As soon as people want to take out a loan or enter into long-term financial contracts, creditworthiness is a decisive factor for the contractual partner.
In this context, creditworthiness is usually referred to as credit rating and is determined and evaluated by different credit bureaus based on collected data. But what is behind terms like creditworthiness index or score value and what influence can you have on them??
FAQ on creditworthiness
What is creditworthiness?
The term creditworthiness refers to the creditworthiness of a person. Accordingly, creditworthiness indicates whether a person is able to repay a certain sum of money.
Which bank grants loans with a bad credit rating?
Whether the credit is approved depends on your creditworthiness. How to get a loan from all banks with a good credit rating. Small loans can be granted in the event of poor creditworthiness.
What does creditworthiness mean?
In order to receive a loan, creditworthiness must be a prerequisite. This means that you must be able to repay a loan.
How is creditworthiness checked?
The creditworthiness is often checked by the information of the Schufa entry.
How to improve my credit rating?
1. Check your personal data with credit agencies such as Schufa
2. Do not make credit inquiries
3. Keep an eye on your expungement deadlines
4. Avoid above-average changes of residence
5. Cancel unnecessary checking accounts and credit cards
What is my credit rating?
A good SCHUFA score is given from about 95%.
Creditworthiness index: Explanation of the forecast values
Anyone who is concerned with their creditworthiness will sooner or later come across the term creditworthiness index. The creditworthiness index is a measure used by credit agencies to determine the creditworthiness of consumers. Which data and values are included in this index varies from credit agency to credit agency and is usually a well-kept secret.
Thus, a creditworthiness index statement on the website of the respective credit agency is usually only superficially presented. In any case, current dunning and collection procedures are taken into account, as well as existing contracts or loans and the number of financial accounts. Which data is collected beyond that and used to calculate the creditworthiness, can usually not be traced by the consumer.
However, almost all credit bureaus have one thing in common when it comes to credit score: a low score indicates a good credit rating, while a high score indicates a poor credit rating.
Once the score value of a consumer is determined, it can be assigned to a category in the creditworthiness index based on this value. This categorization ultimately indicates to the contractual partner how high the consumer's probability of repayment is. A good to excellent rating usually signals a repayment probability of more than 95 percent.
This is important
The lower the probability of repayment, the higher the probability of default. If a consumer's creditworthiness is deemed insufficient based on his or her score, the contractual partner may withdraw from the contract because the risk of default is too high.
Why do credit bureaus determine creditworthiness??
In general, any transaction based on payments is subject to risk. This could involve extending credit, a new cell phone contract, or purchasing goods on account.
Since the contractual partner has no certainty in advance that the amounts or installments to be paid can actually be paid, credit agencies determine the creditworthiness of the consumer and assign him or her to the creditworthiness index according to the data determined.
While some companies ultimately only want to calculate the risk, other institutions are even required by law to determine the creditworthiness of the consumer. For example, banks must always check the borrower's creditworthiness before approving a new loan.
Creditworthiness index: explanation of creditworthiness
Attention!
Even after you have been assigned to a category in a credit agency's credit score index, it is not possible to say with certainty whether you are creditworthy or not. This is due to the fact that credit agencies collect and evaluate data, but the assessment of creditworthiness itself is not binding. From this point of view, the creditworthiness index only functions as an aid for the contractual partner.
Ergo, it is also possible to conclude a contract despite a negative score. However, the chances of this happening increase sharply the better the score value that is determined. The bottom line is that the assessment of whether you are creditworthy is ultimately up to the contractual partner.
How to influence your score value
The score value is influenced in particular by outstanding payments and existing contracts and loans on the part of the consumer. In order to influence the score positively, outstanding payments must be settled and loans must be paid off according to the agreed installments.
On the other hand, negative entries, for example due to outstanding payments, ensure a poor score value. If it is not possible to settle outstanding bills or installments in the conventional way, other options should be sought to improve the score and influence the classification in the creditworthiness index.
Tip
To restore the credit rating, debt restructuring is considered one of the most effective ways. In this case, a loan is taken out with lower installments in order to be able to pay off another loan with unfavorable conditions in full. In this way, the monthly burden on the household budget is reduced, which means that further possible outstanding payments can be settled.
If the contractual partner signals to the credit agency that an outstanding payment has been settled, the corresponding entry is removed from the database and the own score value is thus improved. In this way, the rating in the creditworthiness index can be better.
Also, the payment history as well as the handling of accounts and credit cards can be decisive for the evaluation by credit agencies. The decisive factor here is the fact that many member companies regularly transmit their customers' data to the credit agencies.
If you have several current accounts and credit cards, while at the same time frequently changing contractual relationships with the respective financial institutions, this can also lead to a negative rating in the creditworthiness index. Due to the short contract terms, creditworthiness can only be assessed to a limited extent. Therefore, it is advisable to open as few current accounts as possible and limit the number of credit cards.
Obtain a rating
Despite great care: credit bureaus do not always work error-free. For example, it is not uncommon for settled debts not yet to have been removed from a consumer's file.
In most cases, this is due to the fact that any credit agencies have not been informed about the settled debt. An incorrect score value can be the result and therefore disadvantageous for you.
For this reason, it is advisable to check their rating at least once a year. You do not have to fear any costs, as credit agencies are legally obligated to provide consumers with a free credit report once a year.
To request a report, you simply need to fill out a form on the credit agency's website. It should be noted that the free credit report is usually in paper form and it may take several weeks before the report reaches them.
If you need their information quickly, the option remains to request the data online. Thus, the data can be retrieved within a very short time, but the credit agencies make themselves pay well for such a service. Depending on the credit agency, between 15 and 30 euros can be charged for the online credit report.
Under no circumstances should the information be obtained via external service providers, in order to avoid unnecessary expenses. Any providers let themselves pay well for requesting data, although you can request the self-disclosure within a few minutes and with little effort on the PC.
In addition, there is a risk that third parties can obtain data regarding their creditworthiness in this way. If you would like to have an insight into your data and know how you have been rated in the creditworthiness index, you should always request the information directly from the credit agency.