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The Credit Approval Process & What to Expect

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The Credit Approval Process & What to Expect

In order to get a loan, you have to apply for one. Or, more pointedly, you have demonstrate you can handle the financing. But, while the algorithms crunching your credit-worth may be complicated, the credit approval process itself is fairly straightforward, whether you apply for a credit card, mortgage, auto or personal loan.

What Is the Credit Approval Process?

Once you fill out an application (and turn over your Social Security number), a lender will pull a version of your credit report and/or credit score. They’ll use this credit profile and other factors, like your income or debt-to-income ratio, to determine if you meet their underwriting standards.

Underwriting standards are benchmarks a lender sets regarding who can qualify for their loans and at what terms. If you meet these standards, you’ll be offered a loan contract. If you don’t, you’ll learn why you were rejected when the lender sends an “adverse action” notice in the mail. (Thanks to the Fair Credit Reporting Act’s risk-based pricing rules, lenders must provide a copy of the credit report and credit score used in its decision-making process when it denies someone a loan or offers less favorable terms on the financing.)

How Can I Tell if I’ll Be Rejected?

You can’t — at least not exactly. There are lots of different credit scores out there and, thus, you can never be sure which one a specific lender will be using during their credit approval process. Plus, underwriting standards vary across financial institutions and loan types.

Having said, there are ways you can get a good idea of whether you’ll qualify for a loan. Many lenders disclose general parameters regarding their underwriting standards on their websites and you can also call them directly to ask about what credit profile is needed to apply for a particular product.

Plus, since many credit scoring models utilize the same range (300 to 850) and crunch their numbers using what’s on your credit reports, the best way to take the surprise out of a credit application is to check your credit before applying. You can check two of your credit scores for free on Credit.com, and get a personalized action plan for improving it.

Here is a closer look at the approval process for credit cards, loans and mortgages.

How Do I Apply for a Credit Card?

The fastest way to get approved for a credit card is to apply online. Many issuers offer instant approval to online applications, so you may know whether you have been approved for a credit card within minutes of applying. You can also apply by mail or phone. When you apply for a credit card, an issuer will pull your credit. They’ll ask you for some additional information, like your income, to determine whether to approve you for credit and/or a certain credit limit.  

Once approved, it is likely a credit card will be sent to the mailing address that you listed on your card application within 10 business days. And if you need the card in a hurry, you can pay a fee for the expedited delivery of your credit card. If you are turned down for a credit card, an issuer will send you a letter explaining why. (Remember, they’re required to by federal law.)

How Do I Apply for a Loan?

Applying for a car loan or personal loan is also an easy process, with many lenders offering online applications. You can find out if you are likely to be approved before you apply by asking about minimum credit standards required for the loan. Some lenders list credit qualifications, such as minimum credit scores, right on their websites. How quickly you are approved for a loan depends on the lender. But you may receive your approval within 24 hours or even within the hour. If you are turned down for a loan, a lender will send you a letter explaining why you did not qualify.

How Do I Apply for a Mortgage?

Applying for a mortgage admittedly involves more paperwork — and time — then the credit card or personal loan application process. However, getting pre-approved for a mortgage can speed along the homebuying process. After you complete the pre-approval process, you may be asked to supply some additional supporting documents. Once all the necessary documents are submitted and reviewed you will receive one of four possible decisions on your home loan — approved, approved with conditions, denied or suspended.

If your loan application is suspended it means more documentation is required before a lending decision can be made. If your loan application is approved with conditions, there are specific criteria that you must meet before you will receive the full approval of your loan. And if your mortgage application is denied, you will receive a notice in writing explaining the reasons why.

Jeanine Skowronski contributed to the reporting of this article.


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