How to Evaluate Your Own Credit Worthiness
Credit worthiness is the measure by which a lender assesses the risk of lending money to a borrower.
It is their opinion on your capability of repaying your debt and it is therefore useful to understand how a lender will evaluate credit worthiness and see if you are a likely candidate for the loan you require.
It will also be a determinant of the amount you are able to borrow.
The checking of a person's credit history is common practice by banks, lending institutes or agencies.
Prospective employers often also do background credit checks to ensure their new employee is trustworthy and without financial difficulties.
This is a safeguard against possible fraud.
When lenders consider your credit worthiness and possible risk in lending to you, they will often focus on different aspects of your credit history but all use the same tools to do this - your credit report and score.
Things that they will look at are the reliability of your payments, number of open accounts and your recent history.
Because the main source available to lenders is the credit report which lists a comprehensive history of your credit and reliability of payments it is important that you keep this free of potential problems.
Having a regular cash flow will help their assessment of you as a prospective borrower.
In evaluating your own credit risk or worthiness take the following steps: • Obtain a credit report so that you know what the lender will be considering.
• Check that all information held in the report is correct and free of errors as an error may cost you the loan.
• Consider if you have been in a situation where you have not made payment on time.
Is this recorded on your credit report? Be armed with a reasonable explanation to present to the creditor.
• The ratio of loan payments to your income will be a factor.
Do you have a lot of debt that may potentially harm your application? To work out your loan-to-income ratio add all your fixed monthly expenses: include car payments, minimum credit card payments and other regular debt obligations.
To this sum add your expected loan repayments and divide the total by your gross monthly income.
The lower the ratio is the more likely that you will be considered an appropriate loan candidate.
As a rule of thumb a ratio of 36% is within acceptable measures.
Higher than this can be considered a bit high and anything higher than 50% is in danger territory.
The more you borrow the higher your ratio will be.
To keep a good credit score it becomes important that you know how to evaluate your own credit worthiness.
It is their opinion on your capability of repaying your debt and it is therefore useful to understand how a lender will evaluate credit worthiness and see if you are a likely candidate for the loan you require.
It will also be a determinant of the amount you are able to borrow.
The checking of a person's credit history is common practice by banks, lending institutes or agencies.
Prospective employers often also do background credit checks to ensure their new employee is trustworthy and without financial difficulties.
This is a safeguard against possible fraud.
When lenders consider your credit worthiness and possible risk in lending to you, they will often focus on different aspects of your credit history but all use the same tools to do this - your credit report and score.
Things that they will look at are the reliability of your payments, number of open accounts and your recent history.
Because the main source available to lenders is the credit report which lists a comprehensive history of your credit and reliability of payments it is important that you keep this free of potential problems.
Having a regular cash flow will help their assessment of you as a prospective borrower.
In evaluating your own credit risk or worthiness take the following steps: • Obtain a credit report so that you know what the lender will be considering.
• Check that all information held in the report is correct and free of errors as an error may cost you the loan.
• Consider if you have been in a situation where you have not made payment on time.
Is this recorded on your credit report? Be armed with a reasonable explanation to present to the creditor.
• The ratio of loan payments to your income will be a factor.
Do you have a lot of debt that may potentially harm your application? To work out your loan-to-income ratio add all your fixed monthly expenses: include car payments, minimum credit card payments and other regular debt obligations.
To this sum add your expected loan repayments and divide the total by your gross monthly income.
The lower the ratio is the more likely that you will be considered an appropriate loan candidate.
As a rule of thumb a ratio of 36% is within acceptable measures.
Higher than this can be considered a bit high and anything higher than 50% is in danger territory.
The more you borrow the higher your ratio will be.
To keep a good credit score it becomes important that you know how to evaluate your own credit worthiness.
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