Creditworthiness is one of the most important factors that decide, among others on granting a loan. The conditions for granting loans at different banks differ, however, the analysis of creditworthiness always appears. How to check your credit standing and how to take a loan? In the text we also suggest how to calculate your creditworthiness, where to download the BIK report and how to increase your chances of getting a loan.
What is creditworthiness – definition
Article 70 of the Banking Law defines creditworthiness as the ability to repay a financial liability incurred. It should be paid with interest on the dates provided for in the loan agreement. The bank has the right to require the borrower to provide documents enabling the assessment of his creditworthiness. After the loan is granted, the bank has the right to control the use and repayment. Moreover, the banking institution from which the applicant wishes to borrow money has a statutory obligation to check its credit history at the Credit Information Bureau.
Pts. 1 article 70 Banking Law says:
The bank makes the loan subject to the borrower’s creditworthiness. Creditworthiness means the ability to repay a loan taken out with interest on the dates specified in the contract. The borrower is obliged to submit, at the bank’s request, the documents and information necessary to assess this ability.
So – without a written proof of repayment possibilities, the bank cannot borrow money. To sum up, creditworthiness is the ability of the borrower to regularly pay off installments with interest. In the absence of it, however, we can apply for a quick loan without checking your creditworthiness.
What affects creditworthiness?
According to the Credit Information Bureau, creditworthiness analysis is always divided into two parts. The first is quantitative and the second is qualitative.
Quantitative analysis includes:
- income that is obtained by the applicant for a loan,
- cost of living during the month – incl. food, bills,
- all loans and credits – the total amount of current debt.
Qualitative analysis includes personal characteristics and credit history. Personal characteristics are understood as:
- marital status,
- number of dependents,
- position held,
- financial status,
- housing status.
Qualitative analysis is a check of data that will affect the regular repayment of installments by a potential bank customer. When analyzing creditworthiness, the bank always downloads the BIK report.
How to check your credit standing?
A person who is thinking about taking out a cash loan, for example, has the option of checking his creditworthiness in two ways: independently using a loan calculator or with the help of a bank employee. To check your credit standing, you may need to:
- net amount of monthly income (in this case, the average from the last six months should be taken into account),
- savings (they must be enough for 10% of own contribution),
- source of income, type of employment contract and duration of employment,
- other financial liability (previous credits or loans),
- number of people in the household,
- preferred loan amount,
- loan repayment time.
BIK report – how to check your credit history?
The credit history is a factor that has a significant impact on creditworthiness. Checking the repayment history of previous loans or advances at the Credit Information Bureau is simple. All you have to do is register on the BIK website and download the report, which will contain details about your financial situation.
How to download the BIK report?
- Complete the form,
- Receive the activation link that comes to the e-mail provided above and activate it,
- Choose an account without a package and confirm your identity,
- Order a report (free).
The free report does not contain all the information that can be obtained from BIK. The so-called. a full report costs PLN 39 (single) or PLN 79 (package of 12 reports with additional services).
What’s in the report?
- history of credit obligations,
- history of financial liabilities,
- history of individual loan installments,
- history of individual obligations (e.g. electricity invoices)
- scoring – BIK score.
How do you calculate your creditworthiness?
The easiest way is to use the creditworthiness calculator, which can be found on the Internet or use the help of a financial advisor. You can also calculate your creditworthiness by yourself. Then you need to consider things such as:
- savings – are they enough for 10% own contribution,
- average monthly net earnings (average of the last six months),
- monthly subsistence costs for the person / family,
- costs of loans, borrowings and installments already paid.
How much do you have to earn to get a loan?
There is no definitive answer to this question. Earnings that prove sufficient in one bank and for another institution may be unacceptable. People with the lowest national salary have the least chance of a mortgage, but this is not impossible.
It should also be remembered that own contribution is not insignificant. Banks require 10 percent. or 20 percent the value of the apartment you want to buy. People who do not have a down payment can think about a down payment loan.
However, it should be remembered that this is another large financial commitment, so it is worth making a good and long-term analysis of your home budget. This will help you avoid falling into a debt spiral.
All costs incurred should be deducted from net income. The amount that has been multiplied by 0.8. The amount that comes out this way is the approximate amount of the loan installment.
One hundred times the monthly earnings corresponds to the loan amount
How high a loan for an apartment can you get? In addition to calculating creditworthiness in individual cases, it is worth recalling the principle that was adopted in Western European countries. It says that a potential borrower can get a loan for an amount equal to one hundred times their monthly earnings.
In Poland, the loan installment amount cannot be more than 50 percent. a person’s income (net). In the case of marriage, creditworthiness is greater. It is very convenient, although in the event of divorce it is necessary to determine again who pays the loan and under what conditions. Credit and divorce are one of the most difficult situations.
Creditworthiness and income – the form of employment matters
One of the factors analyzed by the bank in the creditworthiness test is the condition of employment. Borrowers with an employment contract for an indefinite period are in the best position because they are reliable for the bank – in their case, there is the best chance that they will pay the installments regularly. It is not, however, that you can go to the bank as soon as you sign the employment contract.
How long do you have to be employed under a contract of employment for the bank to take this income into account?
- 3 months minimum,
- minimum 6 months (optional) – some banks will not take into account borrowers with less employment experience,
- minimum 6 months or minimum 12 months (in some banks) – in the case of a fixed-term contract.
There may be a situation when the bank, in the case of a fixed-term contract, will require additional documents – a confirmation from the employer that it will extend the employee’s contract when it expires. This happens when the current contract is expected to expire earlier than half a year after submitting the loan application.
What else matters besides seniority?
- place of employment (the best according to banks are state bodies),
- enterprise stability,
- market position of the company,
- company existence time,
- the amount of remuneration,
- the type of remuneration (e.g. base plus bonus – the bonus is also calculated as creditworthiness if it is fixed or cyclical).
How does a civil law agreement affect your creditworthiness?
The ability analysis procedure looks the same, but the requirements of banks are changing, e.g. regarding seniority. A mandate contract or a specific task contract is less reliable for banks than an employment contract, but now you can take a mortgage on it (a few years ago there was no such option).
What is taken into account by banks when taking a loan under a contract other than an employment contract?
- average salary from the last 6, 12 or 24 months (depending on the bank),
- financial liability
- number of persons in a given household.
The bank may also require a surety for the loan by the girrant, but it does not have to.
Seven ways to increase your credit standing
Improving creditworthiness is the goal of many people who are preparing to submit an application at the bank. So how do you improve your credit standing?
- Get rid of debt (if possible) – before submitting your application, it is a good idea to pay all possible debts,
- Check the credit history in the BIK (download the BIK report) – if you have such incorrect data, please ask for their correction,
- Take a loan with another person (if there is such a desire and possibility),
- Choose equal installments – when choosing decreasing installments, creditworthiness is always calculated in relation to the first, highest installment,
- Choose a loan in Polish currency – a loan in a foreign currency requires more creditworthiness,
- Sign an employment contract (if it is possible to change the contract, commission or work into an employment contract),
- Take a loan for a long term loan – but in the long run this solution is much more expensive.