A client’s creditworthiness plays a crucial role when applying for a mortgage, consumer loan and business loan. It is used by banks and other financial institutions to assess whether an applicant is able to repay his or her obligations. In this article, we will explain in detail what creditworthiness is, how it is assessed, the calculation of a client’s creditworthiness, why it can vary from bank to bank and how you can influence your creditworthiness.
Client creditworthiness is a technical term that describes the ability and likelihood of a person or business to repay its financial obligations. In other words, client creditworthiness is an assessment of a client’s financial situation, stability of income, liabilities and overall risk to the lender. Financial institutions such as banks, non-banks and leasing companies use creditworthiness to build a picture of whether an applicant is a safe borrower.
Assessing a client’s creditworthiness is not a purely mathematical process. It involves not only the amount of income and expenses, but also a number of additional factors. These include, for example, marital status, number of dependants, history of repayment of previous loans, type of employment, length of employment, amount of savings and even the age of the applicant. This gives the bank a comprehensive picture of the client’s financial stability and whether it can lend them money without high risk.
Most loan products cannot be obtained without sufficient creditworthiness. Mortgages in particular have high requirements, as they are long-term and high commitments. Low creditworthiness can lead to rejection of the application, limitation of the maximum possible loan amount or an increase in the interest rate. That’s why it pays to know how creditworthiness works and how you can influence it to your advantage.
We will assess your situation, explain what creditworthiness the banks require and recommend specific steps to improve. Our lawyers are ready to help you quickly, reliably and online.
The calculation of a client’s creditworthiness varies from bank to bank, but the basic principles are usually similar. Banks use internal scoring models that combine hard data (income, liabilities, expenses) and soft data (occupation, repayment history, account behaviour, account reserve, living situation). This allows them to assess the risk the applicant poses.
The basis for this is the DTI (Debt-to-Income) and DSTI (Debt-Service-to-Income) calculation.
It also takes into account the household’s regular living expenses – food, transport, housing costs, insurance or children’s school fees. After deducting these, the client must be left with a sufficient financial reserve, which is set individually by each bank.
The calculation of the client’s creditworthiness also includes a check of debtor registers such as the Banking and Non-Banking Client Information Register or the SOLUS register. Here the bank will determine whether the applicant has a negative record, late payments or other risky behaviour.
Banks may also look at the applicant’s savings, investments or assets. A stable financial reserve increases the credit rating of the client because it reduces the risk of default in crisis situations.
Although many people see creditworthiness as simply an assessment of income levels, the reality is considerably more complex. A number of factors enter into the calculation that can increase or decrease a client’s creditworthiness.
Income and its stability: It’s not just about the amount of income, but also its regularity and predictability. Employees with long-term contracts will usually get a better rating than short-term workers or self-employed people with fluctuating incomes.
Household expenses and financial commitments: Banks also assess expenses in detail. A higher number of dependants or high housing costs can reduce a client’s creditworthiness. Current loans – credit cards, overdrafts, leases or goods repayments – also play a big role.
Payment and credit history: negative credit records can significantly impair creditworthiness, sometimes to the point of denial. On the other hand, a good long-term repayment history is a great advantage.
Age and living situation: Young applicants with a short income history or those approaching retirement may be judged more strictly. Similarly, a change of job, maternity leave or long-term illness can affect creditworthiness.
Assets and savings: a financial reserve increases the bank’s confidence. Regular savings or investments can improve a client’s credit rating and increase the maximum loan amount.
Tip: A consumer purpose loan is not just different from a non-purpose loan in name. Both consumer loans are common financial tools that many people use to cover their needs when they don’t have enough money. Find out where the catch is.
If you know you are going to apply for a loan – especially a mortgage – there are a few steps you can take to help improve your creditworthiness.
Even a relatively small loan, a low overdraft or a partially maxed out credit card can significantly increase your DSTI and lower your creditworthiness. The bank counts the full amount of the loan, not just the amount currently drawn down. It is therefore worth considering paying off small debts in full before applying. If you have multiple small loans, consolidation can also help – this will usually reduce your monthly repayments and simplify the structure of your liabilities.
A client’s creditworthiness is greatly influenced by the stability and amount of income. Many people forget that banks often accept other sources of income that can be documented – for example, rental income, work agreements, casual jobs, entrepreneurship or parental allowance. It is important that this income is long-term, regular and properly documented. If you are able to earn a temporary higher income (e.g. through increased hours or bonuses), this can strengthen your application considerably.
Debtors’ registers may contain records that are several years old and still reduce your creditworthiness. If you have had any late repayments, it is crucial to pay them as quickly as possible and maintain a completely problem-free payment record for a period of time. We also recommend that you request your own statement from the registers (e.g. BRKI or NRKI) – this may reveal errors, duplicate entries or liabilities that no longer exist but are still recorded. Correcting such data can have a significant impact on the creditworthiness assessment.
Some banks also assess a customer’s overall account behaviour. They look at the regularity of payments, balances and whether the customer is “on the edge”. So limit unnecessary spending, plan your finances and try to maintain a higher balance. If you keep a larger financial reserve in your account, this will act as evidence of responsible management and reduce your risk exposure.
If your own creditworthiness as a client is not sufficient, adding a co-borrower – typically a partner, parent or other close family member with a reasonably stable income – can significantly improve the situation. A co-borrower is a signal to the bank of greater certainty of repayment, which can not only increase the chances of approval, but also significantly increase the potential loan amount. In some cases, a guarantor or pledge of additional real estate is sufficient.
Tip: Have you successfully gone through insolvency, finally got rid of the debt trap, but find that the past is still catching up with you? Do you find that the records in the debtors’ registers prevent you from getting a mortgage, a loan or even a regular loan? We will advise you on what to do and how to proceed after bankruptcy.
A customer’s creditworthiness is an overall assessment of their ability to repay their financial obligations and is used by banks to assess the risk of lending, particularly mortgages. The assessment includes not only income and expenses, but also family situation, type of employment, credit history, number of dependents, assets and amount of savings. The calculation of creditworthiness is based on DTI and DSTI indicators, regular household expenses and results from borrower registers, and may vary according to the internal rules of individual banks. A low creditworthiness can lead to loan limitations or rejection, so it is advisable to improve it before applying – for example, by paying off small debts, proving secondary income, checking registers, reducing unnecessary expenses or inviting a co-borrower. Creditworthiness is thus a key indicator of an applicant’s financial stability and a crucial factor in obtaining any loan.
Creditworthiness is an indicator that describes the applicant’s financial health and ability to repay its obligations. The assessment is carried out by banks and other lenders.
Banks do not disclose the exact calculation, but you can get a rough idea based on your income, expenses and existing liabilities. Checking the registers can also help.
Yes. If the client’s creditworthiness does not meet the minimum requirements, the bank cannot grant the loan.
Banks have their own scoring models and internal risk rules. Therefore, they may rate the same applicant differently.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
