What is apply for credit?

A credit application is filled out by a borrower and submitted to a lender to request a loan or other financing. A contractual relationship begins between the borrower and that lender when the lender receives a credit application.

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:

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.

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.

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 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 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.

A credit application is a borrower's formal request to a lender for an extension of credit. Credit applications can be made either orally or in written form, as well as online. Whether it's submitted in person or otherwise, the application must contain all of the information the lender asks for in order to make a decision. Credit applicants also have a right to fair treatment under the law.

When you apply for credit you will need to answer a list of questions and, in many cases, provide documentation. The lender uses that information to decide how safe or risky it might be to approve your request.

While applications may differ somewhat, depending on the type of loan and the lender, the Consumer Financial Protection Bureau says the following information is likely to be required:

If you're applying for a mortgage, you may also be asked to explain where the money for your down payment is coming from and to provide documentation to support that.

You'll save yourself some time and speed up the process if you collect all of this information in advance of applying.

There are also certain questions that lenders normally aren't allowed to ask you. Those include whether you have plans to have or raise children, whether you are receiving alimony, child support or separate maintenance payments (with some exceptions), or for information about your spouse (again with certain exceptions, such as if you're applying jointly).

In addition to the information you provide in your application, lenders will typically request your credit reports from one or more of the major credit bureaus (Equifax, Experian, and TransUnion), along with your credit score. In some cases, your credit score will be tailored to the type of credit involved, such as a credit card, an auto loan, or a home mortgage.

While the information in your application is largely focused on your income and assets (neither of which credit reports include), your credit report tells the lender how well you handle your debts, listing your monthly credit payments for up to the past seven years.

Missed payments will be counted against you, especially if you have more than the occasional one. The lender will also take a close look at your credit utilization ratio. That's the amount you owe at any given time relative to the amount of credit that you have available to you. For example, if you have two credit cards with a combined credit limit of $40,000 and an unpaid balance of $20,000 on the pair of them, your credit utilization ratio is 50%. Generally speaking, lenders like to see a credit utilization ratio of 30% or less.

Because of their importance, it is often worth obtaining your credit reports and credit scores before you apply for credit, so you know where you stand.

You can obtain your credit reports free of charge at least once a year from each of the three bureaus at the website AnnualCreditReport.com. If you find any errors that could be damaging to your credit application, you should dispute them with the credit bureau. It is required by law to investigate the matter and get back to you.

You may also be able to obtain a free credit score from your bank or credit card issuer or from a number of reputable websites. Bear in mind that it might not be the exact same score that the lender is using, though it may not be far off.

If your application for credit is rejected, you have a right to know why. Typically the lender will send you what's formally known as an adverse action letter explaining the reasons. For example, if your credit score was too low, it must give you your score and the date it was reported.

If you wish to, you can contact the lender and ask it to reconsider, possibly based on new information you can supply. Or, of course, you can simply try a different lender.

An adverse action letter may also be useful in pointing out where your credit is weak, which gives you a chance to work on improving it before you apply again.

A credit application is a borrower's formal request to a lender for an extension of credit. Credit applications can be made either orally or in written form, as well as online.