9 Background Checks Banks Do On You But Won’t Admit To

When you received your first credit card approval as a young adult, it can feel like you have have achieved something. Because a financial institution has deemed you credible enough for them to extend a line credit to you.

If you had suspected that their credit assessment and background checks were thorough is were probably right.

But as time goes by, you start taking notice of mass advertising campaigns by banks declaring how easy it is to sign up for their credit cards and loans. And the ferocity of their marketing can even make you feel that you are entitled to their low interest rate loans.

The importance of your details and records suddenly don’t seem that important at all.

So how critical are your records when applying for credit facilities from banks? Why was your last application for a mortgage declined without any explanation when you have always been a good boy? And why is your application for a personal loan turned down even when you’ve met all the qualifying criteria listed on the banks’ websites? Why was your car loan denied even though it was the first time you’ve applied for something like this?

The answers can shock you. Here are some of things banks check about you… yet refuse to reveal to you… choosing to hide behind front line staff and terms & conditions…

1) Credit record

This is the most obvious one. It is the biggest open secret that even to this day, spokespeople from lenders still refuse to acknowledge that your credit records play a part in the credit approval process.

They look into your credit record as they are interested in:

• whether you pay your dues
• how often you pay
• how prompt and how timely you pay
• partial or full payment
• reasons accounts and facilities were closed in the past
• bad debts
• negotiated settlements
• etc

And of course, you overall credit score. Whether or not your FICO score is used, or how it is used, depends from lender to lender and type of credit facility being applied for.

Not only does your credit record matter as a consumer. You can expect the bank to run your numbers when you are seeking employment with them.

2) Companies you own and those that you are a Director in

This check is done on almost everything you apply for. But it is most relevant when you are trying for a business loan or some form of trade facilities. Basically any type of credit facility meant for businesses will go through this bottleneck.

One reason why this is done is to evaluate whether you do have the authority to act on the behalf of the company. If you are a Director but a minority shareholder, it can raise questions.

Other than that this check can be used to assess:

• whether any of your companies are suffering from huge losses
• whether any of your companies are doing business with countries under sanction
• whether any of your companies have been bankrupt in the past
• Whether another company of yours already owes the bank a huge debt yet to be repaid
• etc

3) Check against their internal blacklist

If you think that lenders are forgiving and your encounters in the past will not affect your dealings in the future, you are in for a surprise.

Banks do keep a blacklist of the customers they don’t want to work with.

This categorization can be caused by things like forced account closures, bad debts, reduced debt settlements, bankruptcy, over due payments, etc.

If you or any of the joint applicants are on their dreaded blacklist, you can kiss your approval hopes goodbye. Even if any of the companies your and your partners are associated with are blacklisted, get ready for disappointing news in the mail.

There is a small chance that you can erase yourself from their blacklists.

How great your chances are depends on the banker who is serving you. The managers he know, the relationship he has with internal department heads, how he justifies your case, how well he knows the removal process, etc, all plays a crucial role in getting this done.

4) International watch list

Every time you open an account with a bank, they try to see if your name triggers a match in a global watch list.

People who get their names included in this list include those who commit international financial crimes, people with links to terror, those suspected to be involved in money laundering, etc.

Because there’s always a possibility of 2 persons having the same name, more meticulous checks are conducted when a name is matched to ensure that it’s not a false positive.

The odds are that people on this list will already know that they are being watched. So if you cannot see how you can be on this list, you are probably in the clear.

5) Political exposure

You might think that since having links to naughty organizations will negatively affect your loan application, then being linked to politicians must have a positive impact.

But that is completely wrong.

A lot of politicians, especially those in less developed countries, can have a bad habit of zig-zagging unaccounted funds across the globe.

Other than that, they can often have their million-dollar accounts freezed due to investigations into corruption in their own countries.

The thing is that banks can never be sure where your money originates from if you are strongly linked with a dictator in another country… and have even been photographed countless times with him on a yacht surrounded by bikini-clad ladies…

As banks tend to value their reputation and brand more highly than anything else, they don’t want to expose themselves to such reputation risks.

Again, there are special agencies that make it their job to collate all this spy-level type of information for financial institutions. And the main customers of these service providers are banks who are ever so eager to access their database.

6) Bounced checks

I cannot fully get my head around why lenders, especially banks, have such a low tolerance for returned checks.

If for example, you are trying to get an unsecured working capital loan for your young business, you can have your application swept off the table if you have frequent bounced checks. This is even if you have running average balances in the 5 figures.

But I think it is a measure of the level of ability and competence in financial management. The more checks you write that will bounce, the more it means that you are not a good money manager.

There’s usually a threshold that a lender will tolerate. Once your bounces exceed that threshold, it’s game over.

7) Nationality

Even though many people might feel that this is discrimination, I think most people can see the rationality of this check.

A local bank will of course have little issues with doing business with local citizens and permanent residents. But foreigners can be a tricky affair.

Lenders probably don’t want to be unknowingly funding unfriendly states via loans, or inadvertently aiding money laundering by accepting suspicious deposits and transfers.

The best way to avoid this risk altogether is not to do business with specific countries know to be unfriendly towards the home nation the bank operates in.

In recent years since the introduction of hot money on a massive scale, some modern economies even refused to entertain secured home loan applications made by US citizens. Having collateral will not make a difference.

The politically correct thing is to say that nationality discrimination does not exist. But the truth is that it’s as active as ever.

8) Litigation

Lenders like it best if borrowers have demonstrated an ability make more money with money. This gives them confidence that the credit they have offered you will be repaid in full plus interest.

What they do hate is when the funds disburse to borrowers are used for things like speculation, shady investment schemes, and to pay off irritating expenses like litigation judgments.

Lenders usually turn a blind eye to ongoing court cases where borrowers (individuals or companies) are involved in . But if the damages the borrower is being sued for is a considerable amount, they might not take a risk on the borrower.

And if the plaintiff is a financial institution, the tolerance will be even lower.

9) Hidden liabilities

Your recurring financial liabilities can be a small issue if you are just trying to get something as minute as a credit card.

But it can be a big focal point when you are trying to get facilities that grant you cash upfront.

Installment loans for example, are some of the most common types of products consumers apply for. Payday loans, personal loans, mortgages, study loans, etc, are all forms of term loan lending that is popular among general consumers.

And especially for those that are unsecured, your monthly liabilities can determine whether you will be able to properly repay a loan.

Credit analysts are experts in looking out for liabilities hidden in the background. It is highly unlikely that you’d be able to lie through it.

If for example, your credit report reveals a repayment account that you did not declare in your application documents, they will tactfully ask you about it. You won’t believe how sharp these trained professionals are at spotting these stuff. And if they spot patterns of repayment in your current account, they are going to question you about them too.

The reason why they do this is to generate a debt ratio as close to facts as possible. This is so that a better picture can be painted to judge whether you can afford the loan you are applying for in the first place.

If a borrower’s debt ratio goes bust, it could either result in an all out rejection or a lower approval quantum than what was requested.