Creditworthiness is the ability of a borrower to repay the debt he or she has taken out, plus interest, over a specified period of time. Banks assess creditworthiness before granting a loan, looking at a number of factors to ensure that the customer will be able to repay the money borrowed. Understanding what banks look at and how to improve your creditworthiness can significantly increase your chances of obtaining a favourable loan.

What banks look at when assessing creditworthiness

  1. Income:
    • Banks look at the amount and stability of income. It is important that the income is regular and sufficient to cover monthly loan obligations.
    • Source of income: Income from an indefinite employment contract is preferred, but income from business, civil law contracts or pensions may also be accepted.
  2. Expenses:
    • Banks take into account fixed monthly expenses such as living costs, bills, other loans or maintenance.
    • The lower the fixed expenses, the better the creditworthiness.
  3. Credit history:
    • Banks check your credit history in databases such as the BIK (Bureau of Credit Information).
    • A positive credit history, with no late repayments, increases the chances of obtaining a loan.
  4. Debt-to-Income (DTI) ratio:
    • This is the ratio of all credit liabilities to net income. The lower the ratio, the better the creditworthiness.
    • Banks prefer the DTI ratio to be below 40-50%.
  5. Loan term:
    • A longer loan term reduces the monthly instalment, which can improve creditworthiness.
    • However, it is important that the loan period is realistic in the context of the borrower’s age and financial capacity.
  6. Age of the borrower:
    • Banks prefer customers of working age, but will also accept older people, especially with shorter loan periods.

How to improve creditworthiness

  1. Increasing your income:
    • Seeking additional sources of income, such as additional work or freelancing.
    • Negotiating a raise with your employer.
  2. Reducing expenses:
    • Reducing unnecessary expenses and controlling the household budget.
    • Paying off existing credit commitments to reduce monthly charges.
  3. Improving credit history:
    • Timely repayment of current obligations.
    • Settling outstanding payments.
    • Avoiding incurring new debts before applying for credit.
  4. Debt consolidation:
    • Consolidating several loans into one with a lower instalment can improve creditworthiness.
    • Negotiating the repayment terms of existing loans to reduce the monthly burden.
  5. Extending the loan term:
    • Choosing a longer loan term to reduce monthly instalments.
    • It is important to consult a credit counselor to find the optimal loan term.
  6. Co-borrower:
    • Adding a co-borrower with a stable income can increase creditworthiness.
    • The co-borrower can be a spouse, partner or other person who will be jointly responsible for repaying the loan.
  7. DTI reduction:
    • Repaying or consolidating existing debts to reduce the DTI ratio.
    • Avoiding taking on new liabilities before obtaining a loan.

Improving your creditworthiness requires conscious financial management and regular monitoring of your budget. Increasing your income, reducing your expenses and maintaining a positive credit history are key. Consulting a financial adviser can help to find the best solutions adapted to the individual situation. In this way, the borrower can increase his or her chances of obtaining a loan on favourable terms.

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