Creditworthiness it’s a indicator useful to take into consideration when considering applying for a loan. Basically it is a parameter that indicates the interest rate suitable for each user and measures the creditworthiness of the applicant.
How creditworthiness works
Creditworthiness, also known as credit score, provides that the applicant for a loan demonstrates that he has a certain and even high income that acts as a guarantee. A person who meets these requirements will, for example, have a much higher credit rating than an unemployed person. Consequentially, those with substantial financial assets will have greater possibilities compared to those who do not have this guarantee.
Creditworthiness is regulated, on a regulatory level, by Legislative Decree 141/2010 within the Consumer Credit Reform. The law invites the credit institution to verify the creditworthiness of the applicant in order to prevent subjects with a low credit score from accessing the loan. The purpose of the regulation is to limit situations relating to impaired loans, safeguarding the economic integrity of the credit system.
The customer’s creditworthiness is defined through a special ranking.
How creditworthiness is calculated
To assess creditworthiness, several parameters must be taken into consideration:
- Debt of the subject. It is one of the first factors to be evaluated; an indebted customer will be less likely to access financing;
- Income flows of the subject. Examine the relationship between the applicant’s financial income and expenses;
- Solubility with respect to previous debts. Those who are bad payers can be penalized at the time of applying for a loan.
The creditworthiness rating
When it comes to credit rating we mean a real one Ranking to which the person who wants to apply for a loan or mortgage belongs.
The evaluation is expressed in letters and is composed as follows:
- AAA: high security;
- AA: safety;
- A: ample solvency;
- BBB: solvency;
- BB: vulnerability;
- B: high vulnerability;
- CCC: risk;
- CC: high risk;
- C: very high risk.