Creditworthiness vs BankabilityRanjit Punja
Worthiness and Bankability are some of the words which have found usage far beyond the realm of the business dictionary and into everyday usage. At first sight, they might seem as two unrelated words. Worthiness is a measure of value, while bankability denotes trust and reliability.
However, in the business of credit these words are deeply interlinked. Creditworthiness refers to an individual’s ability to secure credit and a person is considered bankable when the lender deems it fit to disburse credit.
With the rising Non-Performing Assets (NPAs) banks are becoming increasingly careful about the who they lend to, it is important to have good credit to earn the trust of the bank.
The Credit Score
At the heart of the lending process is the credit score, a numerical expression of creditworthiness provided by an approved credit bureau. A credit score gives the lender an idea of how likely you, the borrower will pay back the loan, a key differentiator to separate the best from the rest.
Your credit score typically falls between the range of 300-900 and is calculated based on the data provided by the lending institutions to the credit bureau. Each bureau has their own method of calculating the credit score. If your score is in the upper reaches of the scale viz. 750 and above then you would be considered creditworthy.
The implications of the credit score are far reaching. To not sound alarming, a bad credit score or no visible credit history could lead to loan rejections and each loan rejection reflects badly on your credit score.
The Falling Credit Score
There are multiple reasons why a credit score can go down, but the most impactful of these is when you miss your monthly loan and credit card payments which puts you directly in the line to lose credit points.
A marked increase in credit utilisation limit also gives the impression to the bureau that you are credit hungry and more likely to default on payments. Lenders also don’t like to see too many enquiries on your credit report – this is also an indication that the applicant is credit hungry.
Another reason for a low credit score could be the presence of incorrect information in your credit profile.
We cannot stress enough on the importance of the upkeep of a healthy credit score as a decline in credit score is an early warning signal for lenders and most lenders don’t like to see this trend.
Making You Credit healthy
Think of it as training for fitness, to bring your credit score to the pink of good health requires some months of positive credit activities like
• Timely payment of Loan EMIs
• Optimum usage of credit card
• Correcting disputes in your credit reports
Like we said, it is like getting fit; the training is hard but the rewards are worth it.
The Rewards of Creditworthiness
A lot goes into making a first impression, consider your credit score as that first impression you make with a lender and earn their trust, to cut a long story short: bankability.
A good credit score rewards you with
• Better loan and credit card approvals
• Bargaining power on loan interest rates
• Increased credit limit
In simple terms, we can say that the more creditworthy you make yourself by maintaining a good credit score, the more you would be considered as bankable by the lender. As future borrowers it in the hands our hands to maintain the credit score at favourable levels.
If a mathematician were to put creditworthiness and bankability on a graph (creditworthiness vs bankability) the relation would be directly proportional - not so different words after all.