Granting a loan is always associated with a certain risk for a bank: you would certainly not simply lend a stranger a few thousand euros without first being sure that you will get the entire amount back. In order to limit precisely this uncertainty before the requested amount of money is paid out, the bank carries out a so-called credit check after the customer has submitted the loan application.
Credit check is intended to reduce the risk of default on payment after lending
During the credit check, the bank tries to assess the creditworthiness, i.e. creditworthiness, of the consumer. A basic distinction is made between personal and economic creditworthiness. The latter provides information about whether the applicant has the economic prerequisites to transfer the due repayment installments of the requested loan to the bank during the entire agreed term.
To this end, consumers usually have to submit certain documents together with the loan application, including proof of salary and bank statements. With the help of these documents, the bank creates a so-called household bill during the credit check, in which all regular income and expenses of the potential borrower are compared – based on the resulting balance, the bank determines whether the consumer can even pay the loan installments.
Personal creditworthiness plays a crucial role in credit checking
In addition to the economic creditworthiness, the bank checks the personal creditworthiness of the respective applicant as part of the credit check. Here, for example, great importance is attached to how conscientiously the consumer has fulfilled his payment obligations in the past. In this context, the bank provides the applicant’s Credit Bureau file with a reliable source of such information.
In addition to these factors, the respective banks also attach importance to other criteria, such as the age or profession of the respective consumer, when checking credit. For example, if a bank does not grant loans to self-employed or freelance consumers, this can be a reason for rejecting the loan application, although the potential customer’s credit rating would be sufficient for the loan.
Basically, every bank is interested in the same information about its potential credit customers before granting a loan – how the banks weight the respective criteria in their credit check and whether there are exclusion criteria remains a secret of the respective institution. Before applying for their loan, consumers will find a rough insight into the factors on which a particular bank places credit checks in the product information of an independent credit comparison.