The creditworthiness of a potential borrower is a basic requirement when granting loans. A borrower is creditworthy if there is a very high probability that a loan taken out will be repaid on schedule. The higher the credit rating, the lower the default risk. Find out about your creditworthiness thoroughly before appearing for the loan interview.
Read also Financial Issues: Business of Banks for more information about how business credit ratings can affect your business with banks.
Creditworthiness is determined as part of a credit check. A lender evaluates the customer’s financial situation and also obtains information from credit agencies about the general payment behavior of the person concerned. This is how the material and personal creditworthiness are determined. But not only private borrowers are subjected to such a credit check. Companies and even countries are also evaluated by credit bureaus and rating agencies according to their solvency.
A credit check examines the creditworthiness of the borrower or contractual partner, which is a basic requirement for numerous financial transactions. Here you can find out exactly what creditworthiness is, when, how, why, and by whom it is determined, and what else is important to know about this topic.
Tips to Improve your Credit Rating
Work on a NET 30 Account
A net 30 account is a type of credit agreement that can work to your advantage. It is an agreement in which the company will only charge you interest on 30 days of the month that you do not pay your bill. This means that if you pay your bill on day 31, they will not charge interest for the whole month. Working on a NET 30 account (see NET 30 Account list with easy approval) can help improve your credit standing. When you pay your invoice by the due date, you are showing the company that you are serious about paying them back.
Positive annual balance
The most important thing first: For a positive credit rating you need a positive annual balance sheet. A good credit rating can only be achieved if the expenses are lower than the income and your company is making a profit. It is therefore advisable to pay attention to your financial planning.
Keep data up to date
The data that is important for determining creditworthiness should always be correct and up-to-date. You should therefore obtain a self-assessment from your credit agency every year and check the data for accuracy. Above all, do not forget to check whether loans that have already been repaid have already been deleted by the credit agency. According to the GDPR, a credit agency is subject to an obligation to provide information if it has stored data about your company. Should there still be problems with the cooperation, do not hesitate to contact an ombudsman, i.e. a consumer arbitration board. If this is not an option either, take legal action yourself.
Understand the rating systems of the credit agencies
Each credit agency has its own rating system that is used to assess creditworthiness. You should be able to interpret these individual metrics. For example, SCHUFA works with the “Schufa Score”. A company must achieve a value that is at least over 95% in order to achieve a good credit rating. Find out more about the respective evaluation system before you obtain a self-assessment.
Aim for target planning
In order to create a realistic concept, it is recommended to think about sales and earnings planning as a first step. The second step consists of considering how these goals can be translated into reality. This target planning must be regularly compared with the actual situation. It is normal that these do not match exactly. If there are significant deviations, they must be communicated honestly, and under no circumstances should they be disguised. Analyze why the actual situation is currently different and work out a solution concept. You should also have an overview of the business situation of your company. It is important that you know, understands, and explain the numbers.
Always plan loans for the long term. A high and long-term loan shows that a bank has confidence in you. Caution: Of course, care must be taken to never overdraw loans and to reliably repay them on time. The payment terms of invoices should always be adhered to. This not only shows that your company is solvent but above all it is willing to pay.