Lending decision-making technologies may differ by lenders. Each financial institution has its own system of checking potential borrowers for their reliability and solvency. To do this, the bank uses all available information about clients, including even their social network profiles.
Due to the huge flow of customers, lenders have long moved away from considering applications manually. Previously, this took a lot of time and labor resources. From the moment of applying for a loan to issuing money, it took at least 1-2 weeks, sometimes a month, depending on the amount requested. A credit committee often met to make a decision. All these methods are still used by some banks, but extremely rarely – for exceptional cases.
Bulk loans are issued through a scoring review. This is where each fact about the borrower will have its weight. If everything is clear regarding credit history (good credit borrowers get approved), then such parameters as education and marital status are often puzzling. Let’s consider why the bank needs these details when making a lending decision.
Does education affect a bank’s decision on a loan?
When filling in the data in the loan application form, bank employees ask what kind of education the client has. It would seem why does the bank need this information if you need a loan, for example, to buy a washing machine?
It’s all about bank scoring. Each application is filled in the system. Based on the entered data, the system automatically checks the credit history and makes a decision on a loan. Thanks to automatic consideration, banks manage to accept and process many times more applications than it was in manual mode. Borrowers now learn a decision on a loan within 2-5 minutes after entering data into the system.
Scoring involves the calculation of points based on customer data. Each information has its own weight in the total score. Each bank uses its own scoring system. For example, it can be 1000 points. If the borrower scores 800-1000 points from the data given in the application form, then the probability of getting approved for a loan approaches 100%. If it is lower, then the bank submits the application for manual consideration, which may require additional documents, etc.
As noted, each information has its own weight. Credit history is the most important factor. If you had minor delays in payment, then you can compensate for the low credit score with other information, for example, providing your latest bank statements, recent pay stubs, a diploma of higher education, proof of additional income, etc.
Indeed, some banks may require documents on education. Higher education will be an advantage for the borrower. This means that a person is educated, literate and responsibly treats credit obligations, which means that he or she will repay the loan in a timely manner.
You may be required to choose the type of education in the application form: secondary education, higher education, academic degree, etc. If you mark “secondary education”, the score for this item will be extremely low. “Higher education” gives a higher score, but 2 or more higher educations or an academic degree can close other gaps in the application and help get a score required for approval.
For large loans, banks may require applicants to provide a diploma of education. The bank can see the type of diploma: full-time or part-time. “Full-time” will cause more confidence in the borrower.
An important fact will be the university that the borrower graduated from. If this is a respected educational institution, for example, Johns Hopkins University, Dartmouth College or Florida State University, then this will be an advantage for the client. If it is a small institute specializing in distance learning, then there is a high probability that the diploma was simply bought.
How education affects a lending decision on a payday loan
Requests for payday loans are processed much faster and easier than those for a traditional personal loan or a mortgage. The decision is made through a scoring process. Based on recent user reviews, if you apply online via https://www.zestcash.com/tennessee/payday-loans-madison-tn.html, you should expect to learn the lender’s decision within a few minutes. Payday loan approval rates are very high and reach 95% even among those who do not provide proof of education. Typically, you do not need to even visit the lender’s office to fill in the papers and receive the money – the entire process is online.
The payday lender will make a decision on a loan based on the data entered in the application form. Your credit history is important for the payday lender, too. If you have a good credit score, then it is more likely that you will get approved instantly. The good news is that there are many payday lenders that issue loans for bad credit. Such loans may come with higher interest rates and shorter repayment periods, but often this is the only option for borrowers with poor credit or no credit.
In addition to credit scores, the payday lender may pay attention to other personal information, including your education. Again, the system will add points based on the data. Higher education will boost your chances of getting approved for a payday loan.
How education affects approval on a personal loan and mortgages
When applying for a loan, you are typically required to provide only information about the type of education and sometimes information about the university. This applies to small amounts (up to $10,000). If you request a large amount, for example, $20,000 or more, then the bank may ask for additional documents, including a diploma. But this is an exception rather than a traditional requirement.
As for mortgages, requirements are stricter here. This is one of the complex and long-term banking products, so the bank must check the borrower thoroughly. When applying for a mortgage, the bank most often asks for a diploma of education. They can also study the specialty of the potential client, how he or she studied, the type of education, etc.
Applicants with higher education will be a priority. But if the borrower has a secondary education and at the same time he graduated from a high-class technical school, then the bank will take this into account. If the borrower indicates that he has a secondary education, then he will not score positive points for the “education” section.
This does not mean that the bank will definitely reject such applicants. The bank will consider other characteristics: ownership, marital status, official income, and credit history. Also, there is something you can do to increase your odds of getting approved. Here are 10 tips to boost your chances of qualifying for a personal loan.
Credit cards and your education
An application for a credit card is treated in the same way as an application for a loan. You also fill out an application form, where you indicate the type of education. The scoring system makes a decision by calculating the total number of points.
If the bank is not entirely sure about the borrower, but there are no obvious reasons for loan rejection, they can offer a credit card with a small limit, for example, $500. Further, they will evaluate how the borrower uses the limit and how the money is returned back.
If the payment is made on time and the borrower often spends the entire limit, then the bank can gradually increase the limit. So, you can get a credit card with a limit of $500 and actively use it, then you can increase the limit to the maximum, for example, $50,000 or even more. The increase is gradual. It does not happen that in a month the limit will increase from $500 to $50,000.
Does the bank check the education indicated by the borrower?
If the borrower indicates a special education or higher education in the application form, the bank may request a diploma. If the borrower fails to do so, it is possible that the borrower tries to deceive the bank.
Do not buy education documents! The bank will know everything anyway. Providing fakes can permanently block your way to the banks. You will be blacklisted and no bank will ever give you a loan.
Sometimes the diploma can be lost when moving, etc. In this case, the borrower can indicate the university, and the bank independently makes a request there and finds out if the potential borrower really studied there. These actions will be taken if the bank for some reason needs this information.
Most often, such information is collected by small lenders. Large banks usually make decisions based on credit history: good credit – loan approved, bad credit – loan denied.
Small banks are ready to consider each borrower individually. Even if your credit history is ruined for some reason but you provide valid documents on education and proof of income, then the bank is often ready to take the risk and lend money to borrowers with poor credit.