Now they want to borrow $5k all of a sudden. Do you give it to them, just based on the above history?
That seems like such an obvious answer to me I want to ask if you intended to ask that of me or the person I was responding to.
As part of your loan application I can see your savings, income, employment history, and credit history. The payment on a 30-year fixed $5000 loan is $35/mo with current interest rates so that's the bar I need to hit.
* I see that your monthly cash flow is $200 which puts your loan payment at 17.5% of that.
* You're putting 20% down or $1250 which demonstrates to me that you're capable of saving 35x the loan payment.
* Your borrowing history is sparse but you pay of your $5 Spivak CC every month which is 20% of the loan payment right there.
* The loan is collateralized by an appreciating asset whose market value is $6000.
Yes. Obviously I'm giving the loan. To second order no one has a six figure credit history. Their first mortgage is likely to be the first and last loan of that magnitude in their lives.
It's also very easy to qualify for a $500k mortgage if you are clearing $250k a year. It makes me wonder how old you are, as "house prices are 2.6x a household income" is something that last existed in most places in the mid-1990s.
> To second order no one has a six figure credit history.
It is remarkably incorrect to treat it as a flat "no six-figure history means they are all are equivalent to a $500 history". Almost everyone has four-figure credit history based on credit cards, most people have five-figure credit history based on car loans and many people have six-figure student debts.
I agree. And slowly credit scores are starting to take rent into account.
> There's no difference at all for someone who works a dayjob.
But there is a difference. If you put your living expenses on a $500/mo credit card, you can have a $120k job and be eating ramen, living in a flophouse and spending the rest on drugfs or supporting people who cannot work. You cannot afford to service a mortgage. If you commonly service larger debts, then they don't have to worry about hidden things sapping all your funds.