The Importance of Connection in Credit Decisions

This post is part of a series examining how banks can reimagine risk, based on the latest insights from Underwriting for Racial Justice.

By Elsie Howard, Program Manager, Underwriting for Racial Justice

In lending, there’s long been an assumed tradeoff: relationship-based decision-making is rich in context, but slow and hard to scale. Automated decisions are fast and efficient, but risk missing the story behind the credit score.

Actually, lenders don’t have to choose. It’s absolutely possible to make human-centered decisions at scale, and it starts with how we gather context.

The Myth That Gathering Context Takes Too Much Time

One objection a large financial institution might often make is that asking borrowers for additional context just isn’t feasible. Underwriting teams are busy, time is limited, and asking deeper questions sounds like a resource-heavy approach only for CDFIs (Community Development Financial Institutions) and small community banks.

But in practice, that assumption doesn’t hold up.

At a major lending institution, a context-gathering approach was deployed across a range of consumer loan applicants with less-than-perfect credit. Most of the borrower conversations, including identity verification protocols and formalities, took just 2 to 3 minutes. 

Borrowers were almost always willing, and even eager, to explain the stories behind their credit reports, especially when they understood it could affect their loan decisions. The process was quick, respectful, and repeatable across hundreds of applicants. Asking a few open-ended questions made it very easy to learn about the borrower and how they arrived at the snapshot the credit report displayed. 

It’s important to note, these questions are not an interrogation. Done well, they create a space of care, not scrutiny. You can gather meaningful context without grilling someone or asking them to relive a painful moment. It’s about tone, curiosity, and respect.

In every case, the additional information helped the underwriter confidently reach their decision. Oftentimes, the contextual explanations made complete sense with the patterns observed on the credit report. 

One of the lenders from our Lender Pilot Program shared their take on gathering more context:

“All too often with less information… it’s easier to get to a decline. Whereas with more information, we have a lot more to advocate with.” 

This shows that additional context doesn’t just inform a better decision—it often enables underwriters to champion the borrower.

Why It Matters: Equity Lives in the Gray Area

Many applicants fall just below a credit cutoff–or hover in that uncertain “gray area.” As stated by Oliver Wyman, “many potentially good borrowers [are] denied access to credit because they cannot be statistically separated from poorer risks.” Frequently, people of color fall under these credit cutoffs, yet are likely to repay successfully. Communities of color are disproportionately impacted by historical and present-day barriers that could lead to a lower credit score, such as redlining, denial of wealth and savings, immigration backlogs, under-banking, and wage disparities, just to name a few.

When underwriting relies too heavily on credit scores alone, it can overlook borrowers who have navigated significant systemic obstacles, missing indicators of resilience and repayment capacity that scores alone don’t capture.

Decisions to deny lending in these situations don’t just hurt the individual borrower; they continue to widen the racial wealth gap. Furthermore, the involved institution loses a valuable deal, a new potential depositor, and a lifelong customer.

Context gathering isn’t a luxury for CDFIs. It’s a necessary step in equitable lending and business development. And non-CDFIs can learn a lot from making the practice commonplace.

From Red Flag to Real Life

Consider this quick phone call:

Lender: I was reviewing your application and noticed three of your credit cards were past due a few months ago. Can you tell me what happened?

Borrower: Oh yeah, that was a rough stretch. My work permit expired, and even though I applied for renewal right away, it took months longer than expected to get processed. Since I wasn’t allowed to work during that time, I had no income coming in. I used my savings to pay my rent and car payment, but my credit card bills had to wait because I wasn’t sure when I could go back to work. As soon as my permit was approved, I caught up on everything, and I am back to work like normal.

Suddenly, what looked like a red flag becomes a reasonable and temporary setback–one that does not reflect an unwillingness or inability to repay. With this fuller picture, the lender might be able to approve the loan, adjust the structure, or explore alternative risk indicators with more confidence and a lot more compassion.

Consider this story: 

Lender: I saw the mortgage on your credit report went quite past due last year. Did something happen? 

Borrower: Yes! Ugh, that was when I fell off the bleachers at my son’s graduation. I tried to break the fall with my hands, and I fractured my wrist. Anyway, since I am a self-employed hairstylist, I couldn’t work for about 12 weeks while it healed. At first, I tried to work with just my left hand, but it wasn’t doable. But as soon as I was healed, my clients were happy to come get their hair done, and I was able to catch up on the house.

According to the Pew Research Center, only 36% of Black adults say they have an emergency or rainy day fund to cover three months of expenses in case of sickness, job loss, economic downturn, or other emergencies. Several systemic reasons contribute to this lack of savings, including lower overall wages, historical denial of wealth, and more. Knowing these stats, it is not reasonable to expect everyone to be able to pay every single bill while also not being able to work. After learning the reason behind a past due incident, we are able to more properly assess the risk behind them. 

James Hunter, Chief Advocacy and Culture Officer from New Orleans Firemen’s Federal Credit Union puts it this way:

“Take an opportunity to help people… Bad things happen to good people… We have to look at these issues and talk to people one-on-one and meet them where they are. I feel like sometimes we’re on Judge Mathis’ show and we say, ‘Help me prove your case.’ If there’s an opportunity, we’ll look at it. If it makes sense, we’ll look at it. If it doesn’t make sense, we’ll try to make a way for it to make sense.”

That mindset, meeting people where they are and working toward solutions, is the essence of equitable lending.

Scalability & Human-Centered Lending

Technology can streamline some approvals, but applicants in that “gray area” deserve a closer look. A few follow-up questions can reveal vital context that a credit report alone misses. This doesn’t mean ignoring underwriting standards; it means making more informed, empathetic decisions. Speed and connection can go hand in hand: tech can handle low-risk approvals, while staff can focus on thoughtful underwriting. 

Every borrower has a story beyond the score. If you’re ready to explore incorporating a more holistic approach into your work, contact us to learn more about the tools and strategies emerging from the Underwriting for Racial Justice initiative.