Creditworthiness – what is it, what does it depend on and how is it calculated?

Are you going to apply for a mortgage or cash loan? You must have creditworthiness. Your application will be successful, provided you demonstrate credibility and financial standing. What is it and how is creditworthiness calculated? What is your credit history and form of employment? Check!

What is credit standing?

Before a financial institution lends money to a client, it must analyze its ability to repay the liability in a timely manner with interest. Its analysts check the information provided by the client in the loan application and in other financial documents that depend on the form of obtaining income.

They also analyze those provided by the Credit Information Bureau and debtors’ registers. On the basis of these data, they calculate creditworthiness, i.e. assess the maximum amount of the liability that he will be able to pay off.

Because each bank or loan company uses its own algorithm to calculate it, you can get different creditworthiness in two different institutions.

Financial capacity and credit history

Before analysts of a bank or a loan company start counting creditworthiness at all, they first carefully check the financial credibility of the potential borrower, i.e. they analyze the information collected about it by BIK and debtors’ registers. Insight into the past history of repayment of liabilities will allow the institution to be aware of the timeliness and reliability of payment of the client. Thanks to this, he can assess the risk he generates as a debtor and whether it is worth trusting him.

Negative credit history and calculation of financial standing

The financial institution checks entries in your credit history from the last five years. Single, less than 30 days’ delay in paying installments have practically no significance. However, if several times you have a serious delay in payment, or even have a bailiff seizure, you can have a big problem getting not only a mortgage or cash loan, but even payday loans. The extent to which a negative entry will reduce your creditworthiness depends on the length of the delay, the amount of arrears and the time that has elapsed since the delay occurred.

What is the lack of credit history?

What is the lack of credit history?

If, until now, the customer has not taken out loans or purchased equipment in installments, the financial institution cannot verify that he is a credible and reliable debtor. This does not preclude his chances of positive consideration of the application, but on the other hand, it does not have a positive impact on creditworthiness. In this case, as a borrower, you must take into account the possibility of obtaining lower financial standing.

Everything depends largely on the product we are applying for. If it is a cash loan that is unsecured, the lender will want to minimize the risk of default. Therefore, it will carefully analyze your credit history. The situation is different in the case of loans secured by a mortgage (mortgage loans and housing loans). Despite the fact that the amounts of mortgage loans are usually higher, real estate collateral compensates for the risk of a loan granted to a person without a credit history. The chance for a loan, despite the relatively high collateral, may be crossed by a poor credit history.