When applying for a loan, it is worth taking care of your own creditworthiness yourself before submitting the application to the bank. There are many effective methods that allow us to increase our creditworthiness.
A variety of factors affect creditworthiness. The most important of course are the amount of our average monthly gross income and the value of our obligations. The difference between these parameters is referred to as net income, which the bank takes into account during the calculation of creditworthiness.
It is worth noting, however, that in addition to net income, banks also take into account the source of income (eg contract of employment, contract of mandate etc.), which in any case must be legal and documented.
Other factors taken into account when calculating creditworthiness relate, inter alia, to information such as the age of the borrower , which is directly related to the loan period (the maximum loan term is 35 years). In addition, the marital status of the borrower or the number of people per household is not without significance. The above information is mainly related to household maintenance costs , which are equally taken into account as other, permanent liabilities.
We have a direct impact on many parameters related to creditworthiness. During the processing of the loan application, all banks check the report from the Credit Information Bureau (an institution that collects information about our obligations paid in the past).
The report from BIK also includes possible delays in payment. If you want to be positively evaluated you have to take into account that during the calculation of creditworthiness, we will be carefully checked and accounted for up to 5 years back from our credit history.
The creditworthiness is also affected by the currency in which the borrower earns and in which the loan is to be repaid. Currently, foreign currency loans are much less available, however, differences in interest costs between loans in USD and in foreign currencies can be quite noticeable.
There are also factors that directly affect the creditworthiness, but for which we do not have a greater impact. These include, inter alia , the interest rates set by the Monetary Policy Council (the lower interest rates, the cheaper loans), the interest rates and loan margins. Based on these factors, banks construct a generally available loan offer, which may be more or less attractive depending on the market situation.
For starters, we will discuss the factors that have the most significant and direct impact on the creditworthiness, ie the amount and source of income.
Employment on a fixed-term or indefinite contract is the safest and most-recognized form of employment in the context of calculating creditworthiness.
To ensure that our income is taken into account by the bank, you must be employed for a minimum of 3 months (in the case of an indefinite contract, some banks require at least 6 months).
In the case of a fixed-term contract, the period of employment must be at least 6 months (some banks require 12 months). If we apply for a loan and our contract for a definite period expires sooner than in the next 6 months, the bank may ask us to provide an annex to the contract, which will certify that the employer will extend the contract with us in the future.
The state is considered the safest employer. Next, banks particularly value customers who are employed in joint-stock or limited liability companies. The most important factor in the assessment of the place of employment (employer) is the stability of the company and its position on the market.
If the company in which we are employed operates on the market for more than a year (ideally if it has been prospering for 2 years) and has good financial results, then there should be no major problems with recognizing our income. Employees in the public trust sector also enjoy special considerations .
Of equal importance, apart from the place of employment, is also the amount and regularity of income. Very often, we receive income in the form of basic and commission or bonus remuneration. Banks also take into account additional remuneration, which is paid regularly or cyclically.
If we receive discretionary bonuses or commissions every month or quarter, then the bank will share our additional income for the number of months (the most important is the periodicity here) and add it to the basic salary. It happens even that the bank will add an additional remuneration received once a year, if the borrower is able to document the regularity of the received bonus or commission.
In the case of employment under a fixed-term or indefinite contract, it is worth adding a few words about the continuity of employment. In the event that we changed employer within 14 days of breaking the previous contract, the method of calculating our creditworthiness does not change. Problems may arise when the period has been longer than 2 weeks. In such cases, the “seniority” taken into account when calculating creditworthiness is “zeroed” and we must abstain from submitting the loan application for a minimum of 3 or 6 months (depending on the bank).
The amount of income that guarantees the desired creditworthiness depends mainly on the type and amount of the loan. There is a generally accepted rule in Western European countries in the context of mortgage loans that we can get a loan of 100 times our monthly net income.
In the Polish realities, due to the more stringent interest rate policy, this coefficient equals approximately 80 times the monthly net remuneration. It is also worth remembering that according to the T recommendation issued by the PFSA, the amount of the monthly loan installment , in the case of people earning below the national average, can not amount to more than 50% of net income. In turn, for those earning more than average, the national monthly installment can not exceed 65% of net remuneration.
In the case of persons employed under a contract, an order or a contract for a work, the method of calculating the creditworthiness is similar to that in the employment contract. The differences relate to the period for which the potential borrower must be employed so that the income can be accepted by the bank.
Some banks take into account the average remuneration of the last 6 months (additional remuneration is recognized in the same way as in the case of employment under a contract of employment), although most of them require documentation of income from the last 12 or even 24 months.
The costs of obtaining income in civil law contracts are much lower, therefore, when calculating the creditworthiness, some banks may take into account a part of income (eg 70-80%). If we have several clients, it is worth remembering that when verifying the length of service, the bank takes into account the period of employment with one employer. The constant change of clients (breaking down and signing new contracts) de facto resets our seniority, which means that even in the case of high incomes, banks can refuse our loan application.
Not only loan installments, but also all other financial commitments that are paid regularly reduce our creditworthiness. All banks, when calculating their creditworthiness, take into account the costs of maintaining a household , which, depending on the place of residence, the value of real estate, or the number of residents, may amount to USD 1000.
It is assumed that the minimum cost of maintaining a household acceptable to banks is USD 1,000 for one person. Each subsequent cost is an additional USD 200. It is worth remembering that for the mere fact of living in one house or apartment does not mean that we are dealing with one household.
Single persons and marriages count as separate households, while children in turn increase the number of people in the household. For example, a couple raising two children who lives with their grandfather consists of two households whose minimum subsistence is USD 2,600 (USD 1,200 for a married couple, USD 400 for children and USD 1,000 for a grandfather). It is worth remembering the method of calculating the cost of maintaining a household. Knowledge in this area allows you to increase net income, and thus improve our creditworthiness.