What the experts say
What loan lingo reveals
The language someone uses when applying for a loan can be “a strong predictor” of the probability he or she will pay it back, said Seth Stephens-Davidowitz in NYMag.com. Three economists recently examined loan applications submitted to the peer-to-peer lending site Prosper, as well as borrowers’ payment histories, and identified 10 commonly used phrases. The expressions used by borrowers most likely to pay back their loans were “debt-free,” “lower interest rate,” “after-tax,” “minimum payment,” and “graduate.” The ones used by those least likely to repay were “God,” “promise,” “will pay,” “thank you,” and “hospital.” The results suggest that a borrower who offers a detailed plan for making payments is likely to repay a loan, the researchers say. “Making promises and appealing to your mercy is a clear sign someone will go into default.”
Understanding credit utilization
If you are in need of a credit score boost, try reducing your credit utilization, said Nick Clements in USNews.com. This measurement— how much credit you are using versus how much credit you have access to—can have a “disproportionate impact” on your score, because lenders see it as a gauge of self-restraint.
“People with the best credit scores have access to a lot of credit but the self-discipline to use very little of it.” A recent study by MagnifyMoney and VantageScore showed that people with scores between 751 and 800 were using on average 12 percent of their available credit. By contrast, people with scores under 650 had utilization rates of 63 percent or more. You can aim for a low utilization rate by chipping away at debt, or by asking your lender for a higher borrowing limit.
New mortgage perk: Reward points
Banks are trying to entice Millennials into taking out mortgages by dangling reward points as a bonus, said Tom Anderson in CNBC.com. Chase is offering 100,000 points, worth up to $1,500, to current customers who take out a home loan with the bank before Aug. 6. Capital One, Wells Fargo, and Quicken Loans have all offered similar perks over the past year. “Millennials are a prime target” for the offers, because many of them are buying a home for the first time. Banks are ramping up their rewards programs in order to attract “loyal customers for other parts of their businesses.” The six largest credit-card issuers spent $22.6 billion on rewards last year, more than double the $10.6 billion they spent in 2010. ■