Creditworthiness means – colloquially speaking – creditworthiness. The term creditworthiness comes from the Latin bonitas for “excellence”, and in financial terms it means in a figurative sense the excellence of a person’s financial manners. The underlying question is how financially they are, whether the amount of their income and the amount of their expenditure are in an economically acceptable ratio, that is: whether this person knows how to handle money. Your own behavior, such as the reliability of loan repayments, has a major impact on the credit rating, because it allows conclusions to be drawn about a person’s creditworthiness.
The influence of creditworthiness on the offered loan terms
The lending bank tries to accurately assess the risk of lending before entering into the contract. In order to check your creditworthiness, on the one hand it takes its own measurements and on the other hand it retrieves certain data about the applicant from a so-called credit agency. On the basis of this information, the bank finally weighs up whether the customer is able to service the installment loan regularly and reliably. The worse the credit check is, the higher it classifies its own risk and the worse credit conditions it offers the customer. In other words, the better the customer’s credit rating, the better the loan interest rate offered and vice versa.
The bank uses these criteria to assess your creditworthiness
The details of the methods by which the bank itself draws conclusions about a customer’s creditworthiness are a trade secret. Nevertheless, it can be stated that the following questions play a major role in every credit check:
- Where does the applicant live? Residents of highly indebted areas are rated worse.
- Has he worked for the current employer for a long time or does he often change jobs? The duration of the employment relationship also influences the classification.
- Is the customer still in the trial period or does he have a temporary employment contract? Temporary employment contracts pose a higher risk of insolvency.
- What is the income, how much is the monthly expenditure? This is one of the ways in which the bank can recognize whether it has the necessary leeway that the loan demands from it.
- How many loans does he already have and does he reliably service them? From this it can be deduced how he will proceed with new loans in the future.
How credit check & Co. evaluate your creditworthiness
Credit bureaus are another source for banks to obtain information about the creditworthiness of a future customer. Credit agencies are companies that store information about the economic activities of individuals. The three best known credit agencies in the country are credit check.
In order to obtain the relevant information, the credit agencies have concluded contracts with banks and lenders for data transmission. They collect this data, assign it to a person or a company and then create a so-called scoring – also known as a credit index. Credit agencies estimate the creditworthiness of the people based on the data they have collected. According to its own information, credit check alone has around three quarters of all Germans in its file.
This is how your individual credit rating is created
The term scoring is an analytical, statistical process that calculates the likelihood that the applicant will be able to service the loan regularly and reliably. credit rating thus provides lenders with an important tool to better assess the customer’s creditworthiness and thus the risk of lending.