What is Creditworthiness: A Guide to Improve Credit Score

Updated on: 5 Dec 2024

Do you know what creditworthiness means and why it is an essential part of your financial health? It simply enables you to get credit on time at lower interest rates. Financial companies check it based on a 3-digit score report generated by credit bureaus.

Evaluation of this score takes many factors into account. Learning about these factors can help you to improve your credit score and get easy access to credit cards and loans. Read on to know its meaning, how to check it and tips to improve your score.

Creditworthiness Meaning

This concept unites two words: credit, which refers to loans or credit cards and worthiness, which refers to suitability. Creditworthiness means how worthy you are to receive additional credits from lenders. So, how is it measured? Financial institutions check creditworthiness through your:

Past behaviour with credit
Earnings to see how easily you can repay
Debts to see your existing financial obligations

So, why do lenders care about how creditworthy you are? It is simple. Offering credit to a person who is financially unstable or reckless increases the possibility of irregular payments. Based on your creditworthiness, companies decide on the loan amount which you are likely to repay on time.

It is important for you to monitor your credit score and learn how your relationship with money impacts your score. You can check your score in 2 minutes on Fibe for free and get a detailed credit report, too!

Here are some practices that are good for your profile to build and maintain your creditworthiness:

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

Checking Your Creditworthiness

The first step to improving your credit score begins with checking it often. You can find many websites to check your credit score.

You can follow these steps to check your credit score and improve it accordingly, if necessary.

Step 1: Visit the website of any one of the four credit bureaus
Step 2: Enter your basic information, including the PAN card
Step 3: Verify with OTP
Step 4: Check your CIBIL Score

Creditworthiness: How to Improve It

Once you have checked your credit score and feel there’s room for improvement, you will have to work on a few aspects. This requires consistent effort, such as:

Pay bills on time
Reduce your debt
Keep your utilisation ratio below 40%
Seek credit only when you need it
Cultivate and manage your debts carefully

Factors Affecting Your Creditworthiness

To better understand the meaning of creditworthiness and what influences it, remember these 4 Cs:

Character

This factor assesses how trustworthy a borrower is. To determine it, lenders will check creditworthiness and your credit history. Paying your loan EMIs and credit card dues on time helps showcase your responsible behaviour and vice versa.

Capacity

With this factor, lenders check your repayment ability, which is reflected by:

Income sources
Business/personal debt
Cash flow
Debt-to-income ratio
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.

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.

Conditions

The last factor that determines your creditworthiness is the external condition, which includes:

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 a loan or credit card at more affordable interest rates in the future. However, improving your score takes time.

To build your credit history while also getting quick access to funds, you can rely on the Fibe Instant Personal Loan Online. Get up to ₹5 lakhs at competitive interest rates with nominal paperwork. This is a 100% digital application and has 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 it 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:

TransUnion CIBIL
Experian
Equifax
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:

Credit history
Credit score
Total debts versus your income
Income
Down payment
Collateral, if any
Total utilisation of credit

What are the steps to build creditworthiness?

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

Check creditworthiness periodically by assessing your score and report
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

Why Is Creditworthiness Important?

Credit cards and loans are important financial tools that will help you in need or in any sort of emergency. This is why your creditworthiness is important, as it will help you to get: