Creditworthiness – a forecast for the credit

Loans are an excellent invention to finance large and small expenses. When a house or apartment is bought, for example, a loan enables the house to be paid for when it is used.

But as everyone knows, lending banks are at risk with lending. A loan is a long-term business in which a lot can happen. A bank, which lends most of its customers’ money, has to protect itself from the default of the debtor during the term of the loan.

Before a loan is approved, the applicant’s creditworthiness is checked. The term “creditworthiness” is often used for creditworthiness. Creditworthiness and creditworthiness are therefore synonyms.

Creditworthiness – a forecast for the credit

Without a credit check, no credit is granted. A forecast is created as to whether it is possible with a sufficiently high probability to repay the loan and pay the agreed interest. In addition, it is also checked whether the borrower can have collateral that will cover the bank’s claim in the event of a default.

In the case of a real estate or mortgage loan, the security is usually the financed property that is transferred to the bank for safekeeping if the borrower defaults. In the case of smaller loans, the bank may waive collateral, and it is even more important than the borrower’s financial situation promises a high credit rating.

Who checks the creditworthiness

As a rule, the bank carries out the creditworthiness check itself, because lending is a bank’s core business. There are also service providers such as Good Finance (GFI) in Austria, which provide data to assess creditworthiness.

The creditworthiness is, of course, checked before the loan is granted. However, the check can and will be repeated on an ongoing basis in order to recognize a possible loss of payments in a good time.

What factors determine creditworthiness?

Good credit is important to everyone because the better it is, the lower the loan interest that has to be paid. Therefore, before applying for a loan, you should think about how your creditworthiness is.

Most of the criteria for creditworthiness are understandable and transparent. Of course, the amount of your current monthly income is an important quantity that is being checked. The duration of the employment contract, the solidity of the employer and the type of employment is also important.

The assets play a role in the credit check since this results in collateral that can reduce the credit risk for the bank. The partner’s marital status, job, and income also play a role in creditworthiness. On the debit side of the credit check, there are already existing loans, guarantees and other obligations.

Negative entries at GFI are particularly difficult. It is therefore important to regularly meet all obligations from loans, be it extensive home, car loans or smaller installments. A private income and expenditure plan should also be drawn up for your own planning for the loan, but also as proof of creditworthiness.

This does not have to be exact to the cent. However, what is important is the plausibility of the statements and the application of the principle of caution. If the bank has further questions about the planning, the associated information can be easily provided.

Is there a difference between creditworthiness and creditworthiness

Occasionally you will also find the term “creditworthiness”. This describes whether the applicant can pay off an already granted loan within the specified term.

Creditworthiness therefore always refers to a loan that has already been granted, while creditworthiness is concerned with whether the applicant is “worthy” of a loan due to economic and personal characteristics.

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