What is "Creditworthiness"?

When you apply to borrow money in the form of credit, whether it be a loan, credit card, or otherwise, creditors must determine if they should incur the “risk” of lending to you.  In other words, they must decide whether or not you are “worthy” of obtaining credit.

Lenders must consider on a case-by-case basis how likely potential borrowers will be to repay their loans, to make payments on time, and to adhere to all terms and conditions.  They must determine your ability to meet your financial obligations, as judged by your history.  If it is unlikely like that you will repay as your agreement necessitates, then a lender will not want to take that risk.

When lenders contemplate your credit risk and –worthiness, they often focus on different aspects of your credit history such as the reliability of your payments, number of open accounts, or recent history.  However, they all use the same tools to do so: your credit report and score.

Your credit reports list a comprehensive history of your credit and payments.  Because this is the main source available to creditors to determine your creditworthiness, it is necessary that you build this up substantially so that they have something on which to base their decisions.  After all, it is not very likely that good credit will be extended to you at a low interest rate if creditors do not have any indication of how well you have had handled credit in the past.

Included as part of your credit report is your credit score, a number usually between 400 and 900 that indicates how well you deal with credit.  Many creditors will look solely at this number to decide whether to provide you with credit.  To raise your score and to make yourself more creditworthy to lenders, you should take steps to repair your credit.

No matter who the lender, a healthy credit report and a solid credit score will prove that you are creditworthy – a distinction that can help you to obtain new credit and at favorable interest rates.