What is creditworthiness?

If you are planning to apply for credit or a loan sometime in the future, one factor which will determine how easily you can avail the loan is your creditworthiness. The dictionary definition of creditworthiness reads that it is the extent to which an individual person or a company, maybe considered suitable by lenders and/or investors for receiving financial credit. In layman terms, this refers to your ability to repay your loan on time. 

In personal finance, the creditworthiness of an individual is measured in terms of the credit report and the credit score based on this credit report. Any potential lender will go over your credit report and credit score carefully to determine if you should be given a loan, depending on your past record of repaying on time and other factors. In this article, we will discuss the various factors which affect an individual’s creditworthiness, some common misconceptions about creditworthiness and how one can improve their creditworthiness.

Factors that affect creditworthiness

While the credit score is a measure of your creditworthiness, the factors which affect both these aspects are not the same when it comes to assessing your eligibility for a loan. Following are some of the factors which affect your creditworthiness: 



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  • Late or pending payments

If you have any late or pending payments from credit card bills or loan installments in your credit report, it will act against your creditworthiness. Also important are how late these payments are. The greater the delay, the more adverse the report.

  • Negative information in the credit report

If any of your debts have gone into collection amounts, if you have filed for bankruptcy or if there is a repossession of assets by a lender, these will hit your creditworthiness severely. 

  • The diversity of your credit

If you have a mix of credit in your portfolio which you are successfully handling, it will show positively in your credit report and hence also give you favorable points where your creditworthiness is concerned. Credit cards and a combination of loans and mortgages repaid timely are an excellent portfolio mix for enhanced creditworthiness. 

  • Age of your newest credit account

If you have not applied for new credit any time in the past 12 months, it will show up positively in your credit score and also enhance your creditworthiness. When you apply for new credit, it hits your credit score in the short term but the older your account gets, as you make timely repayments, it will give you greater creditworthiness.

  • State of your debt

Taking credit and loans are not per se what affect your creditworthiness; it is the state of your debt. If you are in high debt, with a high debt-to-income ratio, it will adversely affect your creditworthiness. This is because a high dent indicates that you have been lax in repaying your existing credit and are incapable of meeting your debt.

The number of credit accounts with balances

While it may sound like a good idea to maintain zero balance in all your credit, a good measure of creditworthiness to retain some unused balance in all your credit accounts. This indicates that you are a calculative spender and are cautious with your money.

Remember, while these factors do affect your creditworthiness, not all of these are considered by lenders. Different lending organizations use different criteria for evaluating the creditworthiness of an individual. However, to be on the safe side, make sure you rank high on each of the above criteria for enhanced creditworthiness.

Factors that do not affect creditworthiness

Because there are no specific outlined factors that affect creditworthiness, there is also much ambiguity about these factors. Certain factors are not evaluated, and even considered illegal if taken into account, when establishing the creditworthiness of an individual and these are:

  • Your income

How much you earn is not a factor that determines your creditworthiness. The latter is determined only the basis of your ability to repay and as such the figures in your salary are not taken into account to grant you a loan.

  • Bank account balance

The money in your bank account is not to be considered when evaluating your creditworthiness as it does not affect your intention or ability to repay the loan.

  • Race, gender, nationality, religious beliefs

All of these factors cannot be considered when establishing the creditworthiness of an individual and most certainly cannot become a criterion to deny credit to the applicant. 

  • Assets

The assets owned by an individual are not to be factored in when establishing the creditworthiness of a person.

How to improve your creditworthiness

Whether or not you are planning on obtaining credit in the near future, it is always a good idea to appear creditworthy to any potential investor and/or lender. As they say, better safe than sorry. Let us look at some of the ways to improve the creditworthiness: 



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  • Pay all your dues on time

Since your payment history reflects heavily on your creditworthiness, it is important that you pay all your dues on time, every time. Even if you miss a single deadline, it will add negatively to your creditworthiness.

  • Optimize your credit utilization

Don’t use up all the credit on your credit card as this will indicate that you are a risky borrower. Always keep some balance on your credit card at the time of your due date.

  • Don’t apply for too many credit cards

A single credit card is a must to show some creditworthiness but too many credit cards will affect your creditworthiness negatively, especially if you are unable to pay the dues on them on time. Too many credit cards indicate that you are often in dire financial stretches for which you use credit to bail you out.

  • Have a diversified credit portfolio

It is important to have a mix of credit accounts in your portfolio to establish decent creditworthiness. This will indicate to the potential lender that you are capable of handling various types of credit successfully.

  • Reduce your debt

Many a time, despite much trying, people end up with debt which affects their creditworthiness. Hence, in order to improve creditworthiness, one of the most essential steps is to reduce debt. For this, make sure you try and cut back on your expenses and save as much as possible so that you can use this money to clear your debt.

  • Keep a check on your credit score

While your credit score and creditworthiness are not the same, your credit report will be an assessment of your creditworthiness. A decent credit report with good payment history, spaced out inquiries, well-timed credit applications, with a consequent good credit score will go a long way in enhancing your creditworthiness.

Your creditworthiness is crucial when it comes to applying for credit, indicating your reliability as a borrower. It is not the same as your credit score or credit report but it does affect your credit application. Even if you have average creditworthiness, you can get an instant personal loan from PaySense, one of India’s leading online lending platforms. Just download the PaySense app on your mobile or laptop, upload your documents, check your eligibility, calculate your EMI and get a loan within minutes. To know more about the PaySense app and instant personal loan, email us at [email protected].  



Aahna Gandhi

Aahna Gandhi is an enthusiast traveller, writer and a PR Professional. She likes sharing memorable moments from her travels and inspire others to live a life full of wonder. Known for her content, she has worked for travel, technology, lifestyle, health sectors as well as finance.

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