To handle loan approval based on a credit report, lenders must first verify the accuracy of the report. Discrepancies, such as incorrect balances, outdated accounts, or inaccuracies in payment history, must be resolved with the credit bureaus or the borrower before final approval. Lenders should also assess the borrower’s credit utilization ratio, typically aiming for below 30%, as high utilization can signal financial stress. Additionally, lenders must comply with the Fair Credit Reporting Act (FCRA) by providing clear notices of adverse actions and allowing borrowers to dispute inaccuracies.

This process ensures compliance with regulatory standards and minimizes risks of approving loans for borrowers with hidden credit issues. For example, the Consumer Financial Protection Bureau (CFPB) reports that disputes account for 20% of credit report errors, which can lead to delayed loan processing or rejection if unresolved. A 2023 Federal Reserve study found that credit utilization exceeding 40% correlates with a 15% higher likelihood of default, underscoring the need to review this metric rigorously. Furthermore, the FCRA mandates that lenders obtain written consent before accessing a credit report for a loan application, reducing risks of unauthorized data use. Documenting all interactions and corrections maintains transparency, as 70% of disputes are resolved within 30 days, according to Equifax. By prioritizing accuracy and regulatory adherence, lenders enhance approval efficiency while mitigating legal and financial risks.