Creditworthiness – Why It Matters To Your Credit Score?
A person’s credit health and credit history are joined in one term – Creditworthiness.
Creditworthiness is a unique idea that highlights risks and what type of risk a lender might correlate with a borrower.
The creditworthiness of a potential borrower is always checked by lenders and creditors. In addition, it’s always reviewed thoroughly to discover how risky it is to lend that person money, regardless of the sum. Further, creditworthiness is a determining factor when it comes to the real interest rates that borrowers just might be debited.
How Can Creditworthiness Be Defined?
In general, creditworthiness is mainly defined by a person’s credit score, although other factors can affect the final score. According to FICO – the most known and used credit scores, creditworthiness should be decided based on five different elements, including:
- Borrowers payment history
- Borrowers credit utilization
- Length of borrowers credit history
- New credit
- Credit mix
But, lenders can be more off and consider other factors when it comes to determining creditworthiness.
Various actors, including age, income, credit history, employment, type of employment, length of employment, family status, existing debt, and even types of debt. However, when it comes to determining how likely is a person to make payments on time, or even make late payments, a person’s credit score and repayment history are two main factors.
It’s important to bear in mind, that creditworthiness can affect much more than only financial opportunities make exclusively available to a borrower. Creditworthiness but may also affect a person’s ability to be hired by a certain business, insurance premiums, and in some – not that rare cases even the opportunity to be licensed or certified in certain professional fields.
But… What Is A Credit Score?
In the States, national credit bureaus are responsible for collecting, updating and storing credit histories on the majority of USA consumers. The TransUnion, Experian, and Equifax are the largest national credit bureaus, and their job is to track records of a person’s credit usage and accounts, simply named – credit report.
What is a credit report? A credit report is inscribed or written document of a person’s credit history.
The credit histories that can be found in these credit reports include information on different credit accounts, both open and closed, credit inquiries, on-time payment chronicles, and even derogatory marks.
Good to know: Your credit history will never contain any information regarding your saving accounts, checking accounts, or any private or personal information that may anyhow be linked with your race, age, and even income.
How Credit History Is Formed?
Credit history is made upon the information that is gathered from different lenders, collection agencies, and even public records such as liens and bankruptcies. It’s important to note that a credit report can only be requested by employers, lenders, and landlords.
In most cases, it’s used to make decisions related to insurance, employment, and any decision borrowing related. Moreover, a credit report can be asked for additional procedures that must be allowed under federal law.
Do You Know Your Creditworthiness?
We are living in a world where being financially sustainable is imperative, and therefore you should know everything regarding yours. That being said, you should know your credit score. Moreover, you should know your creditworthiness, especially if you’re dealing with landlords, employers, and lenders.
Thanks to the Fair Credit Reporting Act you are enlighted to many and different rights, including the right to a completely free credit score. Also, you are allowed to be told if any of the information in your file has been used in any way against you, as well as the right to deny employers access to your credit file.
Next, you have the right to pursue damages if a credit bureau violates your protections in any way. You can find a full list of your right here, thanks to the Federal Trade Commission.
How You Can Acess Your Credit Score?
Seeing your credit score is a simple procedure. You just have to request your credit score report. You request it through the government’s sanctioned site at www.annualcreditreport.com.
Moreover, you are entitled to see your credit score once per year, free, from the three big credit bureaus, that we have mentioned earlier.
Credit bureaus are obligated by the law, to share your information with the other parties if the event demands it. People who might easily qualify to see your report are, creditors, landlords, and insurers.
Can Report Hold A Mistake?
Yes, although this is extremely rare. It’s important to act properly if you notice any type of mistake. If you notice any type of error in your free credit score report you should inform the credit bureau. This should always be done in writing. Furthermore, credit bureaus are required to investigate and inform you about their actions – not later than 30 days.
For dealing with any credit reporting information you can check the Federal Trade Commission’s step-by-step instructions.
Can I Improve My Creditworthiness?
Simply said, yes. There is only one way on how you can have better creditworthiness, and that’s by improving your credit score. By improving your credit score, you are becoming in a way ”creditworthy”. This can be done by applying three simple actions in your lifestyle:
- Upgrading and making smarter spending habits.
- Adopting more responsible credit.
- Adopting responsible borrowing.
The first step toward better creditworthiness is getting up to date on all of your bills. Also, if you have any type of debts, you should pay them, and make sure never to have them again if possible.
More, you should maintain a low balance on your credit card (every credit card), making on-time amends when it comes to your bills, and loan installment that will overall improve your credit score, and even more – improve your creditworthiness – additionally and overtime.
Fast Top 5 Ways To Improve Your Creditworthiness
1. Always stay on top of your credit file to see where you stand exactly.
2. Make sure that your credit file is accurate and updated.
3. Have a proper relationship with your bank representatives and stay on top of any changes.
4. Always pay your loans and credit card on time.
5. Don’t apply for too many credit cards.