Put simply, creditworthiness is the measure by which a lender determines whether you will be able to pay your debts back. A borrower who is deemed creditworthy is one whom a lender believes is willing, able, and responsible enough to make regular loan payments as agreed upon. Creditors use it to assess you before they approve any new lines of credit.
Creditworthiness is determined through a variety of means, including your credit repayment history, your credit score, and whether you can afford the payments. They may also consider your available assets and the number of liabilities you have when determining the probability of default.
In this piece, we take a deep dive into creditworthiness to help you better understand this often elusive subject.
What Determines Creditworthiness?
To assess your creditworthiness, lenders search for evidence that shows them that you pay your bills on time and that you have a successful history of repaying past debts, including credit card debts and loans. This process typically includes a review of your credit history and an assessment of your assets and liabilities.
Checking your credit generally involves one or both of these processes:
- Reviewing your credit report(s): Your credit reports are compiled and maintained by the three national credit bureaus (Equifax, TransUnion, and Experian). Credit reports document all your outstanding debts along with any accounts you’ve closed or paid off in the last ten years. Monthly account payments are also listed, as well as payments made 30, 60, or 90 days late.
- Checking your credit score(s):VantageScore and FICO Score are credit scoring systems that analyze and assess your credit report’s history and use that data to create a statistical prediction of the probability of you failing to repay a loan.
Assessing your ability to pay may include the following steps:
- Verifying your existing debt and income: Before you’re offered a loan or a credit card, lenders may look for assurance that you can afford to repay the money you intend to borrow. The extent to which this is investigated varies based on the type of loan and the amount.
- Documenting additional resources or assets:Lenders may also consider assets in addition to, or in lieu of, a steady income, such as savings, financial assets, investments, or real estate holdings.
If you’re looking for a tried-and-tested credit repair service, get in touch with us. We are credit repair consulting experts who can advise you on the most effective and affordable ways to repair your credit score.