The creditworthiness is the creditworthiness of a borrower. It determines whether and to what extent an installment loan can be granted by a credit institution. A borrower’s credit rating indicates the likelihood that a borrower will be able to repay its debts. A sufficiently good credit rating is therefore a prerequisite for lending.
How the credit rating is made up?
In common usage, many equate the importance of creditworthiness with credit check information. But that is not entirely true. Creditworthiness is much more extensive than information from credit check. However, credit check is part of a comprehensive credit check for an installment loan.
Creditworthiness is determined from the following personal and financial data:
- place of residence
- moving frequency
- marital status
- Existing installment loans and financial commitments
- Previous payment behavior
The bank or the intermediary receives parts of this data from a credit agency such as credit check. It collects data about your previous payment history and provides information about existing liabilities such as installment loans or debts, if there are any.
How creditworthiness affects lending?
The higher the installment loan you want, the more important the credit check becomes. This is the only way the bank can ensure that you are financially able to pay back your installment loan. That means: The better your credit rating, the higher the amount over which you can take out an installment loan. Creditworthiness is how a lender determines that you will default on your debt obligations, or how worthy you are to receive new credit. Your creditworthiness is what creditors look at before they approve any new credit to you.
Creditworthiness is determined by several factors including your repayment history and credit score. Some lending institutions also consider available assets and the number of liabilities you have when they determine the probability of default.
Conversely, this of course also means that your chances of getting an installment loan with a poor credit rating are smaller, for example with several installment loans with a low income. The lending guidelines of the individual banks are very different. It is all the more important to compare as many providers as possible. This is the only way to get an overview and the best offer for you.