When is someone creditworthy?

Creditworthiness is the ability of natural persons, states, or companies to repay incurred debts. In addition, there must be a willingness to repay.

In the case of issuers of securities, creditworthiness (Bonität) refers to the ability to service and repay the issue in addition to interest. In this way the likelihood is determined that borrowers will be able to make the required repayments.

Personal and economic creditworthiness

Personal creditworthiness assesses the willingness to pay and personal reliability. If the borrower is a natural person, professional and occupational qualifications are also taken into account.

For a company, the management is subject to this assessment. Economic creditworthiness analyzes the economic circumstances of the borrowers. Based on past financial transactions, the debt service capacity is determined.

This variable indicates whether the loan seeker will be able to repay the loan. To determine the debt service capacity, various data such as balance sheets, proof of income, etc. are used. Credit institutions must be able to classify their credit risk.

For this purpose, various procedures based on business-administrative and statistical methods were developed. These systems deal with determining a debtor's creditworthiness. There are also rating agencies that assess the creditworthiness of borrowers. The results are made available to creditors for a fee.

When is one creditworthy? Subjective evaluation of credit criteria

Each creditor can define and weight the individual credit criteria according to its own standards. According to its own needs and the type of debtor, it will apply different weightings and criteria.

Credit institutions are also not required to follow specific regulations about which criteria are considered when assigning ratings. However, some minimum criteria for borrowers are usually required.

Natural persons

In most cases, the creditor takes into account the Schufa credit report on previous credit transactions when granting a loan. In addition, the creditor considers factors of the income situation such as employer, job security, and income level. The expenditure, asset, and debt situation is also examined.

Companies

To assess a company's creditworthiness, general information from bank references and commercial credit agencies is used. Other factors that play a role are the articles of association and legal form, the equity ratio, and available cash flow.

Further criteria include business planning, the quality of management, the asset and debt situation, as well as investment policy.