The credit assessment: checking creditworthiness
The word creditworthiness has its origin in the Latin term bonitas, which means excellence. Creditworthiness is assessed on the basis of personal and economic creditworthiness, whereby professional qualifications and personal reliability are assessed as well as proof of income and balance sheets. The verification of creditworthiness is referred to as a credit check. Among other things, it is regularly checked before contracts are concluded, for example in the telecommunications sector, or before a loan is granted.
Purpose of the credit check
A credit check is intended to protect the credit institution or the contractual partner from payment defaults. By scrutinizing the creditworthiness of a customer, partner or borrower in advance, the risk of default can be significantly reduced. For example, the bank can see if a potential borrower may have already defaulted on several loans with other banks. The telephone provider can ascertain whether the potential customer has not already persistently failed to pay other providers’ telephone bills. Although the business risk of non-payment cannot be ruled out with a credit check, an assessment can be made as to whether the respective contractual partner is solvent.
Carrying out the credit check
Numerous procedures have already been developed for checking creditworthiness, with which a systematic determination of creditworthiness and a respective classification can be carried out. However, there is no uniform procedure for checking creditworthiness. Rather, potential creditors can determine the criteria for determining a customer’s creditworthiness at their own discretion. As a rule, however, information from credit agencies such as Creditreform or Schufa is regularly used for private individuals. The information obtained from this is then processed together with income, previous payment experience, assets, bank data and negative features to produce a creditworthiness index. This creditworthiness index then serves as a statistical forecast value that can be used to assess a person’s creditworthiness.
Creditworthiness check for credit card holders
A credit check is also regularly carried out when applying for a credit card. The reason for this is that credit card holders usually have a certain amount of payment leeway that has to be made up afterwards. In order to avoid payment defaults, the credit card company carries out a credit check. If this is negative, the customer is usually denied the credit card. In this case, however, prepaid credit cards can be used.
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