Creditworthiness and Affordability

Being creditworthy means that you can afford to pay back money that you borrow.

Being creditworthy means that you can afford to pay back money that you borrow. We know that there are three factors involved when you borrow money:

  • Risk
  • Time
  • Cost

Credit providers are always lending money with a built-in risk that it cannot be repaid – sometimes this is due to unforeseen circumstances, however, to minimise this risk, credit providers perform affordability and creditworthiness checks.

An affordability check answers the question: Can this customer repay this loan? So, what is looked at is if you have the money to be able to repay the loan: they find this out by looking at your budget and income. The NCA gives them specific guidelines as to what to look for to determine that you have the means to repay.

A creditworthiness check answers the question: Will the customer repay this loan? Here, they look at your payment history and behaviour to see whether you are a high or low risk customer. The lower your risk the higher your creditworthiness – the more likely you are to get the loan.

These factors can be found in your free credit profile on Compuscan’s My Credit Check – here you will be able to see your credit score which shows you your creditworthiness: the higher your credit score, the more creditworthy you are.

Obviously, to remain creditworthy, you need to work out your affordability to make sure that you have the means to pay for the current loan you are applying for. Here are a few factors that credit providers consider when looking at your application:

  • Can you pay the amount back over the time specified? Is there room in your budget?
  • Do you have any means to pay a deposit? Do you have some money that can be put down to lower the amount borrowed?
  • Do you have any collateral or assets that you can put up in case you can’t afford to repay? Collateral can be anything from a house to a car or other object of value that you can sell if you can’t pay the loan.
  • Are you creditworthy? Do you repay your loans?
  • What does the economy look like? The economic state of a country impacts lending money because if the economy is not doing well, it can impact people’s ability to repay loans.

Here you can see that the credit provider does not only do these checks to protect themselves, but you too: these checks ensure that you do not make reckless borrowing mistakes and find yourself in trouble. The more you know about your own financial health, the better decisions you can make.