Creditworthiness is a factor that is often used to determine whether or not individuals are regarded as high risk to lenders. When individuals apply for credit, lenders use factors such as creditworthiness and affordability in order to decide on a credit application.
Ray is interested in applying for a car loan and is wondering which factors are taken into account during the application process.
Which are the factors that affect creditworthiness?
Ray should be aware of the loans he applies for simultaneously. If he does this, especially when he is considering applying for a car loan, it may make it seem like he is in financial distress. Lenders are less likely to regard him as reliable as a result of this behaviour.
Credit scores are measures of how well individuals have handled their credit agreements. Usually between 300 and 850, credit scores are used as indicators of creditworthiness. A low credit score generally means that you are regarded as less creditworthy, compared to an individual with a high credit score. Ray should assess his own credit score and find ways of improving it significantly before applying.
Ray should make sure that he pays off any debts he has outstanding. He should also pay any debts he has on time and in full when due.
Ray needs to remember that car finance providers will want to see how well he has paid his debts on time. Not paying debts on time is one of the biggest factors that affect creditworthiness.
The amount of debt he has to his name is a major factor. If Ray has too much debt already, this lowers his chances of approval, because to a lender, it seems as if he will not be able to afford to pay for the car loan.