Loans, credit, payday loans – what reduces creditworthiness?
In addition to income, creditworthiness is also influenced by repaid liabilities. How do they lower your payment options? What to do to increase your ability and take a higher loan? Further illustration at highriverhighlandgames.com
The loan can only be granted if, after paying all current liabilities, we will be able to repay the installment of the new loan. On the liabilities side, banks include all loans repaid, but also insurance premiums or loans from the workplace.
Credit and loan installments
Disposable income and creditworthiness will be reduced if we already repay any other loans. It does not matter if it is a home loan, car loan or loan that we took out for an unspecified purpose. The installment we pay every month will be calculated as our commitment and will reduce your credit standing. However, we must be aware that often for the calculation of creditworthiness the bank counts a much higher amount than the one we pay every month. This will happen if the loan we already repay is in a different currency than we earn. If, for example, we have a loan in euros or in Swiss franc, then the monthly charge will be a minimum monthly amount 20% higher than the installment actually paid. Banks are obliged by the regulations of the Polish Financial Supervision Authority to adopt a mandatory safety buffer in the event of an increase in the exchange rate. You should also be aware that some institutions accept this buffer no more than required by supervisory regulations. The second reason why a loan installment can be accepted at a higher than paid level is the risk of variable interest rate. Many loans have a variable interest rate and if the interest rate increases, the loan installment will change. We currently have historically low levels, so the risk of interest rate increases in the coming years is high. Therefore, when calculating creditworthiness, banks should also take such risk into account.
One installment is also a burden
As a rule, it does not matter how many installments remain to be paid. The same will affect the creditworthiness of the housing loan, which will be repaid for several years, as well as the loan taken for example for 6 months. However, in the case of short-term liabilities, it is worth considering early repayment. It will be a relatively small expenditure compared to the earlier repayment of the housing loan, however, the creditworthiness may increase significantly. A few years ago, some banks did not include repayment obligations, for example, only 3 months remaining, but now, even if we have only one installment to pay, such an obligation will be included.
ROR limits, revolving loans, credit cards
From the bank’s point of view, all types of revolving loans or credit cards are also a liability. Even if we do not use them or pay back everything after the end of the interest-free period, banks will also treat it as a potential liability. It is possible, however, when, shortly after taking a new loan, we will indebted ourselves maximum on the credit card. Of course, the entire amount of the allocated limit is not accepted for charging, but only about 4-6 percent. This is due to the fact that the minimum amount of payment we have to pay back every month in the case of a credit card is about 5 percent. So if we get into debt using the whole limit, then every month we will have to regulate about 5 percent of the limit. It is therefore worth closing all unnecessary credit cards or limits in the current account, or lowering their level. This will result in an increase in creditworthiness.
The home budget is also charged to other loans, including those taken out by loan companies. Although they are not always recorded in the Credit Information Bureau registers, the borrower is also required to show them in the loan application, and such commitment will reduce creditworthiness. Loans from the Social Benefits Fund or other loans from the employer will also have the same effect. These commitments also reduce creditworthiness.
Some banks also treat the insurance premiums we pay as monthly liabilities, even if they are voluntary insurance. However, if the bank does not count these payments as liabilities, then each borrower should take these amounts into account. Everyone should assess their financial capabilities on their own and, on this basis, also determine how much of the loan installment they will be able to pay. Own assessment of financial possibilities is often more important than the one made by the bank. Each borrower knows for himself how much every month he spends, what are the costs of living for him and the family and on this basis can more accurately than the bank estimate its capabilities. Calculated truthfully, the costs of living and paying the debts will help to avoid problems with paying the debts in the future.