Creditworthiness

The concept of creditworthiness is a company or lender's assessment of whether you as a customer/borrower have the ability to pay your credit or loan.

A credit score is often the result of one or more credit assessments that a company or lender has made of the customer.

A positive credit score is one of the cornerstones of any business or individual's financial presence; ability to get credit, ability to take out loans, ability to own a home, ability to lease a car, etc.

The word creditworthiness can be deciphered to be the debtor's worthiness (ability) to take out and pay his credit.

How is a credit score calculated?

It is basically up to the company or lender to set up requirements, rules and internal frameworks for who they want to lend money or provide credit to - and thus who they consider creditworthy.

A credit score can basically be calculated in many ways, but an important factor is of course the company's internal requirements and rules on the subject.

The credit assessment is often based on a wide range of information, such as the debtor's income(s), debtor's debts, credit history, payment history, etc. While for companies, it is often also based on public and internal accounts, the company's owners, the company's industry, etc.

There are many examples of how creditworthiness can be calculated - for example, banks often work with debt factors where your debt can often exceed 3-4 times your annual income. The debt factor is just one part of the overall calculation of whether you want to lend money to a borrower.

In addition to internal rules, requirements and frameworks, there are also a number of tools to guide companies on whether a company should provide loans and credit - for example through credit ratings.

Read also: Business credit rating

Read also: Credit rating at private individual

What can credit scores be used for?

If you are a company that provides credit to your customers, bank or other lender that provides loans to your customers - it is important that creditworthiness is actively used to protect your business against losses on debtors/borrowers.

Because a poor or low credit score does not necessarily have to deny a customer's request for a loan or credit - but can be actively used.

A low credit score should mean that your company's staff, for example, do not provide longer or larger credit - but require cash payment or perhaps provide a smaller credit.

All things being equal, it should be up to the company to set the framework for how a customer with a high credit rating - and a low credit rating - should be treated.

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