5 unlikely factors that can make or break your Discover personal loan application

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Looking to apply for a Discover personal loan? Don’t be surprised when the financial services company uses a slightly unorthodox yardstick to measure your creditworthiness!

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Discover personal loans: What you need to know before applying

Discover Financial Services is undertaking a new partnership with Zest Finance to bring machine learning into the underwriting process for personal loans. The hope is that artificial intelligence can help raise approval rates and predict losses better than human underwriting decisions.

We told you last year how Discover was approving fewer personal loans because of industry wide concern about a possible economic slowdown coming.

Yet, at the same time, the personal loan industry reached a record $138 billion market at the end of last year, according to TransUnion.

Discover is in a difficult position because those personal loans that it has decided to underwrite have a charge-off rate of 4.5%. That’s the highest in the company’s portfolio of credit offerings, which also includes traditional credit cards, private student loans and more.

So, it needs to get losses under control while hopefully expanding its personal loan business in a safe and sensible way. That’s where AI comes in.

After running a test on prior applicants, Zest was able to weed out approved applicants who ultimately left Discover high and dry without paying their bills. Zest’s system will also hopefully help Discover identity potential customers it may have passed over before.

So what kinds of things might trigger the system to either give your Discover personal loan application a thumbs up or a thumbs down?

Thumbs up

  • Contacting the company from a landline or cellphone
  • A history of shopping at discount stores

Thumbs down

  • Calling the company from a VoIP phone service
  • Writing the full legal name of an employer on the loan application
  • Reporting a six-figure income well above the U.S. median household income

The factors listed above were reported to The Wall Street Journal by unnamed sources said to be familiar with the Zest-Discover partnership.


Why such a motley assortment of metrics?

Well, the full legal name thing could indicate that it’s a criminal doing a copy and paste of false info. The Journal reports there’s a nearly $33 million industry wide problem of criminals creating fake identities to take out personal loans.

Meanwhile, the thing about your phone is pretty basic. Numbers that originate from a landline or cell phone are easy to trace to a person. But that’s not the case with numbers coming from an Internet phone service.

The other two factors are fairly obvious, too. Someone reporting an unusual high income may be lying. And shopping at discount stores likely means you’re prudent with money, so you’re probably going to be less likely to run up a big bill that you can’t pay back.

The new metrics for Discover personal loan applications go into place around the second half of the year.

We should note that this marks a shift away from traditional underwriting practices. In the past, lender relied heavily on a consumer’s credit score and credit report to gauge creditworthiness.

So, the takeaway for you this: Lenders are getting smarter about how they make loan application decisions.

Of course, some things like where you shop and what kind of phone you have may just be oddball outliers. But, in general, the better decisions you make as a consumer, the more likely you’ll be judged favorably by them!

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