Have you wondered what determines if you are approved or denied a loan? The answer lies within the underwriting process.

The underwriting process determines if a loan request is approved or denied. When an underwriter reviews a loan application, past credit history is evaluated to gage if the applicant is in a good enough financial position to make their monthly payments. This process includes detailed evaluation of employment status, housing status, credit experience, the amount of debts compared to income, and many other factors.

Analyzing a loan application can be broken down into four main categories that all matter rather equally to the underwriter. Let’s take a look:

Your credit matters.

Your credit history is like your resume to a potential lender. Your credit report shows your past and current credit activity and how you performed on those lines of credit. Based on your past credit experience, a conclusion is made during the underwriting process to see if you’re a low-risk or high-risk borrower and everything in between. Having positive credit gives you an advantage when applying for a loan. Likewise, negative credit—late pay histories, collection items, loans that were never reconciled (i.e. repossessions, foreclosures, charge-offs, etc.) require more from you in order to get an approval.

Stipulations of getting a loan approved with negative credit might include: a cash down payment towards the loan, opening a checking account with direct deposit or setting your loan payment up on automatic payments every month.

If you would like to better understand how your FICO (credit) score is calculated, you can visit a number of reliable sources, such as Equifax.

Your collateral matters.

Collateral can be defined as a valuable item that you own and use to back a loan. Borrowers with an unstable credit history are likely to need collateral—in the underwriting world they define this sacrifice as having “skin in the game”. Should you default on your loan, the lender can take ownership of the collateral to help offset a financial loss. Therefore, offering collateral helps decrease the level of risk for a lender by assuring the lender of your willingness to pay back a loan. Before offering up collateral, contact the potential lender to verify their collateral qualifications.

Your relationship matters.

The relationship a borrower has with their lender is very valuable. The deeper the relationship, the better chance of getting approved for a loan. How much more likely are you to lend money to your brother or sister than someone you’ve never met? In what ways can you deepen your relationship with the financial institution? Select a single primary financial institution for all, or most, of your financial needs. This could include products and services like: checking account, savings account, direct deposit, debit card, loans, etc. Having a good relationship with your financial institution makes a difference.

Your stability matters.

Stability is a large factor if you haven’t established credit, have had delinquent credit and/or you have no relationship with the lender. Stability includes length of employment, type of employment, established credit history and other factors. Instability doesn’t always produce a denied request, it might just require more from you such as a joint applicant, cash down payment, etc.

Overall, there are many factors that are considered in determining if your loan request is denied or approved. Now you know what it takes to get that “approved” outcome.

When you’re in need of a loan we’re here to help! Get the process started with our easy online loan application. Have questions about applying for a loan? Visit us online, stop by or give us a call and one of our friendly staff representatives will be happy to help.

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