Creditworthiness

Creditworthiness is the opinion of a creditor or lender regarding the ability of a person or business to pay its debts when due. This assessment extends to the expected future financial condition of the person or business. Creditworthiness is based on the credit application, credit references, and financial statements supplied to the party granting credit, as well as a credit report supplied by a third party credit reporting agency, such as TransUnion or Experian. One may also rely upon the prior payment history of the entity under review, as well as one's judgment of the character of the person authorizing payments. Some organizations use credit scoring models  to convert this information into a score that is used as the primary basis for a determination of creditworthiness.

An individual can improve his or her creditworthiness over time by engaging in such activities as:

  • Paying bills when due
  • Reducing the overall level of debt
  • Reducing the debt to income ratio

Related Courses

Credit and Collection Guidebook 
The Interpretation of Financial Statements