Creditworthiness (solvency) – the ability to repay the loan taken together with interest on dates specified in the contract. The borrower’s creditworthiness affects the creditworthiness of the borrower, its amount and the repayment period.
According to the Polish banking law, having creditworthiness in this sense is a prerequisite for obtaining a loan. However, in some cases, a credit institution may give credit to a natural, legal person or organizational unit without legal personality without creditworthiness, if it agrees to establish a special loan security or provides a realistic plan to improve its financial situation.
Credit institutions independently and on the basis of their own criteria and procedures calculate the creditworthiness of people who have applied for a loan. Based on their own analyzes and calculations, they decide whether to lend funds to a given person and under which conditions. However, the borrower is required to provide the credit institution upon its request with the documents and information necessary to assess creditworthiness.
Factors affecting creditworthiness
The loan analysis is used to examine the creditworthiness of the borrower. Banks and other credit institutions use quantitative and qualitative analysis. The most important factors affecting creditworthiness are:
- income, their regularity and source,
- monthly expenses,
- current indebtedness (other liabilities, including credit cards).
- type and amount of credit,
- loan period,
- system of repayment of installments (equal or decreasing installments),
- the amount of own contribution,
- marital status,
- number of dependents,
- financial status,
- housing status,
- performed occupation,
- position held.
Creditworthiness may be reduced if several loan applications are submitted by the borrower in this short time frame, e.g. within a few weeks.
You can increase your creditworthiness by increasing your own income and lowering expenses. Lower expenses can be obtained, for example, through the repayment of existing liabilities. This type of action should be taken before applying for a loan.
In addition, creditworthiness can be increased by:
- reducing the value of the loan requested by the borrower,
- extension of the loan period,
- change of installment systems,
- choosing the right lender,
- recruitment of a co-borrower.