The application provides the lender with important information about the borrower. Applicants will typically be asked to include the following information on a credit application:
AddressPhone numberSocial Security numberEmployer identification number (EIN) for business loansCredit references
The information provided on the credit application will make it easy for the lender to send the customer to collections or pursue legal action if the loan is granted and the borrower defaults on payment.
How a Credit Application Works
You’ll start the process of applying for credit or a loan by filling out the credit application and providing all the necessary information. Your lender will then most likely pull your credit report, and it will look at factors like your income and debt-to-income ratio, as well. The exact underwriting requirements will depend on your lender. Underwriting is the process by which the lender determines whether it wants to extend credit. Your lender will use the information provided in the credit application to determine whether you’re a good candidate for a loan. Filling out a credit application is easier than ever thanks to an abundance of online lenders. Technology often makes it possible for borrowers to fill out the application entirely online, and they can find out whether they’re approved within minutes. If you’re denied a loan, the lender must send you a letter explaining the reason why. All lenders are required to either provide a specific reason for the rejection or let you know that you have the right to request this information within 60 days. The lender must inform you, as well, if it rejects your application due to the information contained in your credit report. It must give you the name, address, and phone number of the credit reporting agency that supplied the report.
Types of Credit
Most borrowers apply for two primary types of credit. Each can be a good option depending on your needs and your financial situation.
Revolving Credit
Revolving credit is an ongoing type of account, like a credit card or a line of credit. You’ll receive a lump sum of money when you take out a loan, and you’ll make payments until the balance is reduced to zero. You can repeatedly use and pay down the credit line over time with a revolving line of credit. Your lender will set a credit limit when you’re approved for a credit card. This is the maximum amount of money you can charge to the card. Your credit card will remain in good standing as long as you stay below the limit and continue making payments.
Installment Credit
Installment credit is a close-ended credit account that you repay in monthly installments. You’ll either receive the money upfront or the funds will be applied toward an item you’re purchasing. The account is closed when you’ve finished repaying the installment loan. Mortgages, car loans, student loans, and personal loans are all popular types of installment loans. They appeal to many borrowers because of the predictable payment terms and the option to refinance. Try to improve your credit score as much as possible if you’re considering applying for an installment loan. A good credit score will help you earn the best rates and repayment terms on the loan.
