A credit underwriter is a person who works for a bank or a finance company and is in charge of approving or rejecting credit applications. The loan officer who accepts the application or an automated credit approval system may make preliminary decisions to approve or decline a loan, but final decisions are usually made after the underwriter reviews the application. Underwriters must balance the potential profits from a new credit account against the risk of the borrower defaulting on the loan.
A credit underwriter typically has a background in lending or finance, and some experienced loan officers make the transition to credit underwriting. Underwriters are limited in their approval authority and can only look at loan applications for amounts within their lending authority. Large commercial loans are usually reviewed a team of underwriters and executives, not just one person.
The credit underwriter will typically order a copy of the applicant’s credit report and review it to see if the applicant’s credit score meets the minimum requirements to qualify for a loan or other credit product. If an applicant has extenuating circumstances, underwriters can make an exception to the minimum credit requirements. The underwriter also looks over all of the supporting documentation, such as copies of tax returns and recent pay stubs, that pertains to the borrower’s financial situation. The underwriter can calculate the applicant’s debt-to-income (DTI) ratio using the credit report and income verification documents. DTI caps exist in the finance industry, and people with excessive debt are ineligible for additional credit.
The credit underwriter must determine whether the collateral has sufficient value to secure the loan on loan applications that are secured some form of collateral. Home and commercial property appraisals are conducted outside appraisers, and the underwriter examines the appraiser’s report to ensure that the loan amount does not exceed the property value. Underwriters must also ensure that there are no legal issues, such as unpaid liens, that prevent the lender from securing a loan against the borrower’s collateral. After reviewing the borrower’s information as well as the collateral report, the underwriter can either approve, decline, or counter-offer a loan for a lower amount.
The decision of the credit underwriter can be appealed loan officers and applicants. If a case can be made that the decision should be reversed, the original underwriter must request that the application be reviewed a senior underwriter. The senior underwriter’s decision on an appeal is usually final and cannot be appealed.