Loan Modification Personal Finance

What Banks Look for When Approving Your Loan Application

Eric Rosenberg
Written by Eric Rosenberg

If you are looking to get a new loan, whether it is a mortgage, auto loan, personal loan, credit card, or something else, a bank or other lender will review and approve or decline your application.

As a former banker, I spent time tasked with reviewing loan applications that came through my branch. There are many misconceptions on how loans are approved. Your credit score is an important factor, but just one small piece of the puzzle. Let’s dive in and take a look at what banks actually do when approving your loan application.

Your credit score – the first glance

Whether you apply for your loan online or in person, the first place the bank will look is your credit score. This simple number works like your old grade point average in school. If you had a high GPA, you had good grades. If you had a low GPA, you had bad grades. Credit scores work similarly, giving a high-level view into your credit before digging into the details.

However, your credit score is just the first hurdle. Your credit score can be an instant disqualifier, but few banks will approve a new loan with a good credit score alone. There are many more steps to loan approval if you have a qualifying credit score.

Your history of payments – credit history

If your credit score is good enough to get past step one, the real analysis begins. The first step I took when approving a loan after checking the credit score was to look at the applicant’s full credit history.

My bank had a system for underwriting loans using old school paper printouts. I would print the applicant’s credit report for the loan file and would manually review with a highlighter. I would mark any late payments and tally them up to look for a pattern.

About the author

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a finance, travel, and technology writer originally from Denver, Colorado living in Ventura, California. When away from the keyboard, Eric he enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and baby girl. You can connect with him at his own finance blog Personal Profitability.


  • Thank you for these info. Starting today I will work on these steps. I’m a first time buyer and Im planning to purchase a home this year.

  • thank you for this valuable information. I trying hard to increase my credit score. I paid my house loan off and they put charged off. this decreased my score by 100 pts. this was incorrect it was changed to paid in full/charged off still my score is low because of this mark. what can I do?

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