The creditworthiness of our bank decision will be positive if the decision of the bank on granting the loan. What is creditworthiness?
In this way, the borrower’s ability to repay the loan is determined on time and in accordance with the terms and conditions set out in the contract. Creditworthiness is therefore the basis for determining the amount of the loan that the bank would agree to give us. It also depends on whether the borrower receives a loan in the amount of the previously requested amount or whether the bank will propose a different solution, and thus reduce the loan amount or extend the repayment period. Financial institutions assessing creditworthiness operate according to individual rules, which translates into the fact that decisions taken by individual banks may differ.
What affects creditworthiness?
One of the factors affecting our creditworthiness is the type of employment, and hence the source and amount of monthly income. The most advantageous form of employment from the point of view of the borrower is an employment contract for an indefinite period.
Another important factor is the number of people that a loan seeker has to support. According to the financial report of the Comperia portal, single people whose monthly income is €3 200 net, where the cost of living is €1,500 net, can apply for a loan in the amount of €250 to 270 thousand. In turn, the family in the 2 + 1 model with monthly income of €6,500 net, where the maintenance costs constitute €3,000 net, may take out a loan of up to €650,000.
Another factor influencing the decision to grant a loan is the financial obligations of the potential borrower. It should be distinguished here not only loan installments of other loans previously taken or alimony, but also insurance premiums and household maintenance costs, and therefore all monthly fees. Financial institutions also pay attention to any products held by the borrower that give the possibility of creating additional liabilities. This is primarily about the balances and credit limits on our bank accounts and credit cards.
How to increase your creditworthiness?
When deciding to take out a loan, it is worth doing a few steps earlier, which will increase the chance for a positive decision of a financial institution. For this purpose, you must first opt out of credit cards. Access to funds that allow you to take out even a small debt negatively affects your creditworthiness. Liabilities are similar in a similar way. These may be previous credits and loans, but also smaller installments for audio and video equipment or household appliances. Before our credit application arrives at the bank, all previous liabilities will have to be settled. It is also worth considering a longer loan repayment period and increasing the own contribution which will affect lower loan installments. Increasing the chance of getting a loan is also possible thanks to the co-borrower. A parent, sibling or spouse can be a co-borrower. When calculating creditworthiness, the income of both persons applying for a loan is taken into account. However, the co-borrower, after receiving a positive decision on the loan, becomes in the same way responsible for its repayment as the person applying for the loan.
Before submitting a loan application, it is worth calculating your potential creditworthiness yourself. You should deduct all liabilities from your monthly income. These are mainly fees and bills, hence fees for rent, utilities and insurance. Also all kinds of expenses related to maintenance, such as expenses on food, cleaning products, clothes, etc. The amount that will remain available after you recalculate monthly income and expenses is the amount on which you can determine the amount of the monthly loan installment. It should be remembered that it is lower than the free amount that is available to us after deducting all expenses.
After making a decision about taking out a loan, it is worth to submit applications in various financial institutions. Each bank has different rules regarding the calculation of creditworthiness or the terms of granting the loan. Also, the amounts for which banks agree to grant loans may differ from each other under the same conditions. It is therefore worth getting acquainted with the offers of various institutions and choosing the best one.
In addition to creditworthiness, the credit history of the client is also an important factor that financial institutions consider when considering a loan application. Credit history is data on current and previously contracted loans collected in the Credit Information Bureau website. It registers all arrears in the repayment of loan installments, which adversely affects the credit history, and thus the decision to grant another loan. I am interested in knowing how to live with unpaid debts?