Creditworthiness Meaning
Would you like to apply for a loan and are wondering what your chances are? Your credit rating plays a central role when it comes to the granting of loans. But what exactly does this term mean? In this article, we will give you a comprehensive insight into the importance of creditworthiness, how it is checked, and what options you have to improve your credit rating.
What is creditworthiness?
Creditworthiness (lat. “Bonitas”) describes the creditworthiness and solvency of a borrower. It is checked as part of the credit check and provides information on how likely it is that a borrower will meet their financial obligations on time and in full. A high credit rating indicates to lenders that you are a reliable borrower.
The credit rating is based on various factors, including your financial situation and your presumed willingness to pay. Your creditworthiness and credit standing are therefore checked as part of a credit check, taking into account your financial history, your income situation and any existing debts.
Banks and credit institutions use this information to assess the credit risk of their customers and determine the conditions of the loan. With a good credit rating, you therefore have the opportunity to obtain better conditions and lower interest rates for a loan, for example in the case of a loan against collateral.
What is meant by good creditworthiness?
A good credit rating is an indicator of your financial reliability and creditworthiness. For example, it is not enough for you to meet the basic conditions and budget criteria of a bank in order to obtain a loan. Instead, your scoring is decisive as to whether a loan agreement is concluded at all and on what terms.
The so-called scoring value is used to calculate the risk of payment defaults. The higher your score, the better your creditworthiness. The credit report is therefore crucial, as it provides information about your payment behavior. The following criteria are taken into account as part of the creditworthiness check:
- Inquiries to the ZEK: A high number of credit rejections or negative codes such as unpaid bills can have a negative impact on your score.
- Professional stability: The longer you have worked for the same company, the more points you will receive, as this indicates professional stability.
- Moving behavior: Moving behavior indicates a certain continuity and stability in your housing behavior, which can have a positive effect on your credit rating.
- Marital status: Married couples generally receive more points than single people, as they usually have a more stable financial situation.
- Age: Older people generally receive more points as they have a longer credit history.
- The budget margin: The higher your budget margin, the better the conditions for the borrower.
- Your credit history: The credit history includes all relevant information about your previous credit activities. A positive credit history contributes positively to the assessment of your creditworthiness.
A good credit rating not only gives you access to a wide range of financing options but also strengthens your negotiating position when determining the conditions for future loans.
What is a sufficient credit rating?
Not every borrower has an excellent credit rating, but a sufficient credit rating can also give you access to financing options. Sufficient creditworthiness indicates that you have generally met financial obligations in the past, but may be associated with certain risks. In such cases, lenders may offer adjusted terms to take into account the individual credit risk.
When do we speak of negative creditworthiness?
A negative credit rating occurs when borrowers are unable to meet their financial obligations or have payment arrears. Increased credit inquiries can also increase credit risk, as this is due to financial insecurity. This can lead to significant restrictions in access to financing.
However, even young borrowers may find that banks reject a loan application because their income is limited. In such situations, it is important to take steps to improve your credit rating before applying for a new loan.
Improve negative credit rating
If you would like to apply for a loan despite a negative credit rating, you have the opportunity to improve your credit rating step by step. However, improving a negative credit rating requires time, commitment, and strategic financial decisions.
How do I get a good credit rating again?
In order to regain a good credit rating, consistent financial discipline is required. There are ways in which you can actively influence your credit rating.
- Tip 1 – Optimize your payment history: A decisive factor for your creditworthiness is your payment behavior. Make sure you pay bills on time. For example, you can set up standing orders for recurring payments. These measures will prevent you from losing or forgetting invoices. If you receive an incorrect invoice by email or post, it is also advisable to complain about it immediately to avoid possible debt collection.
- Tip 2 – Correct incorrect or outdated creditworthiness data: If you come across incorrect or out-of-date data on a self-report, you should make an effort to have it corrected.
- Tip 3 – Adjust your expenses to your income: When assessing your creditworthiness, the lender compares your expenditure with your income. You should therefore try to plan your expenses in such a way that you have sufficient financial leeway. This signals to the lender that you are likely to be able to repay the loan.
- Tip 4 – Avoid applying for credit from several providers at the same time: By checking with the ZEK, lenders can determine whether you have applied for credit from different providers at the same time. These parallel inquiries can have a negative impact on your credit rating and make you less attractive to lenders. Instead, you should only submit your loan application to one provider where you think you have the best chance.
How long does it take for the credit rating to return to an acceptable level?
The time it takes to get your credit rating back into an acceptable range varies depending on your individual financial situation. However, if you consistently implement your new financial habits, the first improvements can often be seen within a year.
However, you should bear in mind that improving your credit rating is a gradual process that requires a lot of patience. However, by sticking to payment agreements, paying off debts, and avoiding negative entries, you can improve your credit rating in the long term.
How exactly is creditworthiness checked in Switzerland?
Credit checks in Switzerland are carried out on the basis of various criteria that enable a comprehensive assessment of your creditworthiness and credit standing. One of the most important aspects is the analysis of your credit history. Lenders use information from credit agencies such as the Swiss Central Office for Credit Information (ZEK) or the Information Office for Consumer Credit (IKO) for this purpose. These credit agencies collect data on current loans, existing payment obligations, and possible payment delays.
In addition to your credit history, your income situation, current expenses, and any collateral are also checked. Determining your creditworthiness is an essential process that enables banks to precisely assess the risk of granting a loan and set individual conditions.
How can I check my creditworthiness myself?
Before you apply for a loan, it may make sense to check your own creditworthiness. This will prevent unnecessary entries and may give you a better chance of getting a loan.
In Switzerland, you have the right to check your own creditworthiness on a regular basis. This is important in order to identify possible errors in the credit reports and correct them in good time. You can request a free self-disclosure from the aforementioned credit agencies ZEK and IKO. This contains all the information stored about your financial history. In this way, you can check your creditworthiness yourself before applying for a loan.
Conclusion
Creditworthiness plays a crucial role and can have a significant impact on your future. Your credit score not only influences the likelihood of obtaining a loan but also the conditions on which it is granted. A good credit rating will benefit you with lower interest rates and better loan-to-value ratios, while a negative credit rating will make it more difficult to obtain a loan.
This makes it all the more important that you understand your credit rating and constantly strive to improve it in order to obtain the best conditions for your financial needs. After all, a good credit rating is the key to advantageous credit offers and a stable financial future.
Private loan calculation example:
Loan amount: CHF 10,000 without insurance. Repayment period: 12 months
Interest (including costs) amounts between CHF 240.50 and CHF 574.25. Effective interest rate 4.5% – 11.95%. Possible loan repayment period from 12 to 120 months
Processing fees: CHF 0.-. Granting a loan is prohibited if it leads to over-indebtedness (§ 3 Unfair Competition Law – UWG)