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Dec 01

Why Is It Worth Taking Care Of Creditworthiness?

Reading Time: 3 mins

When credit providers lend out money, they check if you are ‘creditworthy’. Lenders use this to judge how eligible someone is to get credit. Credit providers also judge how likely you are to pay credit based on your past behaviour, which is essentially your repayment history.

They will also look at your credit score, savings, assets, and liabilities. They will then be able to determine whether you can make repayments comfortably (or if you will likely default on them). To default is a failure to repay debt, for whatever reason.


Why does creditworthiness matter?

Well, it matters for a number of reasons.

  • Firstly, it gives you the ability to borrow money when you need it. A good credit score could get you a lower interest rate on the credit amount you chose.
  • Also, if you’ve been bad with debt, your interest rate may be much higher. This is to protect the credit provider in the likelihood that you default.
  • Good credit history matters when you’re looking for a place to rent. Your landlord could actually run a credit check which could affect your tenant application.
  • Many insurance companies will use creditworthiness to determine if you can pay back your premium.

Lastly, employers can check your credit history, especially for roles in finance and money handling. So, your creditworthiness may either help or hinder you. Having said that, it’s not very high on the list of hiring criteria, so don’t stress yourself too much.


Checking your credit score

There are many credit reporting agencies that can tell you your credit score. If you’ve ever applied for a loan or credit card, these agencies develop a credit report specifically for you. You can access this copy for free.

We suggest you check it at least once a year. It can help you understand why you may not qualify for a loan, or help you negotiate for better rates.

You are easily able to search the web for credit score providers. They are free and can deliver results within the day. However, you must be wary of scams. Do not provide any credit card details, or make any payments.

The report will have information like the types of credit you’ve used in the past, any payments you’ve ever defaulted on, and loan/credit card applications. Just make sure to check your report for any errors, as this can affect your overall score. You can ask the agency to correct this information if it is wrong.


Improving your creditworthiness

Thankfully, there are some long-term solutions to improving your creditworthiness.

  • The obvious option is to pay your bills on time. Why not schedule/automate these payments so you never forget them?
  • If you have a lot of high-interest debt, you can opt for debt consolidation.
  • You can get a flexible credit option, such as a line of credit loan so you can pay off outstanding debt faster. This is sometimes better than getting a credit card.
  • If you want to rapidly improve your credit score, you can make early, larger payments on any debt.
  • Try your best not to go over your limit when using a credit card. Maxing out credit cards or getting to a negative value can have a bad effect on your creditworthiness.
  • Last but not least, limit your debt-to-income ratio to less than 35%. Your debt to income ratio is something most lenders see as an important value.


Prevention is better than cure!

Try to make a habit out of keeping good credit. This is because it can be very difficult to fix a bad credit status. If you have a good amount of discipline when it comes to borrowing money, you’ll be able to keep doing so.

Even better, you’ll qualify for larger amounts each time. This is great for when you’re thinking of buying a house or a car. Also, you’ll be in a better position to get a personal loan in an emergency, which is the kind of peace of mind you’ll need at the time!

If you have any questions about credit loans or would like to apply for one, you could contact Credit24. They are a provider of personal finance and fast loan approvals.


Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.


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