What Is an Automated Underwriting System?

Automated underwriting graphicWhen you apply for a loan or other form of credit, the lender will figure out if you are a good fit for the loan. They will do this with automated underwriting, which is also called artificial intelligence (AI) or machine learning. It's a type of AI that uses data and algorithms to help people make decisions about people who want to get a loan or credit.

By automating the process of assessing the information that applicants for loans provide, it is made simpler to determine if the applicants fit a set of predetermined requirements. Due to the fact that everything is done online, there is a possibility that some lenders will never ever see you. This article provides an explanation of what automated underwriting is, how it operates, and who utilizes its services.

What Does Automated Underwriting Mean?

Automated underwriting (AU) helps lenders determine a borrower's loan eligibility based on their loan application. Computers and software handle this task.

AU doesn't replace human assessment. It only makes it easier to use the information loan applicants give to figure out if they meet certain criteria. AU is not the same as a decision made by a machine.

An automated decision is a legally enforceable algorithm decision. AU isn't binding and isn't an automatic judgment.

How Does Automated Underwriting Work?

Loan officer staring at a computer screenAutomated underwriting is a way to make credit decisions that is fully computerized and based on data and algorithms. This technology looks at the information on your application, like your name, address, and Social Security number, to decide if you are eligible.

An automated underwriting (AU) procedure involves programming a computer to analyze specific data in order to determine the likelihood that a loan will be repaid. When making a choice, it is possible to instruct a computer program to take into account an extremely large number of distinct aspects.

AU can take into account a variety of factors, including but not limited to:

  • your employment history,
  • length of current employment,
  • past employment history,
  • type of job you have,
  • length of time at present employment,
  • reason for leaving last job,
  • education level,
  • amount of debt,
  • credit history,
  • existing financial obligations,
  • assets, and
  • other information.

Comparing automated underwriting with traditional manual underwriting

Automated underwriting systems (AUS) look at a client's finances, such as their credit score and income, as well as the overall value of the property they want to buy (usually determined by an appraiser).

From there, the system decides whether a customer's mortgage application should be approved or sent to a human underwriter. So, clients who are approved can move on to the next step of the mortgage loan process.

Only a few clients, like those who are just starting to build credit or have had money problems in the past, need to meet with a person to finish the underwriting system by hand.

Manual mortgage underwriting is difficult since applicants must wait a long time and visit a branch or call a loan officer. Manual underwriting involves checking the applicant's financial information, such as pay stubs and tax returns, with third parties such as employers and banks.

Also, both the lender and the person who wants a mortgage loan have to wait for an appraisal to be set up and done. This slows down the process even more. So, applicants and mortgage lending companies can save money, time, and trouble by using automated mortgage underwriting to figure out if someone is eligible for mortgage insurance.

How to Tell if You’re Being Automated?

If you get a notice that you were turned down for a loan, and you think it was done automatically, you can ask the lender why. If you get a notice of denial and aren't sure if it was made by a person or a computer, you can ask for an explanation.

If you were denied a loan and don't know why, your application was most likely rejected automatically.

At this point, you might want to call the lender and ask if there is anything you can do to make it more likely that you will get the loan. If there's nothing you can do to make it more likely that you'll get the loan, you might want to look into other options. You might want to talk to a lender about a different type of loan or try to find a different lender who offers a loan with better rates or terms.

Pros of Automated Underwriting

At the moment, there are two big reasons why automated underwriting is a useful and effective tool.

First, the process expedites the application process.

Second, it is more objective than manual underwriting, so there is less chance of bias or human error.

  • More consistent decisions: AU makes decisions that are more consistent for all types of loans, including credit cards.
  • More accurate decisions: AU makes decisions that are more accurate, especially for first-time and non-prime borrowers.
  • Even the playing field: Because of AU, both lenders and borrowers will have a more level playing field.

Cons of Automated Underwriting

Not everyone should choose this path. You won't be approved if you have a low credit score, no credit history, a recent negative change on your credit report, or any other credit problem that you are trying to fix. You may also not be approved if your finances have changed in a big way recently, like if your income or expenses have gone up or down a lot.

Automated underwriters usually analyze data points such as credit scores too quickly

Automated underwriting is devoid of a human element. Computerized underwriting cannot comprehend that your husband lost his job due to a medical condition or that your child is ill. Computers are wonderful if there are no problems, but if there are, the loan must be evaluated by an underwriter.

It's possible to get the creditworthiness wrong: Automated systems don't always make the right choice, which is different from humans. They can sometimes miss important details that make you look worse than you really are.

For example, even if your FICO score is high, an AU system might not be able to tell that you are a great candidate for a certain loan product. The system doesn't take into account the fact that you've had a steady job, taken on reasonable debt, saved up a good down payment, and paid your bills on time for 20 years.

Lenders have less reason to think about giving you a loan: AU systems don't have the same motivation to give you a loan as humans do. When a person is making a decision, they want to give you a loan because if you pay it back, they will get paid.

The process of making decisions is unclear: When it comes to AU, the process of making decisions is unclear. You may not be notified how the system arrived at its judgments or why you were denied a loan.


If you think you were denied or offered a loan or credit product in an unfair or wrong way, you should be worried. If this happens, you should try to work things out as soon as possible with the lender. If you think that your credit score has been miscalculated, you might want to contact a credit repair company to help you fix the problem.