What is creditworthiness?

Ever wondered what creditworthiness is? We break down the factors lenders consider when deciding how creditworthy you are..

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When it comes to applying for a credit card or a loan, your creditworthiness can play a huge role. But what is creditworthiness and how does it really affect you?

We break down what creditworthiness is, what factors a lender considers and how you can improve your credit status.

What is creditworthiness?

The definition of creditworthiness is the extent to which a person or company is considered suitable to receive financial credit. Basically, a lender uses your creditworthiness to determine whether they think you will repay them if they lend you money.

If they decide that you will, then congratulations! You are creditworthy.

What factors do lenders consider?

Lenders evaluate your creditworthiness based on a review of your past handling of credit and debt. They also consider your ability to afford the agreed repayments.

They tend to take the following into account:

  • Credit history: How you have handled credit in the past is a key factor when lenders are deciding whether or not to lend to you. They will most likely take a look at your credit report. Here they can see your repayment history and whether or not you have missed any payments in the past.
  • Deposit: The level of deposit you are able to commit to in relation to a loan will also be a factor. Obviously, for most lenders, the bigger the deposit, the more likely it is that they will accept your application. This is because it presents a smaller risk of them losing their money.
  • Affordability: Your level of income and what financial commitments you already have also come into play when assessing your creditworthiness. It is all about your ability to make monthly repayments. So if you have a stable and steady stream of income and not too many demands on your salary, then you are considered a lower risk.

The key thing to remember when thinking about creditworthiness is that no two lenders will assess information in the same way. So you may have a solid credit score, but there is no guarantee of a successful application. It is more about whether that particular lender thinks you are a safe bet.

How can you improve your creditworthiness?

Worried about your creditworthiness? There are some things that you can do to improve your situation.

  • Register to vote: Having the correct details on the electoral roll can do wonders for your credit score. It means that lenders know that you are who you say you are.
  • Check your credit report: You need to know what your credit report says about you in order to have an idea of your creditworthiness. You can check your report with any of the three credit reference agencies: Experian, Equifax or Transunion.
  • Check your credit utilisation: How you manage your debt is a large factor when it comes to assessing your creditworthiness. As a general rule of thumb, it is advisable to only use up to 30% of your available credit limit.
  • Get a credit rebuilder card: If you don’t have the best credit history, there are credit cards available that are designed to help you improve your situation. The providers of such cards tend to accept borrowers with poor credit scores. They also offer managed credit limits that are designed to keep your borrowing levels in check. Successfully making your credit repayments each month can steadily improve your credit score and therefore your overall creditworthiness.