home loan. I then began to go through the prequalification process just like I'd done countless times before. I asked about her job, what she did, how long she had worked there and so on. I then asked about her income, whether she got paid a salary and if so when she got paid such as the 1st and 15th of the month. After all the income information was presented I then began asking about her bank accounts to be used for a down payment and closing costs.
As far as closing costs, I then prepared an initial loan cost estimate for her to review and take home. She said she had enough money needed and if she was short her parents said they would help out with any shortfall. I then gave her a list of documents needed to proceed with the the loan preapproval. I calculated monthlhy payments for her based upon a traditional 30 year loan and included a monthly allotment for property taxes and insurance, standard procedure when calculating debt to income ratios. She was happy with the qualifying amount and felt comfortable with the monthly payments.
We began to complete an initial loan application and during that time she told me she probbaly wouldn't be able to qualify right now due to her credit. I inquired further and she explained that she paid her rent on the 1st of the month but didn't pay her credit card, she had two of them, until the 15th of the month. I didn't see anything wrong with that but I suggested we pull an initial credit report to see exactly what she was talking about. In those days, a credit report didn't arrive within moments of the initial request. Depending upon how busy the credit agency was, there was a wait. Not a long wait but a wait nonetheless.
So we sat there and chatted for a while and also looked at other loan options she could qualify for. Soon, the credit report came over the fax machine. I retrieved the report and returned to my desk. I looked at the report and the report was essentially clean. The two credit card accounts showed up and while there were outstanding balances, those balances weren't all that troubling. Further, there were no late payments showing up on the report. She had excellent credit, she just didn't know it.
You see, her credit card statements always showed the due date was on the 1st of the month. But since her paycheck on the 1st went toward the rent, she paid toward the paycheck that arrived on the 15th. When I initially ordered the report, based upon what she had already told me, I was expecting some late payments to show up. But there were none. I then proceeded to type up a prequaification letter to take with her. She was however a bit confused. How could she get a prequalification letter this soon when her credit needed some time to repair?
I explained how credit accounts report to the credit bureaus but only in 30 day increments. If she paid an account on the 15th there would be no negative reporting. Only payments made more than 30, 60 and 90 days late would show up. I showed her the credit report and explained this to her. She was somewhat shocked and began to realize that she could have bought a home much sooner than she had thought. With her prequalification letter in hand, she walked out of my office ready to buy her very first home.
###
