Credit application definition
/What is a Credit Application?
A credit application is a standardized form that a customer or borrower uses to request credit. It may be completed using a paper form or online. The form contains requests for such information as:
The amount of credit requested
The identification of the applicant
The financial status of the applicant
The names of credit references
Standard boilerplate terms and conditions
A sample credit application form appears in the following exhibit.
A credit application may also contain a personal guarantee commitment, which requires a signature by the applicant. When this clause is present, the credit application becomes a legally-binding document that the seller can use to enforce payment from the applicant.
The credit application form is issued by a supplier or lender with the intent of standardizing the information it uses to make credit decisions. Additional information may be used in making a credit decision, such as a credit report from a credit rating agency and information received from the credit references supplied by the applicant.
How a Credit Application is Used
Based on the information in a completed form, a credit analyst may elect to grant or deny credit, or may impose additional conditions, such as a personal guarantee or collateral. The granting of credit through an online form is highly automated, so that the entire process may only require a few minutes to complete.
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FAQs
Is a Signed Credit Application Legally Binding?
A signed credit application is generally considered a legally binding agreement between the applicant and the creditor. It typically outlines the terms of credit, payment obligations, and may include clauses such as personal guarantees or late fees. Once signed, it can be enforced in court if the applicant fails to meet the agreed-upon terms.