If you have a good credit rating, your chances of getting approved for a loan are much better than if your credit rating is poor.
But what does creditworthiness mean at all? And how can you improve your credit rating if it is not good enough for you to be approved for a loan?
We will take a closer look at this in this article.
The article also contains an infographic that visualizes what steps you need to follow to become creditworthy.
What does creditworthiness mean?
Loan providers use your credit rating as an indicator of your ability to repay a loan.
A good credit rating is a sign that you have a good and stable private economy, which, in the eyes of a loan provider, is alpha and omega if it is to approve your loan application.
In other words, you are creditworthy if your bank or other creditors consider that your finances can bear the repayment of a loan. If so, they will be more willing to lend you money.
If, on the other hand, you have built up a large debt or may even have ended up in RKI because you have been bad at paying your bills, for example, your credit rating will get a proper notch over the spout and most loan providers will not dare to lend you money.
What affects your credit rating?
Here, it is important to remember that the fewer requirements a loan provider places on you as a borrower, the higher the interest rate will typically be as there are greater risks associated with lending money to someone who is not 100% sure to repay the loan. .
Typically, a loan provider will assess the following factors in your credit rating before deciding whether or not to grant you a loan:
- Your personal financial situation
- Your personal circumstances
- Your refund history
Let’s take a closer look at these three factors below .
Your personal financial situation
When a loan provider assesses your personal financial situation, they typically offset your monthly income with any outstanding debt to better determine whether you have the necessary financial capacity to repay the loan.
Your personal circumstances
Generally, loan providers greatly appreciate stability and continuity. It is therefore a plus if you 1) are a homeowner, 2) have a permanent job and 3) are married.
- The advantage of being a homeowner – from a loan provider’s perspective – is that you can provide your home as collateral for the loan, which will increase your credit rating.
- A fixed job equals a fixed income. If there are long gaps between your hires or many job shifts, it is doubtful that larger loan providers will approve your loan application.
- If you’re married, your household probably consists of two incomes instead of one, which helps to improve your credit rating.
Your refund history
When a loan provider examines your repayment history, it is to get a picture of how good you are and have been in the past to pay bills and repay debts. It is not just about whether these are paid, but also whether they are paid on time.
If you are registered with RKI, this is a clear indicator that you are a poor payer and you will not be approved for a loan – regardless of the size of the loan.
How to improve your credit rating
If you can’t get approved for a loan because your credit rating is poor, the infographic below gives you 4 tips on how to improve it.