Message us
on WhatsApp
New Offer
$900 Cash Bonus
Reading Now:
How Banks Decide To Approve Loans And Credit
Advertiser Disclosure: Many of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
Back
July 27, 2024
2
minute read

How Banks Decide To Approve Loans And Credit

press to listen to article

song.url

When you apply for a loan or credit, banks look at several factors to decide if they will approve your application. Here's what they consider:

Key Factors for Loan Approval

  1. Credit Score: A higher score increases your chances of approval.
  2. Income: Banks check if you earn enough to repay the loan.
  3. Debt-to-Income Ratio: This shows how much of your income goes towards debt. Lower is better.
  4. Collateral: For secured loans, banks need something valuable, like a house or car, as a guarantee.

Secured Loans

Secured loans require you to offer collateral. This gives the bank security that they can recover their money if you default.

Examples of Secured Loans

  • Mortgage: Loan to buy a house, with the house as collateral.
  • Auto Loan: Loan to buy a car, with the car as collateral.
  • Home Equity Loan: Loan based on your home's equity, using your property as collateral.

Pros of Secured Loans

  • Lower Interest Rates: Collateral reduces the bank's risk, so they charge less interest.
  • Higher Loan Amounts: Lenders are willing to lend more because they have security.
  • Easier Approval: Even with a lower credit score, you might get approved because of the collateral.

Cons of Secured Loans

  • Risk of Losing Collateral: If you can’t repay, the bank can take your collateral.
  • Longer Process: Collateral needs to be appraised, which takes time.

Unsecured Loans

Unsecured loans don’t require collateral. Approval depends on your credit score and income.

Examples of Unsecured Loans

  • Personal Loans: Used for various needs, like consolidating debt.
  • Credit Cards: A revolving line of credit with a set limit.
  • Student Loans: Specifically for funding education, without needing collateral.

Pros of Unsecured Loans

  • No Risk to Assets: You don’t risk losing personal assets if you default.
  • Faster Approval: Without collateral to check, approval is quicker.
  • Flexibility: Can be used for many purposes.

Cons of Unsecured Loans

  • Higher Interest Rates: Without collateral, lenders charge more due to higher risk.
  • Stricter Approval: Harder to get approved with a low credit score or income.

Choosing the Right Loan

Consider these points to choose between a secured and unsecured loan:

  1. Assets: Do you have something valuable to offer as collateral?
  2. Risk: Are you willing to risk losing your collateral if you can’t repay?
  3. Credit Score: Is your credit score good enough for an unsecured loan at a reasonable rate?
  4. Time: How quickly do you need the money?

Conclusion

Understanding the differences between secured and unsecured loans helps you make better financial decisions. Always weigh the pros and cons before choosing a loan.

Need Help Applying? Have Credit Questions?
Message Credit Card Guy on WhatsApp
Top Offers Now
Explore
Ink Business Unlimited® Credit Card
bonus_miles
Explore
Delta SkyMiles® Platinum Business American Express Card
bonus_miles
Explore
Marriott Bonvoy Business® American Express® Card
bonus_miles
Explore
Delta SkyMiles® Reserve Business American Express Card
bonus_miles
Explore
Delta SkyMiles® Gold Business American Express Card
bonus_miles
This is some text inside of a div block.
h2
Example H2
h3
Example H3
h4
Example H4
h5
Example H5
h6
Example H6
Key points in this article
Key Takeaways
Key Takeaways
Key Takeaways

More questions? More answers.

