In general, we must be able to pay our debts in accordance with the contract, as planned, throughout the loan period. The lending institution must be sure that the customer will be able to pay back the borrowed funds.
Financial institutions calculate creditworthiness themselves, have their own criteria and have created tools for this purpose. I will try to present the most common indicators that are taken into account.
What affects our credit standing
In most banks, the rule is that a client earning below the national average may allocate 50% of their income in installments, or 65% of their income if their monthly income exceeds the national average. The amount of average income is determined by the Central Statistical Office.
The main criteria affecting our credit standing:
The amount of income earned
The higher the income we achieve, the greater the amount we can spend on paying installments.
Period for which we have an employment contract / mandate
Some of you may ask what my employment period has to do with my creditworthiness? It depends.
If our employment contract is for an indefinite period, or for example two years ahead, and we plan to apply for a loan for two years, then there is no problem.
The stairs, however, start when the loan period must be spread over 8 years and the contract is only one year ahead. In this case, a large number of banks will refuse us because they do not provide financing for a longer period than the employment contract.
But what about people who are employed on fixed-term contracts ?? Fortunately, we will find several offers, where having guaranteed employment for 6 months, we can get a loan for up to 10 years.
It is obvious that the longer the loan period we choose, the lower the installment we can count on. Therefore, we will be able to get a higher loan amount.
Current credit charge
It’s no secret that any additional credit burden reduces our ability. Each monthly installment, or interest on the account limit and credit card will be deducted from our income. It may turn out that by paying off several installments now, we may no longer have a chance to get a new loan.
Number of people in the household
The more people we support (children, unemployed spouses), the higher the costs we incur for them. Currently, we can obtain additional funds by raising children in the form of 500+, but most banks do not recognize this as income, so it will not increase our credit standing.
Place of residence
The larger the city we live in, the higher the cost of living is charged to us from the machine. Financial institutions assume that in larger agglomerations we will pay more for rent, car maintenance or more for entertainment.
Conditions for the loan obtained
As we can guess, the better the loan terms we get, the lower the installment will pay us. Depending on the bank, we can save on interest, commissions, and insurance that comes with the loan, which increases the cost considerably.
A simple example: it is enough that we find an offer with a lower interest rate by 2% than the competition (instead of 10% there will be 8%), then for the amount of e.g. USD 50,000, spread over 8 years, the installment difference will be about USD 55. Multiplying this by the loan period of 96 months, we have over USD 5,200 in our pocket. I think that for such an amount it is worth looking for a better offer than taking it blindly, what our bank offers us.
How to improve your credit standing
We have several ways to increase creditworthiness, so we get a loan in the amount that interests us. For the sake of clarity, we only talk about legal means.
So the person who will join us with the loan (please do not confuse it with the guarantor). In this situation, however, the loan will be joint and each of the co-borrowers will be equally responsible for it. Each person must show their income that will be combined and then their creditworthiness calculated.