Creditworthiness is, in a nutshell, our ability to regularly repay a loan. Depending on many different factors, our ability may be greater or smaller – the greater, the more credit can be given to us.
How do banks calculate our credit standing?
Basically, every bank counts our creditworthiness in its own way. In another example simplification, you can define creditworthiness as the difference between our income and monthly expenses (including other loan installments). In this way, we know the amount that we can spend on paying off a new loan. Please note that after the T recommendation comes into force, our monthly credit obligations may not exceed 50% or 65% of net income. Otherwise our application may be rejected.
Of course, the most important parameter that is taken into account by all banks is our earnings. When applying for a loan, we usually have to provide a certificate from the employer confirming the amount of monthly salary. In the case of a fixed-term or indefinite employment contract, the matter is simple. In the case where we run our own business, we work on a mandate contract or for a specific task, the assessment of our ability is more complicated, as we become more risky clients for the bank. In this situation, banks decide to be much more cautious to assess the client’s ability. Therefore, it should not surprise us that having the same disposable income (it is the part of our income that we can spend on consumption, investment and savings – that is, after deducting fixed costs of living) as a person employed under an employment contract, we have lower credit standing.
Detailed calculations of our ability
The calculations have a big impact on the particular bank’s approach to the main issue – how much does a given person need to maintain monthly? Banks usually calculate these amounts very differently – from PLN 400 per person to even PLN 600-700 per person.
Sometimes banks include all loans, including “mobile” loans – an account loan or a credit card. It also happens that the banks count other maintenance costs – e.g. PLN 300 per car. Some scrupulously include every household expense, bills, etc., while others have a general, not very precise amount per head. Therefore, if a bank calculates your low or even lack of creditworthiness – try to check with another bank.
An important factor to which we should pay special attention is the form of our employment. Unfortunately, banks can reduce our creditworthiness by up to one fifth if we work on a specific contract or work contract compared to a person with an employment contract. For banks – which is sad – it doesn’t usually matter that a person has been getting the same income for a long time – and that he is comparable to a full-time employee.
Ways to increase creditworthiness
If you have several loans on your mind, it’s worth considering improving your financial rating – in the eyes of the bank. There are a few simple ways to do this. First of all – we are closing our overdraft. Opting out of credit cards can also help us – then “mobile” loans, which can be variable each month, will not be taken into account.
We can also submit applications for extension of repayment for other loans – this will reduce the installments and thus the cost of monthly liabilities.
Another method is a consolidation loan, which should reduce the amount of the total installment and thus improve the creditworthiness.
What has changed the provisions of the T Recommendation?
First of all, the possibility of taking too much loans was limited – people earning below the national average cannot repay installments above 50% of their net income. For people earning above the national average, the limit is 65%. We must also have 20% own contribution, and if we do not have it – it is mandatory to insure it.
BIK – Credit Information Bureau
All information about our debt usually goes straight to the Credit Information Bureau – including unpaid installments but also information about recent loan applications from other banks. Since this is the first place that analysts of the bank that grant us the loan will look, it would be good to have a “clean file”. If we are not sure about the data regarding our person, we can get a report from BIK about our current obligations for a small fee.