A Complete Beginners Guide on How to Improve Creditworthiness

You may already know that creditworthiness is an essential part of your financial health and ability to get credit. Financial companies check it based on a 3-digit score and report generated by credit bureaus. 

Their evaluation takes many factors into account and knowing what they are can help you improve your credit score and get affordable access to credit cards and loans. 

Meaning of Creditworthiness 

This concept unites two words: credit, which refers to loans or credit cards and worthiness, which refers to suitability. What this means is how deserving you are of receiving credit. 

How is this measured? Financial institutions check your: 

• Past behaviour with credit
• Earnings to see how easily you can repay
• Debts to see what other obligations you have

Why do lenders care about how creditworthy you are? Offering credit to a person who is financially unstable or reckless increases the possibility of default. Based on this parameter, companies decide on the loan amount you are likely to repay on time. 

It is important for you to monitor your creditworthiness yourself and learn how your habits impact your score. You can check your score in 2 minutes on Fibe for free and get a detailed credit report too!

Some examples of creditworthiness that are good for your profile include: 

• Maintaining a good repayment history
• Having a stable income
• Utilising credit carefully
• Maintaining a long credit history
• Having low debt-to-income ratio
• Applying for credit cautiously

Factors Affecting Your Creditworthiness 

To better understand the meaning of creditworthiness and what influences it, remember these 5 Cs: 

1. Character

This factor assesses how trustworthy a borrower is. To determine it, the lender checks your credit history. Paying your loan EMIs and credit card dues on time helps showcase responsible usage and vice versa. 

2. Capacity

This factor checks your repayment ability, which is showcased by:

• income sources
• business/personal debt
• cash flow
• debt-to-income ratio

3. Capital

Another way lenders verify a lower risk of default is by evaluating your investments. For example, if a business has invested in assets or instruments, they are less likely to miss EMIs in future. Similarly, if a buyer has made a sizable down payment on the house, they may typically find it easy to afford EMIs. 

4. Collateral

With secured loans, lenders can auction the asset to recover the loan. So, the value of the collateral you offer has a significant impact on your credit profile. A high-value asset will help you secure high-value funding and vice versa.

5. Conditions

The last factor that determines your creditworthiness is the external conditions, which include:

• Market conditions
• Employment sector
• Geographic location
• Job security and growth potential
• Company/Lender policy
• Geopolitical conditions

Tips on Improving Creditworthiness  

Here’s what you can do to boost your credit profile:

• Review your credit report every few months and fix any inaccuracies 
• Pay all your credit card bills in full and on time and avoid missing any EMI payment dates 
• Apply for a credit card or loan carefully and not for many credit facilities at the same time 
• Keep your old credit card accounts open to showcase lengthy experience with credit 
• Optimise your debt-to-income ratio by keeping your total EMIs under 40% of your income 
• Maintain low utilisation by using less than 40% of your credit limit 
• Check the eligibility criteria and other requirements before applying to avoid rejection 
• Avoid applying for a loan or card with a low credit score 
• Show all your sources of earnings to show a better repayment capacity

Armed with this knowledge, you can gradually improve your credit score. This will help you get better and more affordable loan or credit card offers in the future. However, improving your score takes time. Moreover, you need to get credit in order to showcase your repayment ability. 

To build your credit history or finance your looks even with no or a low credit score, look no further than the Fibe Instant Personal Loan Online. Get up to ₹5 lakhs at competitive interest rates with nominal paperwork, 100% digital application, easy-to-meet eligibility criteria and swift disbursal. 

Fibe’s alternate credit scoring models help you access funds with ease and repay flexibly in up to 36 months. With it, you can not only improve your creditworthiness, but also use without any restrictions. Download our Personal Loan App or apply on our website. 

FAQs on Creditworthiness

How can I check my creditworthiness?

You can check it by getting a credit report from any one of the four credit bureaus in India, which are: 

1. TransUnion CIBIL
2. Experian
3. Equifax
4. CRIF High Mark

On Fibe, you can check your score online in just 2 minutes for free. 

What are the factors that determine creditworthiness?

Here are the factors that affect your credit profile: 

1. Credit history
2. Credit score
3. Total debts versus your income
4. Income
5. Down Payment 
6. Collateral, if any 
7. Investments, if any 
8. Total utilisation of credit 

What are the steps to build creditworthiness?

To boost your credit profile, inculcate some good financial habits, which include:

• Checking your credit report periodically 
• Paying your EMIs on time 
• Reducing your credit utilisation ratio
• Borrowing a variety of credit options, with and without collateral 
• Repaying loans and credit card bills in a disciplined manner
• Avoiding applying for credit with various lenders simultaneously