The most important information about creditworthiness
Anyone who thinks about taking any loan will certainly come across the concept of creditworthiness. Although the concept itself may suggest what this ability is, it’s worth delving into all the details that apply to it. Below are the most important of them.
What is credit standing?
The term creditworthiness means the estimated assessment of the borrower’s readiness to repay the entire liability without any problems. The ability is calculated by the bank for a specific person and a loan with specific parameters or is given as a numerical value. In both cases, an appropriate algorithm is used, while the purpose of the calculation is to assess the risk of lending cash.
What affects creditworthiness?
As already mentioned, banks use the formula that calculates a variety of factors when calculating capacity. The most important of them are:
- amount and source of income,
- monthly maintenance costs,
- other active liabilities,
- BIK scoring,
- credit history.
Banks also take into account other criteria that have less impact on the calculation result. These include: marital status or occupation. When applying for a loan, be prepared for a wide variety of questions that allow your institution to assess its creditworthiness and risk of borrowing money as accurately as possible.
Can I take a loan without creditworthiness?
At present, one should be prepared for the fact that even loans of a small amount will require showing adequate creditworthiness. If our willingness to pay the liability is insufficient, you can look for a way to improve it or decide to change the loan parameters (eg by borrowing a smaller amount).
How to improve your ability?
The most effective way to increase your credit standing is to increase your income. It is good to know that banks take into account only documented sources of income, and what’s more – people who receive remuneration on the basis of an employment contract are always in the best position.
Another idea is to try to get a loan, not yourself, but with another person or people. It is important for other borrowers to be able to prove their creditworthiness – otherwise it may be equally difficult to get money.
Another way requires planning in advance and is to build a positive credit history. This can be done by taking smaller loans or by creating a credit card. This method can help, of course, if we pay regular and diligent repayment obligations arising from these financial products.
Creditworthiness is not only a tool that banks justify not giving out their money. The lack of it can often be a good clue as to what can be improved in your home budget.