If all goes as planned, you will soon be able to apply for credit by sending a text.
Experian, the credit bureau, recently announced what it calls a “groundbreaking innovation.” It isn’t mainstream yet, though several lenders and card issuers are involved in a pilot program in which consumers can initiate and complete a credit application process within minutes by sending a text message.
Still, while one could argue this new way of applying for credit is groundbreaking, it’s really just a natural progression of the loan application process, which has been evolving ever since the internet took off. In fact, so much has changed in the loan application world that it’s worth reviewing key milestones, as well as what could be coming down the pike.
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Lenders are aiming for more accuracy on whether you can pay them back. This could be wonderful — or terrible — news for you. It all depends how you view the lending experience.
Earlier this year, Steve Smith, CEO and co-founder of Finicity, a Salt Lake City-based financial data aggregator, announced a partnership with Experian. The two companies are coming together to develop new technology that analyzes a borrower’s cash-flow data to determine whether he or she is eligible for a loan.
This could work well for many people, Smith says. “This will be beneficial to those consumers that are thin-file or no-file for credit scoring, but are otherwise completely capable of managing a loan,” he explains.
He also sees it as a boon for small business owners. Small businesses, after all, have no credit score.
“In the past, small business loans have been tied to the business owner’s personal credit history. Through cash-flow analysis, all data points can be used … and not just a limited set typically provided by credit or lending organizations,” he says.
But, of course, if your cash flow is erratic — insanely up one month, but in the gutter the next — and you think a lender might hold that against you, this development may not be so awesome.
[See: 12 Simple Ways to Raise Your Credit Score.]
Paperless mortgage loans could become a thing. As technology advances, it isn’t surprising that loans are increasingly involving less paperwork. Still, it’s striking just how little paper is involved.
“We went paperless for the underwriting process two or three years ago … Nowadays, we order approximately six boxes of paper per month. Before we went paperless, we were probably ordering six boxes per week,” says Josh Moffitt, president of Silverton Mortgage Specialists, a mortgage lender in Atlanta.
But not all consumers want to drop paper, Moffitt says.
“Many buyers still like to work closely with a real person throughout the process,” he says. “They like to meet in person, have a coffee and bring their documentation to us. It’s not necessarily a generational thing, as we see people in their 50s who want to use the digital process, whereas some buyers in their 20s are uncomfortable with the online approach.”
And mostly, Moffitt says, closing for a house is still done in person with paper, but he thinks that eventually, if consumer desire is there, buying a house from start to close, and signing everything digitally, will enter the mainstream.
[See: 10 Ways Millennials Are Changing Homebuying.]
We’re applying for loans faster than ever. Sonja Bullard, a sales manager at Bay Equity Home Loans in Alpharetta, Georgia, has been working in mortgage lending for 16 years and has seen a lot of changes in how fast loans can be approved. In 2001, it wasn’t exactly the Stone Age, but Bullard says that most of her clients now sign initial loan applications from their phones within five minutes.
“Only a few years ago,” she says, “we would have to meet in person and sign all of the same disclosures in person, or the borrower would need to print them out from an email and sign each one.”
Boston-based Brendan Coughlin, president of consumer lending at Citizens Bank, headquartered in Providence, Rhode Island, agrees. He says that the process to get a home equity line of credit was 50 to 60 days just a few years ago.
“Now, there are a handful of customers who we approve and close a loan in five to seven days by using better digital technology and leveraging all the data we already have from them. And they do all of this from their home without needing to get in a car and come see us,” Coughlin says.
But texting for a loan will make things even faster. It may not be faster than sitting at your personal computer or tablet and getting a loan accepted or rejected. But it does make it easy for consumers to apply for loans ASAP. Consumers, after all, are more likely to have their smartphone with them at all times, and not their tablet, laptop or personal computer.
Experian’s senior product manager, Brittanee Moss, says that the texting-for-credit concept came from talking to lenders, who wanted customers to be able to apply for credit faster.
“Customers don’t want to fill out lengthy forms to apply for credit, nor do they want to discover they may not qualify for a credit offer at the cash register after being invited to open a store card,” Moss says.
But Coughlin thinks that sooner or later, texting for credit won’t be fast enough.
“Everyone wants a simpler digital experience,” he says. “I can imagine a scenario where you can apply for a loan with a fingerprint authorization over your phone, and we all use that data we already have to make a decision.”
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