Role of credit rating or creditworthiness
The predicted property of a debtor to meet future payment obligations in full and on time is called credit rating or creditworthiness . A loan represents a risk for a bank to pay in the form of the loan interest rate. A repayment of the debtor (person who gets the loan) is uncertain. Therefore, prior to lending, an attempt is made to examine in as much detail as possible the likelihood that the person in question will be able to repatriate the loan. This plays a decisive role, especially in the case of large sums such as mortgages. As the amount of the requested loan increases, so does the scope and depth of the credit check.
The credit rating is usually assessed on the basis of two criteria. The personal credit rating describes the reliability and willingness to pay of the debtor, while the material creditworthiness (also called economic credit worthiness) aims at financial aspects. On the basis of data such as income, employment relationship and other liabilities, an attempt is made to make a statement as to whether the debtor will be economically able to service the loan in the future.
How can the creditworthiness be increased?
The credit rating can increase, among other things, a fixed salary with a permanent contract. While other factors strongly influence the credit rating, such as unused other loans, garnishments or other credit bureau entries. Low creditworthiness can result in no credit being granted or the amount of credit to be paid increased (see also credit-linked interest rate).
If your credit rating is too low, a guarantee can also be used. In this case, you need a guarantor who has a higher credit rating and is committed to stepping in if the loan is no longer serviceable.
2. Credit bureau and other credit bureaus
The better the score, the easier it is to accept a loan. To optimize your score, you should keep a few accounts or use credit cards and avoid arrears. Savings accounts have no influence on the score. Furthermore, it is advantageous to pay off the debt quickly. Check your credit bureau entries and request an adjustment for incorrect entries. You can apply for free information once a year. The best known credit bureaus are credit bureau, Credit reform and Info score.
3. Correct credit inquiries
Remember to submit a request for a loan only because it will not be stored at the credit bureau and therefore have no negative impact on the score. However, a credit request is stored as an entry for 12 months and has a negative impact if too many requests are received and stored
4. Consideration of all income streams
A high income has a positive effect on your credit rating. With other income streams such as interest income, income from rentals or care allowance for the care of a loved one can support your credit rating. Thus, your loan requests are rejected less frequently.
5. Avoid arrears
An unreliable payment behavior lowers your creditworthiness. Pay back open items such as syndicated loans quickly. Reliable payment behavior increases the credit rating.