Are You Creditworthy?

October 31, 2019
Are you creditworthy? What does that word even mean? And how does it concern you?
Are You Creditworthy?

Well, if you have ever applied for a loan, or if you eventually plan to do so, then the answer to all these questions concerns you.

What is Creditworthiness?

When you apply for a loan, before accepting to lend you money, the creditor will make sure you are creditworthy. This means that they will evaluate whether you can repay the loan you are asking for and if you are genuinely willing to do so. 

Here are some of the things that potential lenders usually examine when deciding if you are creditworthy:

A Good Work History

Not only do lenders want to make sure you have a steady job, but they also want to see if you have some employment stability. For this reason, if you're going to make a good impression credit-wise, it is important that you avoid regularly switching jobs. Indeed, creditors are very wary of lending money to someone who often moves from one job to the next. 

Personal Debt Ratio

Your debt ratio is how much money you owe vs how much money you are making. This too will be measured by potential lenders. For this reason, it is essential to pay off as many of your debts as possible before applying for a loan. Note that it may be helpful is to lower the limits on your credit cards and to cancel any credit cards that you are not using. Though this does not affect your creditworthiness per se, it might, on the other hand, reduce the amount of money a lender is willing to lend you.

Willingness to Repay

Creditors will verify your credit history and your willingness to repay. They do this by contacting the credit bureau, who keeps track of all the information on how you are presently using credit and how you have used it in the past. Lenders will want to verify how much money you already owe and to whom, and whether you are making your payments on time. 

To show yourself creditworthy, be sure to consistently pay your bills on time. If for some reason you are having trouble making payments to a specific lender, then it is to your advantage to communicate with them as soon as possible to explain the situation and to tell them how you plan to repay them. This should not negatively affect your credit history; on the contrary, it shows your willingness to pay back the money you owe. 

Honesty is the Best Policy

Always be honest when you are applying for a loan. Aside from the obvious moral reasons, if you are dishonest in any area when applying for a loan, your potential creditor could eventually find out and refuse you. Worse yet, in certain instances, charges could be filed against you, and as a result, your creditworthiness would be negatively affected.

Yes, it takes time and consistent effort to build a good credit reputation. But just think how satisfying it will be for you, the next time you apply for a loan, knowing that you have done everything in your power to be creditworthy.

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