When we look for information about any credit or loan, we constantly come across the words’ creditworthiness. There is a reason – after all, it is one of the main factors determining the positive or negative consideration of a loan application. In relation to what exactly is she? How to ensure that it is at the right level? Is it possible to get a loan without creditworthiness?
What is creditworthiness
Creditworthiness is, simply speaking, a potential borrower’s ability to timely repay the entire debt plus interest and any other additional charges. What does this mean in practice? The bank wants to see if the customer can afford to pay the installments on time throughout the duration of the loan.
It calculates based on the income and expenses of the person. Therefore, the higher the earnings, the better, provided that the majority of them are not absorbed by current expenses and liabilities. Of course, the higher the loan amount, the better the capacity will be required to grant it. In addition, the banks also take into account the credit history, i.e. whether the customer has repaid current and past liabilities on time.
How to improve your credit standing
There are several ways to improve your credit standing, but they are not usually immediate. Building good creditworthiness can take years and it is easy to counteract with several problems with timely repayment of installments. First of all, it is recommended to close all credit cards and revolving loans before applying for a loan.
Even if we don’t use them, they still negatively affect our creditworthiness. In addition, it is worth remembering that when granting a loan, the bank also looks at such less obvious factors as marital status (it is better to be married), education (university graduates always have a slightly higher chance of granting a loan) or form of employment (the contract is most desirable by the bank for an indefinite job).
Can you get a loan with poor creditworthiness
The poor ability makes it difficult to grant a loan, but it doesn’t make it impossible. However, it may turn out that due to insufficient creditworthiness, the bank will be willing to grant us a loan only for small amounts and with a high-interest rate and additional commission.
In this case, you may also need to purchase credit insurance. Ultimately, the whole operation may prove very unprofitable for us, so if we have poor credit standing, it may be better to take a loan from a reputable non-bank institution.
It’s worth knowing how to improve your credit standing. Even if you are not currently planning any loans, this may prove useful in the future.