No Questions here? Ask One and we'll add it

Read Rext

How Banks Decide To Approve Loans And Credit

July 27, 2024
links to article

0 Comments

Active Here: 0
Login or register to join the conversation.
profile image
My Profile Image
LogoutEdit Profile
Be the first to leave a comment.
loader
Loading
Load Previous
Someone is typing...
No Name
Set
4 years ago
Moderator
(Edited)
Delete Forever
This is the actual comment. It's can be long or short. And must contain only text information.
Your comment will appear once approved by a moderator.
0
0
Reply
2 Replies
Load Previous
No Name
Set
2 years ago
Moderator
(Edited)
Delete Forever
This is the actual comment. It's can be long or short. And must contain only text information.
Your reply will appear once approved by a moderator.
Cancel
0
0
Load More
Cancel
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Load More
loader
Bank NameReportsBack Dates
Amex✅❌
Barclay✅✅
Bank of America✅✅
ChaseSometimes✅
Citi✅✅
Capital One✅✅
Discover✅✅
HSBC❌❌
US Bank✅✅
Sample Caption
This is some text inside of a div block.
BankMinimum Payment Calculation
American Express PersonalThe greater of these: $40, 2% of the balance excluding interest and fees*, 1% of your balance plus interest and fees*
American Express BusinessThe greater of these: $35, For a balance of $0-$25,000: 1% of the balance plus monthly interest and fees*, For a balance of $25,000-$75,000: 5% of the balance plus monthly interest and fees*, For a balance over $75,000: 10% of the balance plus monthly interest and fees*
Bank Of AmericaThe greater of these: $25, or 1% of the full balance plus the monthly interest and fees
Barclay BankThe greater of these: $27, or 1% of the full balance plus the monthly interest and fees
Capital OneThe greater of these: $25, or 1% of the full balance plus the monthly interest and fees
ChaseThe greater of these: $25, or 1% of the full balance plus the monthly interest and fees
CitiThe greater of these: $25 or 1% of the full balance plus the monthly interest and fees, or 1.5% of the full balance
DiscoverThe greater of these: $35, or 2% of the full balance or $20 plus the monthly interest and fees
SantanderThe greater of these: $25, or 1% of the full balance plus the monthly interest and fees
SynchronyThe greater of these: $25, or $35 if you had any late payments within the last six months, or 1% of your full balance plus the monthly interest and fees
Us BankThe greater of these: $30, or 1% of your full balance plus the monthly interest and fees
Wells FargoThe greater of these: $15, or 1% of the full balance plus the monthly interest and fees
Sample Caption
RATIOTRANSFER PARTNERTRANSFER TIMEENDSTYPE
1:1Aeroplan Loyalty ProgramInstantJuly 31, 2024Airlines
1:1Air France-KLM Flying BlueInstantAirlines
1:1AviosInstantAirlines
1:1Emirates SkywardsInstantAirlines
1:1IHG One Rewards1 DayHotels
1:1JetBlue TrueBlue Rewards ProgramInstantAirlines
1:1Marriott Bonvoy2 DaysHotels
1:1Singapore Airlines KrisFlyer12-24 HoursAirlines
1:1Southwest Rapid RewardsInstantAirlines
1:1United MileagePlusInstantAirlines
1:1Virgin Atlantic FlyingClubInstantAirlines
1:1World of Hyatt Loyalty ProgramInstantHotels
Sample Caption
BankCredit BureauNotes
AmexExperianFor existing Amex cardholders, Amex does not pull your credit for new credit card applications.
AviancaTransUnion
Apple CardTransUnionThey will first only do a soft pull to check if you qualify. If you qualify and accept the offer, then they do a hard pull. Some have had success avoiding the hard pull by freezing TransUnion after the preapproval but before the final decision.
BarclaysTransUnion
Bank of AmericaExperianIf you freeze your Experian report, they will pull your TransUnion credit report.
Capital OneExperian, Transunion, EquifaxIf you freeze one credit bureau, you can still get approved (the credit bureau you freeze cannot be TransUnion).
ChaseExperian
CitiExperian/EquifaxCiti will usually pull your Experian credit report, sometimes Equifax, and sometimes both Experian and Equifax. If you freeze your Experian credit report, you can sometimes request the reconsideration department to pull your Equifax credit report.
