Who is a Credit Underwriter?
A credit underwriter acts as the starting point for granting loans to people who have applied for it. He examines and reviews the loan applications submitted by various individuals who need a new line of credit to fund their personal requirements or propel their professional needs.
A credit underwriter protects the interest of both parties: The ones asking for loans and the ones providing loans to people who need the money. The credit underwriter analyses the financial information of the individual who needs the money and also the information provided by multiple credit agencies to understand if the applicant meets all the criteria laid down by the lender institutions and if the borrower is worthy of the credit.
The underwriters approve and analyze loans as they want to generate profits for their companies with such a transaction. Therefore, an underwriter tries his best to make sure that the approval has been granted only to those individuals who are worthy enough and are backed up by the power to pay the banks back along with the interest.
The underwriters keep in mind five important aspects while selecting the applicants making them eligible for the loan.
The five important factors for selection
1. Character
2. Conditions
3. Capacity
4. Collaterals
5. Considerations
Character: The underwriter examines the credit report and the credit score of the person applying for a loan. This is done with the help of any credit bureaus. The credit report gives an insight into the borrowing habits of the applicant.
Also, these reports show the payback pattern followed by the applicant. Late payments and dues give out a negative image of the applicant. An applicant with a demonstrated history of paying his dues on time stands a chance of being selected as a borrower.
Conditions: The underwriters have to examine the conditions which envelope the candidate and then on their discretion decide if the applicant should be given the loan amount or not. Lenders have to know if the money will be used for legal work or not.
Also, if the borrower wants to take a loan for his business, the underwriter has to analyze the economic parameters which surround his business and might affect his business in some way or the other. The period in which the loan has to be given is a very important factor and can sometimes act as a decisive factor too.
Capacity: The underwriters have to find out if the applicant can pay back his loan and various other costs associated with the loan. The underwriter determines the net worth of the person by analyzing the applicant's income statements, assets held under his possession, the payment cycle of various bills, frequency of purchases, tax returns, etc.
Also, if the applicant has an existing loan, it is the job of the underwriter to ascertain if that person can afford to have additional debt at his disposal.
Collaterals: Collaterals are securities in the form of assets to protect the interests of the lenders. These collaterals are forfeited in case the borrower fails to pay his debts. The collateral should be of an adequate amount so that the loan gets covered.
Considerations: The underwriter must check the bank statements of the applicant and also whether or not he will be able to keep up with the additional costs associated with the loans such as down payments, interests, closing costs, etc.
After looking into all of these, the underwriter decides on approving a loan application. An underwriter can also approve the loan even if all the criteria are not being met.
