The Process of Credit Approval and How Does It Work


Credit approval is one of the stages that an individual or prospective debtor must go through in order to meet the requirements in the credit or loan application process. The granting of the approval will depend on the willingness of the financing company or creditor by considering the assessment of the debtor’s ability and willingness to return the money or pay for the goods obtained along with the interest.

The stages of the credit approval process may vary depending on the type of credit requested, the amount you wish to borrow and the policy or terms of the lender. Generally, the credit approval process usually includes the following:

1. Debtors apply for credit pre-approval

Credit pre-approval is the first step to apply for a loan, in which the prospective debtor contacts the financing company or creditor and asks the creditor’s willingness to provide a loan and what conditions the prospective debtor must meet. At this stage, the prospective debtor has not officially applied for credit, and often creditors directly provide pre-approvals without a complicated examination process. This means that there will be no examination that will be recorded in the credit report of the prospective debtor, which is a good sign, because if the opposite occurs, it is likely to harm the credit score of the prospective debtor.

When the debtor gets a credit pre-approval, the debtor can provide some basic financial information, and usually will not ask for many documents to confirm the details. However, if the information provided by the debtor is incorrect, the pre-approval status may change, or if the creditor finds other details regarding the debtor’s financial condition during the approval process, the interest rate may also change.

This pre-approval process does not always have to be done, but if the debtor wants to know various information or make comparisons, such as looking at the rate or type of credit that best suits the conditions and needs of the debtor.

2. Debtors apply for credit

When the debtor is really ready to apply for credit, the debtor must apply for credit to the creditor. Most lenders from banks or finance companies now provide online credit application services, but debtors may still have to visit a local branch of a financial institution.

The credit application process and requirements can vary, depending on the type of credit that the debtor wants to apply for. For example, if a debtor applies for a credit card, the debtor may only need to fill out a simple online form with the debtor’s identification number, contact details, and income. If the debtor is applying for a mortgage, the credit application will usually carry out a more in-depth examination and may require the debtor to submit bank statements, tax returns, and similar documents.

3. Creditors review credit applications and assess credit risk

This stage is known as the underwriting process. At this stage, the creditor looks at several financial factors that will be used for the appraisal process. These factors include:

  • Credit score
  • Credit reports and loan records
  • Income
  • Employment history
  • The level of debt held
  • Total assets owned
  • Amount you want to borrow
  • Income relative to debt

Some creditors may consider certain factors more than others. For example, some creditors will only pay attention to the debtor’s credit score and the amount of income the debtor has, while other creditors feel the need to see documentation that the debtor has worked in the same company as a permanent employee and it is even possible that the creditor will contact the debtor’s company to confirm this. .

Either way, the goal of this process is for the creditor to make an assessment of the likelihood that the debtor will repay the loan as promised, or the likelihood that the debtor will be absent or stop making payments.

4. Creditors notify whether the credit application is approved or rejected

After lenders complete a credit risk assessment, they make a decision whether to approve or reject the credit application. In addition, the creditor will also decide the interest rate to be charged to the debtor. If the debtor is considered to have a high risk, it is possible that the credit application will be rejected or may be offered credit with a very high interest rate. If the debtor has good credit and has low risk, the creditor may decide that the debtor’s credit application must be approved and they may offer the most competitive price.

This is the information and explanation about credit approval and the process. AdIns offers an AdIns credit application service with the title Servin, where customers can self-apply directly from their cellphones and access the approval process information they are looking for.



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