Creditworthiness – The modern system of lending
In today’s times of low interest rates, loans are more popular than ever. This applies not only to business customers, but also to private individuals who have always wanted to fulfill a somewhat more expensive dream. Despite the low interest rates, however, credit institutions are carefully checking who is favored by the borrowed money and who is not. Certainly, the criteria differ from bank to bank and in the end a certain part is also a matter of negotiation, but there are still a few hard facts that simply have to be right so that the desired money is within reach. The most important criteria for lending by
Austrian banks are listed and explained below:
- Age: People who want to take out a loan must be of legal age. With large amounts of credit, the banks also speculate at the risk of a borrower’s (early) death. The higher the age and the amount of the loan, the less likely it is to lend. In fact, younger people simply have more time to pay back borrowed money.
- Income and type of employment: In addition to age, income and type of employment are the most important criteria when it comes to creditworthiness. The borrower must have a regular income so that the banks can establish a certain level of security. The more firmly the employment relationship was agreed in this regard, the better. For example, officials have very good prospects for borrowed money because fluctuations due to poor company numbers are not to be expected here.
- The project to be financed: It makes a huge difference for a bank whether to finance a car or a house. It is not only the sum that plays a role – the project itself. A house represents a countervalue with a likely increase in value. A car also has a countervalue, but this decreases in the course of use. A loan for a planned self-employment, on the other hand, is a highly speculative business for many banks, which the borrower usually has to substantiate with lots of documents, the existing knowledge and a good business plan.
- The creditworthiness: The word “creditworthiness” already says a lot about the character of the thing. The word comes from the Latin and means something like “excellence”. The credit rating says something about a borrower’s ability to repay and willing to repay. For this purpose, certain key figures are evaluated by certain credit rating institutions (so-called credit bureaus). These include, for example, the credit history, payment history and any debts that may have accumulated in the past.
- The collateral: borrowers who have collateral to offer are clearly at an advantage. For higher amounts, this could be land or real estate, for example. For smaller amounts, guarantors are also welcome.
- Existing or past loans: Banks will usually take a look at the credit history in-house. If the existing loans are within or not at all and old loans have always been paid on time, then this is certainly a good sign for the banks.
Deciding for or against a loan
Through all of the above criteria, a picture emerges for the lending institution, which evaluates and interprets each house according to different methods. Depending on the bank, there are other facts that can play a role. This includes, for example, the place of residence and the relevant statistics. How many people have a loan in the settlement or neighborhood of the borrower? How many loan defaults were there?
After reviewing all criteria, many banks create a so-called risk profile and this is the basis for the decision for or against the loan. Good cards have young people in a permanent job who have always paid on time in the past and do not have to service too many current loans.