CitizensEquifax
DiscoverExperian/EquifaxDiscover will usually pull your Experian credit report, sometimes Equifax. If you freeze your Experian credit report, Discover will be glad to pull from either TransUnion or Equifax. Chat with a rep after submitting the application.
Elan FinancialExperian
HSBCEquifax
Key BankEquifax
SynchronyTransUnion
TD BankExperian
US BankExperianIf you frequently apply for credit cards, first freeze your IDA/ARS bureaus before applying for a US Bank credit card.
Wells FargoExperian/EquifaxIn some states, they pull Experian and Equifax.
OrderCredit CardBankCredit BureauNotes
1Chase SapphireChaseExperianChase is very sensitive to recent inquiries.
2Citi PremierCitiExperian/EquifaxCiti is also sensitive, but you can sometimes request to pull Equifax if Experian is frozen.
3Amex GoldAmexExperianAmex is less sensitive, and they don't pull credit for existing cardholders.
4Barclays ArrivalBarclaysTransUnionLess sensitive, but be mindful of one or two recent inquiries.
Bank NameReportsBack Dates
Amex✅❌
Barclay✅✅
Bank of America✅✅
ChaseSometimes✅
Citi✅✅
Capital One✅✅
Discover✅✅
HSBC❌❌
US Bank✅✅
Sample Caption
BankReports Business Cards?
AmexNo
Bank Of AmericaNo
BarclaysNo, Barclays business cards generally don’t report
Capital OneYes, except the Capital One Spark Cash Plus and Capital One Venture X Business
CitiNo
ChaseNo
DiscoverYes
M&T BankNo
US BankNo
TD BankYes
Wells FargoNo
Sample Caption
IssuerDun & BradstreetSmall Business Financial Exchange (SBFE)Experian BusinessEquifax Business
AmexConflicting data pointsYesNoNo
Bank of AmericaNoYesNoNo
BarclaysNoNoNoNo
Capital OneYesYesYesConflicting data points
CitiYesYesYesYes
ChaseYesYesYesConflicting data points
DiscoverYesNoYesYes
US BankYesNoNoYes
Wells FargoNoYesNoNo
Sample Caption
Minimum Age
Amex13 years old
Barclay13 years old
Bank of AmericaNo minimum age
ChaseNo minimum age
CitiNo minimum age
Capital OneNo minimum age
Discover15 years old
US Bank16 years old
Wells FargoNo minimum age
Sample Caption
RatingCredit Score RangeDescription
Poor<580This credit score is well below the average score of U.S. consumers and demonstrates to lenders that the borrower may be a risk.
Fair580-669This credit score is below the average score of U.S. consumers, though many lenders will approve loans with this score.
Good670-739This credit score is near or slightly above the average of U.S. consumers and most lenders consider this a good score.
Very Good740-799This credit score is above the average of U.S. consumers and demonstrates to lenders that the borrower is very dependable.
Exceptional800+This credit score is well above the average score of U.S. consumers and clearly demonstrates to lenders that the borrower is an exceptionally low risk.
Sample Caption
Very PoorPoorAverageGoodVery GoodExcellent
579619679719779800+
578618678718778799
577617677717777798
576616676716776797
575615675715775796
574614674714774795
573613673713773794
572612672712772793
571611671711771792
570610670710770791
569609669709769790
568608668708768789
567607667707767788
566606666706766787
565605665705765786
564604664704764785
563603663703763784
562602662702762783
561601661701761782
560600660700760781
559599659699759780
558598658698758
557597657697757
556596656696756
555595655695755
554594654694754
553593653693753
552592652692752
551591651691751
550590650690750
549589649689749
548588648688748
547587647687747
546586646686746
545585645685745
544584644684744
541583643683743
540582642682742
539581641681741
538580640680740
537639739
536638738
535637737
534636736
533635735
532634734
531633733
530632732
529631731
528630730
527629729
526628728
525627727
524626726
523625725
522624724
521623723
520622722
519621721
518620720
517
516
515
514
513
512
511
510
509
508
507
506
505
504
503
502
501
500
Sample Caption
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Articles

The latest news and updates,
Read more
Chase Ink Business Unlimited®
New Offer!
$900 Cash Bonus
See offer

New Offer! Chase Ink Business Unlimited® Credit Card: $900 Cash Bonus

After you spend $8,000 on purchases in the first 3 months from account opening.
See Offer