Credibility and creditworthiness are concepts that sound similar to each other, but they mean something completely different. If we are borrowers or only we will be, it is important that we distinguish them from each other and know what their differences are. They are extremely important when analyzing a loan application by the bank, because thanks to them, the above-mentioned can grant us a loan as well as refuse to grant it. Important information on creditworthiness and creditworthiness is provided below.
Creditworthiness is the borrower’s ability to repay the loan.
To calculate it, the bank takes into account many criteria, such as our monthly income, expenses that we incur on a daily basis and financial obligations that we have towards other financial institutions. Each of the above criteria is more or less important for the bank. In short, the higher our income and lower expenses, the more likely we will be granted a loan. It is also worth remembering that financial institutions attach considerable importance to the type of contract under which we provide work. If it is a permanent employment contract, then in the eyes of the bank our ability increases. However, if we talk about popular garbage trucks such as a mandate contract or a specific work contract, they unfortunately do not guarantee us to receive a loan, even if we achieve impressive earnings on their basis.
What is creditworthiness?
Creditworthiness allows a financial institution to assess the risk of not paying back a commitment. In order for the above-mentioned to be estimated, the applicant’s previous credit history is verified and on this basis it is determined whether he will diligently fulfill his commitment or whether everything indicates that this will not happen. In this situation, it is determined how stable the borrower’s financial resources are and whether they will guarantee repayment of the liability in accordance with the repayment schedule. In addition, creditworthiness can also be called the borrower’s willingness to repay the liability, because not always having enough money guarantees that the person will repay their liability under the contract.
Are both concepts equally important for a financial institution?
The answer to this question is affirmative, because at one point both creditworthiness and credibility combine with each other. A borrower who does not regularly repay his liability because he has lost the ability to regulate it also loses credibility. It is worth remembering that both of these parameters are treated identically by the bank and the uncertain situation in even one of them may lead to the fact that we will receive a negative credit decision. In connection with the above, we should remember to conscientiously and reliably fulfill their obligations, because their repayment history is publicly available in banking systems and it is easy to verify.