How do banks determine creditworthiness?

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People who have applied for a bank loan know perfectly well that it is not that simple. Financial institutions wanting to avoid the situation of granting a loan to a person who will not be able to pay their debts in the future, carry out a very thorough assessment of the so-called the creditworthiness of the potential customer. What exactly is creditworthiness and what aspects are analyzed during its determination?

Creditworthiness - what is it?

Creditworthiness is nothing more than the ability to repay the loan with interest and other necessary fees. The assessment made by the bank determines whether the customer receives a loan at all and, if the decision is positive, what will be its amount. The higher the rating, the better.

Lack of creditworthiness is usually tantamount to not receiving money from the bank. However, you cannot wring your hands, because a given customer in different banks will have a different creditworthiness. This is due to the fact that the regulations do not regulate what should be assessed when checking a potential borrower. Therefore, each bank sets its own creditworthiness test criteria and the type of information that will be assessed.

The higher the earnings, the better

No one should be surprised that banks are primarily interested in the amount of earnings of a person applying for a loan. Stability of employment is also important. This allows financial institutions to determine how much and for how long a loan can be granted.

To assess this aspect, some banks require a declaration of income, others it is sufficient to submit completed annual declarations for the last few years. In addition to the amount of earnings, the benefit of the person applying for a loan is always the stability of employment in a given workplace, preferably on the basis of an employment contract (civil law contracts are treated less favorably).

What are the cost of living?

What differs banks is also the way of determining the so-called living costs. This is a very important element taken into account when assessing creditworthiness and the amount of a potential loan. An important element taken into account here is the subsistence minimum, i.e. the amount per person in the household that must remain after the payment of all monthly obligations.

The differences in the costs calculated by the banks result from different methods of determining the subsistence level. It is worth noting that they can be quite significant. Let's present it with an example.

In bank A, the cost of living is PLN 500 per person, which for a family of five gives the amount of PLN 2,500. In bank B, the subsistence minimum is determined in accordance with the principle that the cost of living for two people is PLN 1000, and each subsequent family member is an additional PLN 200. With a family of five, the cost of living for all members is PLN 1600. As you can see - the difference in the bank's calculations is as much as PLN 1,200!

There are also differences in the calculation of the cost of maintaining the property. Some financial institutions make the assessment of this aspect dependent on the size, others provide for a lump sum, regardless of the size of the property. What's more, the rates may also depend on the location of the real estate - for example, different indicators are used for the Mazowieckie voivodship than for other regions.

It is obvious that the lower the cost of living, so the more you have to spend after paying all monthly payments, the higher your creditworthiness.

Creditworthiness and other loans

When assessing creditworthiness, other loans are also taken into account, or rather the amount of liabilities and timely repayments.

When applying for a loan, it is worth being careful about the credit cards you have. The more such cards a person applying for a loan has, the worse the bank's rating is, even if the receivables are paid on time. Therefore, many borrowers give up their credit cards before starting the loan application procedure.

What other criteria are taken into account?

What strongly affects the creditworthiness, regardless of the bank, is the loan guarantee. In a situation where the person applying for a loan submits a certificate that the installments of the guaranteed loan are repaid on time, then he can definitely relieve his creditworthiness.

Other aspects that are taken into account when assessing creditworthiness include adjudicated alimony, the fact of owning a car or life insurance. All these elements of everyday life generate additional expenses that reduce creditworthiness.

The type of profession also affects whether and what credit will be granted. More and more often you hear about the preferential conditions offered, for example, to representatives of liberal professions.

In addition, the customer's credit history is important. If he stuck to the deadlines in an exemplary manner, the chances of obtaining a loan increase, and additionally, lower interest rates may be awarded.

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How is creditworthiness assessed?

In the practice of banks, two methods of assessing financial capacity are used:

  • individual - based on the analysis of the above-mentioned criteria,
  • automated scoring system - determining the probability of ceasing loan repayment.

Depending on what loan the person is applying for, the importance of each of these methods varies. It is worth remembering that when assessing, banks take into account not only the documents provided by the person concerned, but also contact various institutions to obtain additional information.

Can you check your creditworthiness yourself?

You can of course estimate your financial capacity. It is obvious that a person who earns low earnings, has other obligations and applies for a loan for an apartment, does not have to perform any special procedures to conclude that his creditworthiness is not good.

A more formalized but also more reliable method is to ask for a creditworthiness assessment by the Credit Information Bureau (BIK). Everyone has the right to obtain such a report for free once every six months. It is necessary to complete an application for a Standard Account, available at the customer service office or on the BIK website, and then submit it in person or send it by registered mail.

In conclusion, the same loan applicant may receive different credit ratings from different banks. Due to the fact that this issue has not been regulated by law, financial institutions may differ significantly in this field. Therefore, when applying for a loan, it is worth preparing for it properly and in case of refusal, do not be discouraged and look at several other banks.