Creditworthiness and How to Improve It

A woman smiles seeing her creditworthiness improve because of actions.

Ready to unlock your financial potential? Whether you're just starting your spending journey or running a small business, understanding "creditworthiness" is your golden ticket to getting the best financial opportunities. Keep reading while we explain what creditworthiness means and how you can improve your credit. Plus, we have tips and tools to help you along the way, like financial calculators and secured credit cards. Let's dive in!

What is Creditworthiness?

“Creditworthiness” is a measure of how likely you are to repay your debts, basically reflecting your financial trustworthiness. While creditworthiness is closely related to your credit score, they are not exactly the same. Credit scores play a role in determining your creditworthiness, but they’re a just a numerical representation—not the whole picture. Meanwhile, being “creditworthy” means that you demonstrate responsible financial behavior and are considered a reliable borrower in several ways (which we will discuss soon).

Lenders, landlords, and even employers use both metrics to make decisions about lending you money, renting you a home, or offering you a job.

How is Creditworthiness Determined?

Creditworthiness implies that you are a good candidate for receiving credit. But what makes you “worthy?” Here’s how creditworthiness is determined:

1. Credit Reports

A credit report is a detailed record of your financial behavior over time. It includes credit history, payment history, balances owed, and any records or inquiries made about your credit. This information is compiled by credit bureaus—Equifax, Experian, and TransUnion—based on information provided by creditors and other sources.

2. Credit Score

Your credit score is a three-digit number that represents your creditworthiness. It’s calculated based on the information in your credit report, and it helps lenders quickly determine how likely you are to repay what you borrow. Having a higher credit score shows that you are more creditworthy, meaning you are more likely to score positive financial opportunities.

3. Income and Employment Status

Having a higher income increases your creditworthiness, as it shows lenders that you have enough money to pay back borrowed funds. Plus, having steady and long-term employment is viewed positively because it suggests that your income is consistent.

4. Assets and Property

Having savings, investments, or other assets provides you with a financial cushion and makes you look more creditworthy. Similarly, owning property (such as a home) also has a positive impact, especially if the property has a lot of equity and can be used as collateral.

5. Public Records of Financial Trouble

Bankruptcies, foreclosures, and judgments can make you less creditworthy because they show that you've had serious money problems or haven't paid your debts. These records make lenders worry that you might have trouble paying back loans in the future.

6. Other Financial Obligations

Additional financial responsibilities like alimony or child support can affect how much money you have left to pay off debts. Lenders pay attention to these because they can lower your ability to repay loans.

How to Improve Your Creditworthiness

Improving your credit isn't rocket science. Mostly, you need to make smart financial choices and watch things fall into place. Here’s the best way to build credit:

Tips for Building and Maintaining Good Credit

  1. Pay Bills on Time: Late payments are a big no-no and can seriously hurt your credit score.
  2. Keep Credit Card Balances Low: Aim to use less than 30% of your available credit to maintain a good credit utilization ratio.
  3. Avoid Excessive Hard Inquiries: Only apply for new credit when necessary. Too many applications can lower your score.
  4. Diversify Credit Types: A mix of different types of credit can improve your standing.

Steps to Take if You Have Poor Credit

  1. Check Your Credit Report for Errors: Mistakes can happen. Review your credit report and ensure all the information is accurate.
  2. Create a Plan to Pay Off Debt: Focus on high-interest debts first and make consistent payments.
  3. Use Tools Like Financial Calculators: Get a full picture of how much you owe by using a calculator for managing your debt, and make a repayment strategy with a calculator for paying off credit cards.
  4. Build Credit with a Secured Credit Card: Products like the Credit Builder Secured Credit Card from Academy Bank can help build (or rebuild) credit by reporting your responsible financial behavior to the three major credit bureaus.

Become Creditworthy at Academy Bank

Understanding creditworthiness is important for anyone looking to make informed financial decisions. Whether you're applying for a loan, renting an apartment, or simply trying to improve your financial health, knowing how credit works can give you a big advantage.

Don’t forget to check your credit report regularly, make timely payments, and use Academy Bank’s Secured Credit Card to boost your credit score. Afterall, it’s one of the best credit cards for building credit. Get started today!

Member FDIC

Subject to credit approval. Transaction and Penalty fees apply.  Credit Builder Savings account required. $5.00 quarterly fee charged to the Credit Builder Savings account if not enrolled in eStatements. Improved credit score is not guaranteed. Credit score is determined by credit reporting agencies based on multiple factors, but satisfactory performance on a credit card product can improve your credit score. Default on a credit card, including missed or late payments can damage your credit score. Once added, funds cannot be withdrawn from the Credit Builder Savings account and the Credit Builder Credit Card without closing the savings account and the credit card.