Creditworthiness is now one of the features without which our lives would simply be difficult. Admit it yourself – its lack not only means that our financial situation is not good or that we have far too many commitments on our minds. In addition, some solutions, such as a bank loan, remain unavailable to us. Even if we don’t need to borrow money from anyone, knowing that we have the right to do so gives us a sense of security. Creditworthiness – what do you need to know about it?
Creditworthiness – definition
The definition of creditworthiness is strictly defined by the banking law, therefore there is no place for negotiation. Creditworthiness is understood as the borrower’s ability to repay incurred liabilities together with accrued interest, within the period provided for in the loan agreement. It is influenced by several factors, but their fulfillment does not mean a positive assessment of the bank – each institution has its own criteria, so it may turn out that in one they state that we do not have creditworthiness, and in the other we will have it.
Creditworthiness assessment – factors
The process of issuing such an assessment usually begins with examining the financial situation of a potential customer. Let us be ready for questions about the amount of our remuneration and the fees we pay each month. We will also be asked about our marital status, age, education, place of residence, professional profile, duration of employment and type of contract. However, if we run a company – there may be questions about the number of bank accounts, the type of industry in which the company operates and the time of its running.
It is difficult for us to clearly indicate the features of an ideal borrower. Banks have their own statistics, based on which they create customer profiles and make the right decision (so-called credit scoring). Certainly, one of the most important elements that will affect it will be a positive credit history in BIK, KRD and BIG. On the other hand, when it comes to companies, an unblemished opinion at ZUS and the tax office will be important. This is the best recommendation for the lender. That is why it is so important to always, not only half a year before the decision to take a loan, timely pay all debts.
A reliable customer who pays all installments and bills on time can count on profits from the bank. These include, among others, lower interest rate on the loan, shortening the procedure for granting it, etc. Let us add here that the lack of any credit history may also work to the detriment of the customer. Due to the lack of data, the bank will not be able to issue a favorable opinion on the potential borrower.
The creditworthiness calculator is a useful tool that will help us find out what credit and in which banks we can count on. We do not need to make an appointment at the bank to assess with probability whether we have creditworthiness. One of the banking products most often chosen by Poles is a mortgage, so let’s check what factors can influence the fact that it will be granted to us.
When running the calculator, we will meet the following fields: net income, number of people on the farm, sum of monthly loan installments, sum of other monthly liabilities, monthly expenses for maintenance, sum of limits on credit cards, loan period (e.g. in years), interest rate. After completing them, the calculator performs calculations and shows us the result. Thanks to it we know the amount of mortgage we can get.
Now worse news. Our calculations do not necessarily coincide with those carried out by the bank. It is not only about its internal regulations, but also about the imperfection of the tool, which is the creditworthiness calculator. It does not give us the opportunity to include credit collateral anywhere, e.g. in the form of other owned real estate or other goods that can be easily cashed. You can believe us that such information will be crucial for the bank. To the question about how to check creditworthiness, we answer: preferably in two ways. Let’s use a calculator for this purpose, but, to be sure, check in person at each bank whether we have a chance to get the title of a customer who deserves credit. We can also turn to a mortgage consultant who will check our ability in many banks in one place.
Business creditworthiness and online loan
Loan offers for beginning entrepreneurs rarely appear on the market – most often at least half a year or one year activity is required. At the same time, there are also banks that do not cooperate with companies shorter than 3 years. So if our business is just beginning, we must be prepared for a long battle. After all, creditworthiness is acquired for years – with them the chance of getting a loan increases. And if we need a larger amount, it can’t do without such a great deal of security.
This is a simple and logical principle, although somewhat harmful to new companies. Banks do not consider them as credible borrowers, so it is worth focusing on actions that will increase the creditworthiness of the company and allow you to take a loan. If we cannot afford to hire a finance specialist in our company, let’s consult an external financial advisor. With its help we will find the optimal solution in terms of obtaining funds, increasing creditworthiness, as well as gaining collateral for the selected loan. As we have already mentioned, this last factor may turn out to be the most important – it all depends on the value of this collateral, calculated by a bank appraiser.
How to improve a company’s creditworthiness?
We will also improve our credit standing if we focus on the so-called enterprise assets. We must focus not only on the cash we are trading, but also on deposits, securities and shares and bonds held by partners. The bank will also look favorably at the newly signed trade agreements. These agreements may generate future revenues that may constitute collateral for the loan. It is best if they are the aftermath of our cooperation with local government units or large private sector companies – they are reliable contractors for the bank, so, we will be promoted as well.
Finally, a curiosity – the method of accounting with the tax office also affects the company’s creditworthiness. Entrepreneurs who do this on a tax or flat rate basis and whose activities generate high costs may find it difficult to obtain creditworthiness. It is possible that their income will be too low for the bank. The situation of companies that pay a lump sum does not look any better because the bank assumes that the income does not exceed 20% of their income. So it looks like you have to choose the lesser evil in this situation. A good financial advisor usually finds a bank that will give us a loan. If our ability is too low, however, we must reckon with the fact that the loan will simply be more expensive. In this way, banks secure themselves against any inability to pay their liabilities.
How to increase your credit standing? Individual customer
Bad credit history is a problem that many people face. If you don’t need additional financial support for now, it doesn’t mean that the moment will never come. Therefore, it is worth making sure that you look good in the eyes of the institution. We have some advice on how to do it!
It is good to know that it also affects the assessment of a company’s creditworthiness when we apply for a loan as its representatives.
1. When you have negative entries on your account, you should start by settling the backlog.
2. Next, we should ensure that positive information about us appears in the registers. This can be done by reaching for a non-bank loan or credit (if this is possible with the current financial situation) and repaying the liability on time.
3. Let’s not forget about the timely payment of bills (utilities, subscription, rent) and other obligations (for example, repayment of installments in the store). In the event of delays, information about the backlog will go to the registers.
4. If we have a problem with obtaining a loan, it is worth submitting the application with another person. In this way, the creditworthiness increases and the risk of lack of timely repayment for the bank increases.
5. It is also worth taking care of additional, documented employment, if, of course, time and strength allow us to increase its attractiveness for the bank in terms of income.
6. One way to increase creditworthiness is also to use credit cards. If we decide to take this step, it is worth using the services of the bank in which we have a personal account. However, we should remember that when applying for a loan, it is worth paying off all obligations.
Now that we know how to build creditworthiness, they can be implemented. We will check whether the scoring has improved using the BIK report.