Credit underwriting is the work a lender does to decide whether to give a loan, how much to give and at what interest rate. Before any money moves, the lender must answer one question: will this borrower repay? Software now does most of this work, and for a small loan it often takes only a few minutes.
To answer the question, the lender looks at four kinds of data. The first is the borrower's history with other lenders: every loan and credit card, and whether each EMI was paid on time. The second is the bank statement, the money coming in and going out. The third is income: whether the borrower really earns what they say. The fourth is identity: whether the borrower is who they say they are.
Imagine you apply for a personal loan of ₹2 lakh in a lending app in Dehradun. You type in your PAN, your salary and the amount. The app runs on a loan origination system (LOS). It records your application and completes KYC, the identity check.
The LOS then asks a credit bureau for your credit report. The report lists all your past loans and gives a credit score, a number that sums up how reliably you have repaid. If you have never borrowed, alternative credit scoring can score you from other data, with your consent.
Next, you agree to share your bank statement through the account aggregator, India's consent-based system for sharing financial data. Bank statement analysis software reads 12 months of it. It finds your salary credits, your existing EMIs and any bounced payments. Income and employment verification can confirm your salary with your employer directly.
All this data reaches the credit decision engine. It applies the lender's rules and models and returns a decision within seconds: approved, ₹2 lakh at 14% interest for 24 months, an EMI of about ₹9,600. The higher the risk, the higher the interest rate. You accept and sign the agreement digitally, and the money arrives in your bank account.
Business loans and home loans take longer. The amounts are larger, and an underwriter, the credit expert who studies the application, reviews each case. Credit underwriting software reads the documents and drafts the underwriter's credit memo. The underwriter checks it and decides. This way of working is called human in the loop.
The general idea of judging a risk before taking it on is called underwriting. Insurers do it too. When the loan decision is built into another company's app, such as a shopping app, it is called embedded finance.