What is a credit worthiness?

Posted: August 15th, 2013 | Author: | Money

When taking any kind of credit, there will be firstly checked our so-called creditworthiness. While in the case of promoted in supermarkets “0% installments” verification of credit and its definition is relatively simple, when the sum is increased to several hundred thousand in mortgage definition gets complicated, and the same requirements rise.

Βethan / photo on flickr

Βethan / photo on flickr

We will focus on the latter situation and by providing an example we will describe what creditworthiness is. Generally speaking, it is the ability to repay the loan installments in a fixed amount and date. Creditworthiness depends largely on several key factors, namely the borrower’s income (or more incomes if you take a loan with a partner) and a loan amount, and the time period in which it will be repaid.

All other factors that will be taken into consideration during the verification process depend on these three factors. Bank will carefully check the current monthly income, their stability, so for example, the type of contract that we have at work, and all kinds of fixed expenses (maintenance of the family, a car, rent an apartment, use of credit cards, etc.) and other loans. After considering all the other expenses, the borrower should be able to provide the so-called discretional fund, created by the bank for emergencies (car crash, household appliances, etc.) and the existence of which means that the borrower will not have problems with repayment of monthly installments on time, even in the case of an emergency. Of course, each bank has its own individual procedures, which can slightly change the understanding of the words “creditworthiness”, but the general approach and principles remain unchanged.

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