What should I expect when applying for credit?

Question

EDIT: It has been suggested that this question is a duplicate of Personal loan while unemployed?. In fact it is not a duplicate of that question, because I'm not asking about getting a personal loan while unemployed. I'm asking what my personal loan prospects will be right after I become employed.

I'm currently unemployed, but I'm hoping that immediately after I land a job, I can take out a loan or maybe get a credit card. I'm hoping people can give me some guidance related to this.

First, logistics.

• Will I be required to provide pay stubs or other proof of earnings/employment, or just write a number on the form?
• Will it make a difference if I've just started a job and haven't gotten paid yet?
• Will it make a difference if I've accepted a job offer but not yet started working?
• Will it make a difference if my job is a temporary position?
• What if my income will not be entirely predictable, either because my hours will vary or because my pay will depend on the amount of work completed? Should I just estimate what I think my income will be? Should I expect my employer to be able to give me an estimate?
• What other information, other than basic stuff like my name and date of birth, should I be prepared to furnish? Will I have to provide documents, or just write information on the application form?
• Will I generally have to decide how much credit and what interest rate to ask for, as opposed to just giving them my information and letting them make an offer? Do I request an amount and then they offer me a rate on that amount? Do I request a rate and then they offer me an amount at that rate?
• If I do have to decide what amount or rate to ask for and they're not willing to offer me that, will they typically make a counter-offer or just reject my application?
• About how much and for how long will my credit score be reduced by applying for credit?
• How long does application processing typically take?

Second, what kind of results can I expect?

My credit score is around 650, and my monthly expenses are around $1,000. I have around $90k in student debt but I'm on an income-based repayment plan. I have zero history of missing a payment on anything, but not much credit history overall. My background checks come back squeaky clean (I think). I'm willing to settle for an interest rate on the high side. I intend to spend the money on basic needs like moving and furniture.

The big unknown is what my pay will be. I think I have a shot at some fairly high-paying jobs, but depending on circumstances I might end up temporarily settling for much less. Can anyone give me a rough idea of how much I'll likely be able to borrow as a function of my income?

Third, please feel free to offer any other information you think I might find pertinent! I feel like there are one or two important questions I forgot to include here.

Answer 1

You asked a lot of questions. As a preface to this answer, I will point out that the best way to get the comfort level you're looking for will be to contact the banks or credit unions you have available and ask them how their processes work. Although we can talk in generalities, different lenders will have different policies and different decision making frameworks - especially among community-centric credit unions, lending policies for something like an unsecured loan to a person with minimal employment stability will likely be handled very differently than at a large national bank.

On to your questions:

Will I be required to provide pay stubs or other proof of earnings/employment, or just write a number on the form?

This will vary - not only on the institution but also on the type of loan you go after, and the amount you request. Generally, for small unsecured personal loans and credit cards, you write a number on the form, and they don't ask for any verification unless you're marginal in terms of being able to afford the loan. For larger unsecured loans or other larger or longer-term loans, they'll almost certainly want to see significant proof.

Will it make a difference if I've just started a job and haven't gotten paid yet?

Will it make a difference if I've accepted a job offer but not yet started working?

If they ask for proof of income, these situations will likely disqualify you. In most cases, when they're interested enough to want proof, they'll likely be looking for a stable history, so they will ask for several months' worth of proof.

Will it make a difference if my job is a temporary position?

Likely yes. If you've never had a full time job, and you are in your first "real" job and it's temporary, they'll likely not want to lend to you beyond the term of your employment.

What if my income will not be entirely predictable, either because my hours will vary or because my pay will depend on the amount of work completed? Should I just estimate what I think my income will be? Should I expect my employer to be able to give me an estimate? What other information, other than basic stuff like my name and date of birth, should I be prepared to furnish? Will I have to provide documents, or just write information on the application form?

See above.

Will I generally have to decide how much credit and what interest rate to ask for, as opposed to just giving them my information and letting them make an offer? Do I request an amount and then they offer me a rate on that amount? Do I request a rate and then they offer me an amount at that rate?

For a personal loan, you generally ask for an amount and a term ("I want a 2 year personal loan for $1,000.") For a credit card, generally you just apply, and they offer you a card with a certain limit. In all cases, the lender decides the interest rate, and there's pretty much zero negotiation on that, since it's based on a rate schedule according to the underwriting on your application (i.e. the type of product, the limit, your credit score, etc).

If I do have to decide what amount or rate to ask for and they're not willing to offer me that, will they typically make a counter-offer or just reject my application?

This won't apply for a credit card. If you ask for a personal loan, it will depend on why you were rejected. Generally, they will check your risk level (you credit score and other factors) to decide if you're "safe" to lend to, and then they will check your debt to income level (fixed monthly debts compared to income) to determine how much you can afford. If you are rejected because you're too risky, it's likely a black and white rejection. If you're rejected because you can't afford the payment on the amount you ask for, they will likely counter-offer at a lower amount ("you can't have the 2 year $1,000 personal loan, but we would be happy to lend you $500 for two years").

About how much and for how long will my credit score be reduced by applying for credit?

How much is hard to answer because it depends on the rest of your credit history. Generally speaking though, a "hard pull" (a request for your credit score for the purpose of a loan application) is a medium-low impact. For how long - depending on the scoring model, it'll typically be 2 years.

How long does application processing typically take?

For most cases these days, smaller personal loans and credit cards are processed automatically and you'll effectively have a decision immediately.

Second, what kind of results can I expect?

We can't really answer that, although it's fair to say that your score is mediocre and you've got a major risk factor of an unstable employment situation. You didn't really say how much money you want or what you're using it for, or how much you expect to be earning, but you should probably prepare for rejection.

But keep in mind, sometimes rejection on a loan is the best thing that can happen to you, because it can be enough of a shock to help you get some real focus on learning good, long term financial habits. This, again, is a reason to shop around and ask questions at different institutions. Many credit unions and some banks will be happy to get you connected with a financial counselor who can help you understand things like how your credit score works, how to make a budget, how to make good decisions about lending, and so on. This information can be life-changing for someone cash-strapped and unable to prove long term employment history.

Answer 2

The short answer is you might need to provide proof of employment, and you will not be extended credit based on a possible future job. You will get credit based on your current situation and past behavior. Depending on the lender and the type of loan, the requirements will be different. Credit cards have much more lax standards in regards to paperwork, but are willing to take the risk and gouge you with interest and fees if you don't pay them off in full (or at all). Traditional loans will require more paperwork (pay stubs, etc.).

Also, you are a price taker for any type of loan. They dictate the rate, terms, and amount - all you can do is accept or reject the offer. For larger loans you might have a little bargaining power, but the margins are so thin that you won;t have much.

I have to say this questions has an aura of desperation. I don't know what the situation is, but I would be VERY VERY cautious about borrowing money with the hope of paying it back with a future job. That can lead to a death spiral of debt. If you owe someone money, talk to them about extending the deal (maybe for a fee) until your employment is more certain. Focus on the problem instead of one possible (possibly bad) solution.