Why Bank Statement is Important for Credit Worthiness Analysis
By Olayemi Jemimah Aransiola
April 17, 2024

Creditworthiness analysis is a process that financial institutions undertake to assess the risk associated with extending credit to a potential borrower. It entails evaluating the borrower’s ability to repay a loan based on their financial history and current financial status. One of the most important documents in this analysis is the bank statement. To begin, let’s briefly discuss what a bank statement is.

A bank statement is a comprehensive record of financial transactions made through a particular bank account over a specific period. It includes account balances, deposits, withdrawals, and any charges or fees incurred. These statements provide a snapshot of the account holder’s financial behavior and stability, which makes them a valuable tool in creditworthiness analysis.

Bank statements offer a transparent view of an individual’s or business’s financial activities which makes them indispensable. Furthermore, assessing a potential customer’s bank statement remains one of the most common and reliable means of finding a creditworthy borrower. With advanced technology available now, bank statements reveal patterns in income and expenditure, showing how money flows into and out of an account. This information can help lenders determine whether a potential borrower will likely repay a loan on time or default.

Key Components of Bank Statements for Credit Analysis

When analyzing bank statements for creditworthiness, there are several key components that lenders focus on:

  1. Deposits: Regular income is a positive sign of financial stability. Lenders will look at the frequency and amount of deposits to assess regular income and its sources. This could include salary payments, business income, or other regular inflows. The consistency and size of these deposits can indicate a borrower’s capacity to repay a loan.
  2. Withdrawals: It is equally important to examine a borrower’s spending patterns thoroughly. Frequent large withdrawals may indicate high spending habits or significant financial commitments, which could affect the borrower’s ability to repay a loan. Lenders scrutinize withdrawals to better understand the borrower’s financial behavior.
  3. Overdraft Occurrences: The frequency and nature of overdraft occurrences can be a red flag for lenders. Frequent overdrafts may suggest that the borrower struggles to manage their finances effectively. This indicates a higher risk of default.

Bank Statements and Credit Decisions

Bank statements are a key tool in lenders’ decision-making process. Analyzing the details in a bank statement can assist lenders in determining the credit limit and interest rates appropriate for a potential borrower. For instance, a borrower with regular income deposits and minimal overdraft occurrences may be offered a higher credit limit and lower interest rates due to their perceived lower risk.

Multiple studies have shown the significant impact of bank statement analysis on lending decisions. For example, a borrower with frequent large withdrawals and overdrafts may be deemed high risk and offered a lower credit limit and higher interest rates. Conversely, a borrower with consistent income deposits and controlled spending may be deemed low risk and offered more favorable terms.

Challenges in Manual Bank Statement Analysis

Traditional manual analysis of bank statements is not without its challenges. It is a time-consuming process that requires meticulous attention to detail. Analysts must sift through pages of transactions, which can lead to fatigue and the potential for errors.

Manual bank statement analysis can be fraught with several challenges such as:

  1. Time Consumption: Manual analysis of bank statements is labor-intensive and time-consuming. Analysts must sift through pages of transactions, which can be particularly burdensome for businesses or individuals with complex financial histories. This time investment increases operational costs and can slow down the decision-making process in lending.
  2. Human Error: The potential for human error is significant in manual processes. Misinterpretation of data, transcription errors, and simple oversight can lead to inaccurate assessments of a borrower’s financial health. This can result in inappropriate credit decisions, either overly risky or unnecessarily conservative.
  3. Inconsistency: Different analysts may interpret the same information in varying ways, leading to inconsistencies in how credit policies are applied. This lack of standardization can affect the fairness and reliability of credit assessments.
  4. Scalability Issues: As the volume of applications increases, scaling manual processes becomes problematic. Financial institutions might struggle to process an increased number of bank statements in a timely manner without additional resources, which can hinder growth and responsiveness in competitive markets.
  5. Limited Depth of Analysis: Manual reviews may focus on more readily apparent indicators such as large transactions or overdrafts, potentially missing subtler, yet important patterns of financial behavior that could indicate credit risk, such as small, frequent unplanned borrowings.
  6. Fraud Detection Difficulty: Detecting fraud through manual analysis can be challenging, as it often requires recognizing subtle anomalies or patterns that are not easily noticeable without sophisticated analytical tools. This can lead to higher risk of financial fraud going undetected.
  7. Data Overload: Analysts might become overwhelmed with the volume of data, particularly in cases where multiple bank accounts or long historical data are involved. This can lead to important information being overlooked or not analyzed thoroughly.

How to Conduct Bank Statement Analysis Using Lending Software

With the advent of technology, lending software has become a game-changer in bank statement analysis. Here’s a step-by-step guide on how to use Configure, a core lending software to analyze bank statements:

  1. Statement Upload: This involves inputting the bank statement data into Configure. Most modern software can automate this process by directly importing digital bank statements.
  2. Analyzing Transaction Patterns: Configure uses algorithms to analyze transaction patterns. It can identify regular income deposits, frequent large withdrawals, and overdraft occurrences.
  3. Integrating with Other Financial Data and Credit Scoring Models: Configure can integrate the analysis results with other financial data and credit scoring models to provide a comprehensive creditworthiness assessment.

Advantages of Using Lending Software for Bank Statement Analysis

Lending software offers several advantages over traditional manual analysis. Firstly, it provides efficiency and speed in processing large volumes of data. This is particularly beneficial for lenders dealing with a high number of loan applications.

Secondly, lending software increases accuracy and objective decision-making. Automating the analysis process eliminates human errors and biases that can affect credit decisions.

Lastly, lending software can generate detailed reports and insights for lenders. These reports can provide valuable information on a borrower’s financial behavior, aiding lenders in making informed credit decisions.

Best Practices in Bank Statement Analysis with Lending Software

When using lending software for bank statement analysis, following certain best practices is important. 

  1. Firstly, ensuring data privacy and security during the analysis process is paramount. Lenders must comply with data protection regulations and ensure sensitive financial data is handled securely.
  2. The software should be continuously updated and calibrated to adapt to new financial behaviors and fraud trends. This ensures that the software remains effective in identifying credit risks.
  3. Training for financial analysts to interpret software results effectively must be adhere to. While lending software can automate the analysis process, human expertise is still needed to interpret the results and make final credit decisions.


The bank statement analysis method is an important part of the modern credit assessment practices. Leveraging technology in the form of lending software can help overcome the challenges of manual analysis and lead to more accurate and efficient credit decisions. 

Finally, as technology continues to evolve, expect further advancements in creditworthiness assessment that will ultimately shape the future of lending.

By Olayemi Jemimah Aransiola
April 17, 2024
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