What Is a Credit Application?

A credit application is a request made by a consumer or a representative of the business for an extension of credit. Typically, a request for credit is made to a credit card company or a business that directly extends credit to its clients and customers. An application for credit can be made online, on the phone, or on paper. A credit application often includes requests for various types of financial information that the credit issuer uses to determine whether it is in its best interest to honor the credit request. In some jurisdictions, the content of an application for credit and the process by which credit decisions are made are strictly regulated.

Various types of businesses extend credit to others. Credit card companies, for example, offer consumers and businesses a line of credit that they can use at any business that accepts their credit cards as a method of payment. Other businesses may offer credit terms to clients by providing goods and services without any up-front payment and then allowing the client to either pay weeks or months later or to set up a payment plan. Issuing credit to someone can be a significant risk, which is why businesses typically ask clients to fill out a credit application before credit is extended.

The information requested on a credit application varies according to pertinent law as well as the preferences of the business issuing the application. In many cases, an individual who is applying for credit will be asked for identifying information such as her name, date of birth, and address. Other information that may be requested includes a national or government identification number, the name of a person's employer, as well as financial information. If a business applies for credit, similar information will be requested, and in many cases the business will be asked to provide references from other companies with which it holds a credit line.

Once an application is completed, a credit issuer can review it to make decisions as to whether to honor the request for credit. The credit issuer may also use information from the credit application to decide how much credit to extend to the applicant, as well as the terms under which the credit will be issued. For example, if a creditor notes that an individual's application indicates that he makes a very high salary and has been at his job for a long time, the credit issuer may extend him a high credit limit along with a low interest rate.

Credit laws in some countries restrict the types of questions that can be included on a credit application. For example, in a country that prohibits racial discrimination in credit issuance, a creditor cannot ask a potential client about his race. In addition, some laws require credit applications to disclose aspects of the credit granting process and may require applicants to consent to allowing the creditor to contact credit bureaus or background screening firms.