How Credit Approvals Work

Obtaining credit is necessary in a number of areas in everyday life. You may need to borrow money to buy a house, to purchase a car or even to buy smaller items on a credit card. Before you can gain access to credit, you must go through a credit approval process. This process involved determining whether you have the potential to be a solid borrower.

Apply for Credit

Before you can be approved for some type of credit, you must first apply for it. This involves filling out an application for the credit. When applying for credit, you will need to provide the lender with all of your basic personal information. The credit application will usually ask for your name, your address, your Social Security number, your date of birth, your occupation and your income. When you fill out the application, you may also be asked to provide proof of your income.

Credit History

A large part of getting approved for credit depends on your past credit history. The lender will pull a copy of your credit report and use it to determine how good of a borrower you will be in the future. The credit report will include your credit score, which is a numerical representation of the important parts of your credit history. The lender will also be interested in how much debt you have and whether you have maintained a good payment history with those accounts.

Collateral

Depending on the type of credit that you are asking for, you may be required to put up some type of collateral. The collateral that you put up is what will secure the loan for the lender. For instance, when you get a mortgage loan, you are asked to put up the house that you are purchasing as collateral. If the lender does not receive your monthly payments, it can foreclose on your home and sell it to repay the debt.

Completing the Process

Once you provide all of the necessary information, the lender will give it to an underwriter to review. The underwriter will ensure that you are worthy of extending credit to. Once this determination has been made, the lender will then offer you the credit. If you accept the terms of the credit, you will then have to sign documentation that shows it. At that point, the money you need will be provided to you by the lender.