Creditworthiness is a concept that accompanies us whenever we want to use financial products. What products are these? First of all, for loans and advances. It doesn’t matter if you want to borrow a small amount of money for a period of 30 days or if you can use a mortgage. The ability to pay it back is checked almost always, so it’s good to let you know what it really is and how it’s calculated.
Creditworthiness – one of the most important things when you apply for external financing.
Unfortunately, in recent times it has become natural that banks verify their clients strongly. Loan companies are also doing it more and more often, which until now have made it possible to borrow money even when you have debt.
Such behavior of banks or loan companies is mainly due to the desire to limit the risk associated with timely repayment, i.e. the commitment of the customer. Financial institutions also impose this on legal regulations, which is why banks have their own assessment algorithms that contribute to many factors.
In this post, we will try to introduce you to the concept of financial possibilities, what to do to be able to get a loan without any problems? How do you calculate your charges? And more or less how to estimate your loan and credit potential?
The first very important issue that every customer should think about is the source of income they have. Two things count here: the type of income, i.e. the form, e.g. employment contract, retirement, the second thing is the obvious amount of income. These two concepts and factors are the starting point, they are simply key.
Which sources of income are the most advantageous?
Above all, permanent. This is a permanent employment contract, a pension or a disability pension. These are revenues that from the financial institution’s point of view are stable and, most importantly, permanent. When granting a loan, they are listed higher and give you a higher number of points when counting the scoring rating. Fixed income is not everything – the second more important issue is the amount of income. Here, the higher the value, or rather the amount, the better for each borrower. Of course, a lot depends on the amount of liabilities you have, because it is closely related, but it’s always better to have a larger income than a smaller one.
So we have the first most important points – income. Now you should consider the charges. First of all, anyone who is considering taking out a smaller or larger loan should know their current debt status. We mean not only the loans we have. Other charges and living costs are also taken into account for creditworthiness. First of all, we need to think about what we have monthly expenses, how much it costs us to keep an apartment, bills, mobile subscriptions, credit cards or other obligations, e.g. maintenance. To this must be added the obvious burdens such as cash loans, loans and mortgages. Add up all installments and fees and write the amount somewhere on the side.
Having information about all your income or income (these can be permanent sources of income but also temporary sources such as contracts for specific work, letting out etc.) and having information about your obligations. So in short, we can start estimating the creditworthiness .
The simplest formula for determining creditworthiness
It is nothing more than:
your total income (minus) – all costs and bills (minus) – living costs (about 750 USD / month per person) should be> 50% of income (but above 30% is the allowable value)
That is, in more detail. When we earn USD 5,000, having loan installments, rent, and other expenses at the level of USD 2,000. Adding to this the cost of “survival” in the amount of USD 750. Our creditworthiness is> than 45%, which means that the installment of the future loan may reach even USD 2,000 / month. It is based on this information that we can already estimate the amount of credit that will be available to us. USD 2,000 * 12 = USD 24,000 (this amount is rounded off, because we do not include fees and charges) we will be able to borrow from a bank or other lender.
To sum up in points
- Consider income. Write down your earnings (both fixed and additional ones).
- Specify the amount of monthly costs (here include all your current credit installments, subscriptions, fees, rents, etc.)
- Subtract the sum of your charges from your total earnings.
- Then subtract a few hundred zlotys (about USD 750) for so-called survival costs.
- The result you receive will be your creditworthiness, i.e. the maximum amount that cannot be exceeded by the installment of the future loan.
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