The answer to the question of how to build creditworthiness undoubtedly troubles many people. And not only young people who are just gaining their experience with banking products, but also those in middle and older age who managed to go through their lives without having to obtain additional funding. Now, however, their needs have changed – they dream of an exotic vacation, which until now remained in the sphere of dreams, plan to renovate the apartment or are forced to replace the car with a new one. Then, however, it turns out that avoiding credit for a lifetime has its drawbacks. What? You will learn this from our article, which will explain to you how to build creditworthiness and why it is so important in the modern world.
Creditworthiness – basic information
At the beginning, however, let’s explain briefly what creditworthiness is. Well, as the name suggests, creditworthiness is the ability of the borrower, ie the entity applying for a loan, to repay the commitment made on time. It consists of such obvious factors as the amount of our remuneration and the type of source of income – whether it is an employment contract (for a definite or indefinite period, if so, when it was concluded), or a contract for specific work or a mandate contract, contract or own business activity (here the legal personality and other aspects resulting from it are also variable).
Our monthly expenses are also taken into account: liabilities arising from owned banking products (such as credit card, account limit and overdraft, cash loan, installment loan, car loan and mortgage loan, as well as non-bank loans and payday loans); living expenses (utilities, food, fuel, etc.). Creditworthiness is also calculated on the basis of less obvious factors: our age, our profession, the reputation of the company in which we are employed, education or place of residence. Based on this data, the analyst, usually assisted by a suitably structured program, estimates how much and for how long we can borrow.
How can I increase my credit standing?
However, is creditworthiness given to us once and for all and can we do nothing to improve it? Of course not! On the contrary, creditworthiness should be successfully built. How? Well, first of all, the higher and more stable our income will be, the better our credibility in the eyes of banks. The type of contract is also important – of course, the highest rated is of course an indefinite contract, which has been in force for more than a year. Frequent changes in employment also do not have a positive impact on our creditworthiness – if we change jobs, we must take into account that most banks will take this income into account three or six months after signing the new contract. In some cases it can even be a year! Another aspect is the timely payment of obligations – loan installments, but also subscriptions, taxes and rents.
Each entry in the checker reduces our ability, although it should be emphasized that those under 30 days may be acceptable by some banks. As for typical demographic data, in most cases we get additional points for higher education, marital status and age. So, for example, a 23-year-old girl with secondary education is less likely to get a loan than a 28-year-old woman with a university degree.
Creditworthiness and credit history
So how to build a creditworthiness? The key issue is having a credit history, in other words, at least one loan product, even for the purchase of an iron in installments. Why? Because it is a kind of pattern for banks when paying off their liabilities. In practice, this means that if we have never taken any, even the smallest loan, our creditworthiness simply decreases.
It is for this reason that credit advisors recommend clients without such a history, and those applying for a mortgage or cash loan for a high amount and a long period, to make a smaller liability whose “model” repayment will have a positive effect on creditworthiness and increase the chances of receiving loan.