What contributes to creditworthiness can vary, depending on the type of account for which you’re applying. The larger the debt you’re looking to take on, the more creditworthy you have to be. Mortgage lenders typically have higher standards of creditworthiness than credit card issuers.
Alternate name: Credit score
How Creditworthiness Works
Credit reports can be several pages long. They’re very time-consuming to review. Creditors and lenders will use credit scores to measure creditworthiness rather than reviewing complete credit reports. These scores are an objective measure of your creditworthiness based on your credit report information. Your credit score is a three-digit number, typically ranging between 300 and 850. The higher your score, the more creditworthy you are, which means that you’re more likely to repay your debt obligations on time. As a result, more creditors and lenders will be willing to approve your applications and reward you with lower interest rates. They’re not taking on a lot of risk by lending to you. How often you pay your bills on time is the biggest factor that affects your creditworthiness. Late payments and other delinquencies can make you less creditworthy. They can make it harder to get approved for new credit cards and loans. Your creditworthiness is also affected by the amount of debt you’re carrying. Having high credit card balances can make it more difficult to have your loan applications approved. You already owe a lot of money.
The Importance of Creditworthiness
Staying on top of your creditworthiness is important even when you don’t have a credit card or loan application planned for the near future. Many other businesses, such as cell phone carriers and cable service providers, will consider your creditworthiness, too. Keeping your credit in the best shape possible means that you never have to worry when a business wants to check your credit. Keeping track of your credit score is the best way to stay on top of your creditworthiness. You can check for free by signing up for Credit Karma, Credit Sesame, or WalletHub. These services give you access to your credit score as well as tips on improving your score and your creditworthiness.
How to Improve Your Creditworthiness
You’ll have to prove to creditors and lenders that you’re not at risk of defaulting on your credit obligations if you’re having trouble getting approved for new accounts. Start by taking care of past-due accounts and debt collections. A creditor might remove an account from your credit report in exchange for payment if you can negotiate a “pay for delete.” However, paying the account will benefit your creditworthiness even without this deletion. Start building a positive payment history by making timely payments on your accounts going forward. Consider opening a secured credit card to add to your credit report if you don’t have any active, open accounts. You’ll improve your creditworthiness and your ability to be approved for other credit cards and loans as you make timely payments on this type of card. Make bigger down payments on loans if possible. You might be able to get approved for a mortgage or car loan even without the best creditworthiness if you make a larger down payment. This means you’re borrowing less. It reduces the amount of risk the lender is taking on. Having a co-signer can also improve your odds of getting approved if that person is creditworthy. A co-signer agrees to be responsible for the payments on your credit card or loan when and if you’re unable to make them on your own. Be careful with this option; falling behind on your payments will affect both your credit and theirs.
