Explanation of the term creditworthiness

Creditworthiness refers to the creditworthiness of a person, a company or even the creditworthiness of entire states. By checking the creditworthiness, investors try to assess how safe an investment is and whether the return is appropriate.

The rule is: the better the credit rating, the sooner you get the money back. At the same time, the yield drops.

Creditworthiness is not an absolute value

Credit check as a service providerCredit check as a service providerCredit check as a service providerCredit check as a service provider

Determining the creditworthiness is complex. Various criteria can be used, whereby all of these criteria can be summarized in two groups: economic repayment ability and individual willingness to pay. For private individuals, this would mean the following, for example: The economic potency can be measured, for example, based on the income and expenditure situation. A classic example of personal willingness to pay is credit information. On the basis of this, one tries to find out two things in particular: whether a borrower can meet payment obligations in full and on time.

The interest that a borrower has to pay depends directly on the creditworthiness determined. The following applies: the better the credit rating, the lower the interest rate – and vice versa.

Negative features mean poor creditworthiness

Negative features mean poor creditworthiness

It becomes problematic for borrowers if the credit rating is very bad, for example because of negative characteristics. In this case, a high interest rate is often not calculated, but no loan is granted at all. Negative features are divided into two groups: the “soft” and the “hard” negative features.

Outstanding claims are considered soft, for example, and the hard negative features include opening insolvency proceedings and enforcement measures. If there is a measure from this category, the chances of a loan being granted are very poor. To protect themselves against losses, lenders collect information and check the creditworthiness of a potential debtor before granting the loan.

Credit check as a service provider

Credit check as a service provider

Not only private individuals, but also companies and even entire countries are also checked for their creditworthiness. In the latter two cases, so-called rating agencies take on this task: They carry out credit checks for complex economic operators against payment.

In the case of states and large companies in particular, the economic situation is often opaque and the creditworthiness correspondingly difficult to assess. The concept is the same regardless of the size: you check the “excellence”, which means creditworthiness translated from Latin, of those to whom you want to make money available.