What You Need to Know About Creditworthiness

If any term can be said to determine the quality of life you can enjoy in modern society, this is it. Considering you’re likely to need credit to obtain two of the truly important things in contemporary life—shelter and personal transportation— understanding what you need to know about creditworthiness is an important undertaking.

What Is Creditworthiness?

Simply put, it’s your suitability to be extended credit. In most cases, it is directly related to your demonstrated reliability when it comes to how you have repaid loans in the past. It is also directly related to your perceived ability to continue meeting your obligations by having enough cash already on hand should your income stream experience an interruption.

The Pertinent Factors

When lenders are tasked with evaluating your creditworthiness, they consult with one or more of the three primary credit rating agencies (Experian, Equifax and TransUnion). These companies evaluate a number of different factors to assign a rating to you (AKA your credit score).

Their assessments are based upon the following:

  1. Timeliness of Payments: Accounting for 35 percent of your credit score, paying your bills when or before they’re due stands you in good stead. This, as you might well imagine, is one of the most important things you can do to enhance your creditworthiness.


  1. Income vs. Expenses: When the amount of money you earn each month exceeds the amount of money you owe each month—by a significant margin—you will generally be looked upon with favor by lenders.


  1. Account Balances: Remember how demonstrating an ability to pay, even if your income stream gets interrupted? Low outstanding balances reassure creditors in this regard. Conversely, if all of your accounts are charged at or near your credit limits, that says you might be experiencing financial difficulties (or are about to be).


  1. Types of Credit: Credit reporting agencies favor people who have a mortgage, an auto loan, some revolving credit, and a store account, all in good standing. Maintaining the accounts well by keeping them paid on time and not using the revolving and store credit too heavily says you’re good with credit—and your cash.


  1. Miscues: Bankruptcy, foreclosures and judgments against you will tarnish your credit “halo”. If you have any of these on your record, the good news is you can turn things around by maintain all subsequent accounts according to the guidelines listed above. Bankruptcies go away eventually, as do other types of blemishes. Making every effort to keep your record clean after you straighten these issues out will return you to good standing eventually.

Improving Your Creditworthiness

Do everything possible to clear up past due accounts and debt collections. In some cases, working with a debt settlement or debt relief company might be a good idea. They could help you pay off certain obligations for less than you owe, to get you back on your feet sooner. If you choose to go this route, look for information including these Freedom Debt Relief reviews to make sure you sign up with a reputable organization.

Understanding what you need to know about creditworthiness better positions you to maintain yours in good standing. By and large, as long as you pay your bills on time and remain judicious in your use of credit, you’ll be fine. Given the nature of your creditworthiness now comes into play when you’re trying to get a home, a car, insurance and in some cases—even a job, this is a very worthwhile undertaking. It can even be the difference between a life of comfort and strife.