How is it possible that one bank can offer the borrower twice the amount of the liability in relation to another financial institution that conditions the loan from additional collateral? The reason is creditworthiness. Its low level makes it impossible to get into debt. Fortunately, there are several ways to improve this important parameter.
Defining the concept of creditworthiness, we say that it is the ability of the person applying for a financial commitment to repay it together with interest within the time limit specified in the contract with the bank. In the financial environment, the borrower’s financial credibility is used interchangeably. This is one of the most important conditions that a person who wants to take advantage of an additional injection of money from a bank or loan company must meet.
What does the bank consider when calculating creditworthiness?
When calculating creditworthiness, various types of data are taken into account, including amount of monthly income, household budget charges in the form of repaid loans, credits, credit cards or payments, e.g. rent, subscription, etc. The financial institution compares the borrower’s expenses with his income and in this way he gains a picture of whether he will be a reliable customer. Each bank uses its own creditworthiness testing system, which is why one person can get different offers from several institutions. The better we score, the more we can count not only on a higher loan, but also on more favorable terms for granting it, e.g. a lower margin.
How to become a reliable customer for the Bank?
To become more credible to the bank, it is worth following several rules. The number of financial liabilities is very important – the less burdened the household budget, the lower the risk of becoming insolvent. The solution is to consolidate several loans or credits into one, which will reduce your monthly installment. It’s also a good idea to review your credit cards and debits in your account and try to liquidate those we don’t use. When applying for external financing, let’s look at home expenses and reduce those that deprive us of capital unnecessarily. For example, if we do not fully use the gym membership, replace it with a cheaper one or when we visit the fitness club occasionally, we decide to buy individual tickets.
Higher creditworthiness will be obtained by joining other people with higher incomes, e.g. parents.
Choosing a longer repayment period and equal rather than decreasing installments may be helpful due to the amount of repaid installments. Another factor that can improve creditworthiness is to provide additional (permanent) sources of income than one job. For example, it could be renting an apartment. When we get bonuses for a standard salary or when we get a commission for work, we look for a bank that includes such income. In the case of a mortgage or a housing loan or mortgage loan, a higher own contribution than required by the regulations will be useful (Recommendation S). If we have been working on a contract for a long time or in the form of self-employment, it is worth presenting a document confirming stable income.
The most important factor affecting creditworthiness is the settlement of existing liabilities to financial institutions and ensuring reliable bill payment to other service providers.