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Asset Based Loan

Do Lender’s Automated Decision systems correctly review credit?

Large lending institutions have for many years used auto decisioning.    An applicant completes an application and instead of it being manually reviewed, it is reviewed by an automated computer system.    Do these systems correctly review an applicant’s credit file?

Automated systems review many factors when assessing an applicant’s credit file.   One of the factors with regard to unsecured credit is the total amount of unsecured credit lines, and total amount of unsecured credit balances.

Trade lines listed on an individual’s credit file are generally listed either with an “R” for revolving, or “I” for Installment.

A major glitch has been seen in the past in which revolving home equity lines of credit show up as a “R” on a credit file, but they are not unsecured, they are secured with the homeowner’s home.   Since Real Estate revolving equity lines have very high limits, if, due to their being listed as an “R”, they are added in the summary section of the bureau under “total unsecured balances” and “total unsecured limits”, this will greatly increase the total dollar amount that the applicant will appear to have under unsecured balances and unsecured limits.

As an example, if an applicant has $20K in unsecured account balances, and also has a $200K revolving home equity line of credit, with a $100K balance, the applicant will now, in the credit bureau’s summary section, be listed as having $120K in unsecured balances.

Since most lenders have a maximum limit of the total amount of unsecured balances an applicant can have, a great many customers may very well have been auto-declined for “excessive unsecured balances”, when in fact, their true credit card balances and unsecured account balances this figure is supposed to represent, are much lower, and very arguably,  inaccurately portrayed by the credit bureaus.

Since many applicants have revolving home equity lines of credit with balances, many applicants may be inaccurately detrimentally judged by automated systems.    Applicants with this characteristic should closely review such decline reasons given by a lender.

If they have received this type of decline reason, they should call the lending institution and make every effort to speak with a supervisor at the outset.  It is very doubtful a regular customer service representative they get will understand, have the authority to, or be willing to review this issue.

Upon speaking with a Supervisor, ask for a re-review.    Ask if the Supervisor has the authority to re-review the application.   If so, ask for a formal re-consideration.

Small Business Loan Resources:

SBA – Information by the SBA, Small business administration.   Questions can be asked and answers provided.

Public Radio Planet Money – All issues money related to the public.

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