Are you a good risk? A good credit risk, that is. Put it this way, if you turned up in your office and asked to borrow some money, would you behind the desk say yes immediately? You know this person's history. You know their character. So, with all the facts you need, would you say yes? If your answer is an immediate, no worries certainly, you're saying this person would have no problem repaying the debt and would take it seriously and not just intend to but want to pay it back according to the terms of the loan agreement.
Fine person, solid as a rock, realistic attitude, sufficient income, excellent track record. But if you're saying yes because it's you and you know you have a poor track record, but you also know the reasons, what a court of law might call mitigating circumstances, you're kidding yourself. Or if you know this person, i.e. you, has other commitments that are going to make it difficult to repay another loan, you're not just kidding yourself, you're being unfair on yourself: yourself as the borrower and the lender.
Hey Big Spender
Let's say the borrowing you need to finally buy a home. You've been living in rented accommodation long enough and the time has come to join that worldwide band of winners, the homeowners. But the lending you knows the borrowing you has struggled financially in the past and, although they're doing better now, they're already a co-signer on a loan. This could have been done to help, because the person applying for the loan had a poor credit rating or was too young to even have a credit rating. The most common example is student loans.
Whatever the reason, if you're too tied up helping other people, your own credit opportunities may be limited as a result. In financial terms every commitment, every act of kindness or compassion is just another potential drain on your income. If you haven't yet cosigned on a loan, you might be wondering will cosigning a student loan affect me in buying a house? If so, it's always best to review an in-depth guide so you know exactly what to expect. Can you take the risk? How well do you know the student? What's the interest rates? These are all things to look out for as making the wrong decision might affect your ability to buy property.
What's the Weather Forecast?
Putting yourself in the shoes of the lender can be instructive, and it can also make you more realistic. Now, the sky may be blue and you're optimistic it's not going to rain any time soon, but deep down you know that's always a possibility. That's not to say optimism doesn't exist in the financial world; it does, but it is not acted upon too much. Pessimism is a safer attitude, which is why a list of what if possibilities tend to look on the black side and what if you lose your job? What if you get sick or have a bad accident? What if there's a recession or a war? The what ifs don't include winning the lottery or discovering oil under your house.
The Curse of the Algorithm
Financial institutions are relentlessly pragmatic, and if that used to put an uncomfortable onus on individuals to make decisions which they knew were going to destroy dreams - albeit perhaps for the greater good in the long term - AI is transforming the real estate market and software programs have taken the burden from them. When an algorithm says no, it's nothing personal because it's not a person. That is why some people will use the expression, "the computer says no", because the message underlying this is, "I might have said yes, but it's not done like that these days, so I'm sorry but there's nothing I can do."
What this means is that an approach of hard-headed realism is called for, and it goes against a lot of the well-meaning self-help teachings about loving yourself, or does it? Perhaps it is all about protecting ourselves from financial ruin, and if that causes temporary difficulty, you know what they say about deferred gratification: save it for later, when it can be enjoyed with no doubts and worries attached. It can also mean standing up for yourself and sometimes being the bad guy for a while. But if what you're really being is realistic, anyone worth helping will understand that in the end.
