Home > Personal Loans > What If You Had to Pass a Test to Get a Loan?

Comments 2 Comments
Advertiser Disclosure


When I was a teenager, I couldn’t wait to start driving a car. My first experience behind the wheel started with a series of questions, delivered by my dad, and one of them stood out:

“What are we sitting in?” he said.

“Um, a minivan?”

“Wrong. This is a lethal weapon.” Well, that’s not what I expected to hear, I thought, terrified. He continued: “If you’re not paying attention while driving, you could kill someone. Do you understand that?”

I nodded. I hadn’t even put the key in the ignition yet.

As my father so bluntly explained, driving a car can have potentially grave consequences. In the 20th century, the booming popularity of automobiles in the U.S. prompted some cities and states to test and issue licenses to motorists. It was an an attempt to keep incompetent drivers off the road, and while reckless driving hasn’t disappeared, at least people have to exhibit some understanding of car functionality and traffic laws to operate a vehicle.

Writer John Aziz recently made the argument that the same should be true for people applying for a mortgage: “People wanting to take out a mortgage or get a credit card or a loan would face compulsory basic finance literacy testing,” he suggested in an article in The Week.

He made a good point. A mortgage is a huge responsibility, and it’s not just a personal one. As the financial crisis showed, irresponsible borrowing and lending can have far-reaching consequences that ripple out into larger parts of the economy. Perhaps a competency test wouldn’t be such a bad thing.

The Credit Basics

After the housing collapse and economic recession, the government imposed more regulations on mortgage lenders, including the need to verify a mortgage applicant’s ability to repay the loan. Your credit history plays a huge part in the mortgage approval process, so in a way, the borrowing process already has a test: the credit score.

Credit history isn’t not the only factor, but you’ll have trouble getting a loan without a good one. When you’re applying for any kind of credit, you should have an idea of what your credit standing is — you can get two credit scores for free through Credit.com — because poor credit could mean loan denial or high interest rates. The more you know about your credit standing, the better your chances are for improving it, which you can learn about here.

“The standards are pretty high,” said Gerri Detweiler, director of consumer education for Credit.com. “You really have to prove yourself, not just with your credit score, but back up everything with documentation.”

At the same time, being able to afford the loan isn’t the same as understanding it. It’s up to consumers to understand what they’re getting into, Detweiler said, and homebuyer classes can be very helpful in that process. They’re not a requirement, though.

In his article, Aziz talked about financial literacy issues in the U.S. but says efforts to increase education haven’t worked. He floated the idea of putting something at stake to make the lessons stick.

“You can’t get a mortgage unless you can demonstrate you understand how interest payments, inflation, and other basic financial concepts work,” he wrote. If access to financial services depended on financial literacy, financial literacy rates would shoot up.”

Who Needs It Most?

Studying for your mortgage may not sound appealing, but if it could help, perhaps it’s worth exploring. Of course, irresponsible borrowers won’t be barred from taking out loans, because passing a test doesn’t necessarily reflect understanding.

If we’re talking about people who really need financial education before taking out student loans, perhaps we should look at education itself. Student loans are easy to get, and plenty of Americans have student loan payments that exceed their mortgage or rent payments. You’re going to have a tough time trying to get out of a student loan, too, because student loans can’t be discharged in bankruptcy.

There isn’t a simple solution to economic problems spurred by financially illiterate consumers. The best lesson is usually experience, but foreclosure shouldn’t be the way you come to understand the gravity of a mortgage. It isn’t perfect, but I’m glad we have to take driving tests. Otherwise, we’d just have people getting in cars, telling themselves, “I’ll be fine, as long as I don’t hit anything.”

If only it were that easy.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.

More on Credit Reports and Credit Scores:

Image: Fuse

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team