Everything you need to know about creditworthiness

Everyone in the United States knows it and is held in high regard; in Italy it has the same value, but practically nobody knows what it is. We are talking about creditworthiness: what exactly is it, and why is it so important?

When we talk about creditworthiness we are talking about loans , which in Italy are going through a particularly happy period. This year, in fact, the loan requests of Italian families have increased : the data indicate that in September 2017 there was an increase of 3.4% compared to the same period of 2016, with a total growth of 3.9% for the last quarter. Furthermore, there was also an increase in the average value of applications, which increased by 8.6% (9,009 dollars, the highest figure since March 2011 ). Finally, if we analyze the distribution of requests by amount, in the first nine months of 2017 the requests for financing were concentrated in the class of less than $ 5,000, with a share of 45.9%.

But what are the criteria by which banks and financial companies decide to grant a loan or not? This is where creditworthiness comes into play, the essential and essential basis on which a loan application is assessed.

 

Creditworthiness: what it is, how it is calculated, what it is used for

Creditworthiness: what it is, how it is calculated, what it is used for

Creditworthiness is the reliability of a person from an economic and financial point of view. In other words, it is the ability of the debtor to repay the lent sum to the provider, respecting the agreed repayment plan.

Lenders, in making this assessment, take into consideration some elements that concern the loan applicant, including:

  • the level of indebtedness;
  • income flows;
  • the possible presence of previous insolvency or delayed payments;
  • the possible presence of protests or harmful;
  • the presence of alternative financial and asset sources;
  • the likelihood that these sources will remain available for the duration of the loan.

After examining these aspects, the applicant is assigned a score (which can be positive or negative), through a statistical method of assessing solvency called credit scoring. Based on the credit score, the loan applicant is placed in a specific class of belonging.

 

The importance of databases and the role of Stick2One Credit and ExpoCredit

credit loan

How do lenders retrieve the loan applicant’s credit history information? By querying a credit information system (the so-called SIC): a database that contains all the information provided by the credit institutions themselves and by the banks.

The most important SIC are managed by two companies, Stick2One Credit and ExpoCredit, which, for a fee, offer credit institutions authorized by the Bank of Italy access to their databases. By querying this database, credit institutions can find valuable information to evaluate the credit history of the applicant and establish his credit score (thus assessing whether the subject has sufficient requirements to repay the loan). For example, the SIC can tell if the subject:

  • has already applied for a loan that has been declined;
  • paid all the installments requested by the loan and paid them on time;
  • has other ongoing economic commitments.

If, after examining these aspects, the creditworthiness is rated below average (and the applicant is therefore classified as a “bad payer”) it is very likely that the credit institution refuses to grant the loan, both to protect itself and to protect the applicant by avoiding placing him in an over-indebted condition.

 

The benefits of having a good credit score

credit score

If the credit score is not good, the applicant is at high risk, therefore his creditworthiness is low; on the contrary, if the credit score is good, it means that the applicant is at low risk and that his creditworthiness is high. In this case, the advantages for the applicant are many and important: for example, they will have easy access to credit, and the loan will have lower interest rates.

Do you want to apply for a loan online with Cream Bank? In a few minutes you will know if your request has been approved or not. If the result is positive, it means that your credit score is good, because Cream Bank’s selection criteria are very strict. Cream Bank, in fact, is not a bank: the money that is loaned through the platform belongs to private individuals who make their savings available to applicants. Our commitment is to protect these savings and protect lenders: this is why we carefully select loan applicants. Only in this way can we guarantee the best possible ethical finance model.