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.