What is Creditworthiness? Creditworthiness has a lot to do with your credit card approval. It about the ability and likelihood of the borrower to pay back what is borrowed. However, there are more to it.
How Do Creditors Decide Creditworthiness?
Your creditworthiness depends on how you have handled credit cards in the past. All those Creditors will do is just to check your credit report. The report is a record of the activity on your credit accounts. Credit reports are usually long, creditors and lenders simply use credit scores, which are an objective measure of your creditworthiness based on your credit report information.
A credit score is a three-digit number, between 300 and 850. The higher your credit score, the more “creditworthy” you are. That you are creditworthy means you can repay your debt obligations promptly. The more creditworthy you are, the more creditors are willing to approve your applications and give you a lower interest rate for your card.
Moreover, how frequently you pay your bills on time is the greatest factor affecting your creditworthiness. When you have late payments and other delinquencies you become less creditworthy. It will also be very hard to get a card.
However, the amount of debt you have as well affects your creditworthiness. Ensure you keep your credit card balances below 30% of the credit limit and pay down your loan balances. Apply for credit card only when you need it.
Creditworthiness Between Various Creditors
Each financial institution or creditor has its own criteria for creditworthiness. If you are borrowing a large amount, ensure that you have an excellent or at least a good credit. For instance, auto loan lenders typically have higher standards of creditworthiness than credit card issuers.
Even though you can be approved for some credit cards with a lower credit score. On the other hand, you may find it difficult to get approval for a mortgage or auto loan with a lower credit score.
How To Improve
Always checkmate your credit score. It is the best way to stay on top of your creditworthiness. Check your credit score for free by signing up for Credit Karma, Credit Sesame, or Wallet Hub. They offer useful tips on improving your credit score and your creditworthiness.
In case you have challenges getting new accounts, just improve your creditworthiness. Creditors must understand that you are responsible before trusting you with their funds. To build your credit, do the followings;
- Build a positive payment record by always paying on time. But if you don’t have an active or open account, open a secured credit card to add a new account to your credit report. Make your payments on time and watch your credit score improve.
- When you make a larger down payment, it improves your creditworthiness. It can help you to get approved for a mortgage or car loan A bigger down payment reduces the amount of risk the lender has to take on.
- Pay all previous Debts. You can negotiate a pay for delete, the creditor will remove the account in exchange for payment. Even without pay for delete, paying the account will benefit your creditworthiness.
Always ensure that you have good credit. You may need to use it in the future.