Following the Consumer Credit Reform of 2010 , before granting a consumer a loan, a loan, or a medium and long-term loan, banks or financial intermediaries are obliged to analyze creditworthiness , that is, to assess its reliability from an economic and financial point of view.
But how does credit worthiness be calculated ?
In order to make this estimate, the providers normally make use of the information provided by the Credit Information Systems ( SIC ), which may be public law bodies such as the GK Bank or private individuals such as WC Bank . In this way, Credit Institutions can access information on the subject that requires a loan or a loan, concerning credit reports already in place and any default.
ASSESSMENT OF CREDIT MERITS
An accurate estimate of creditworthiness should however be made through the cross- assessment of various parameters such as:
- if the applicant already has a high level of debt
- what is the relationship between income flows and the level of debt
- the greater or lesser probability of maintaining income streams
- if there are unresolved precedents and, if so, how often
- if the applicant has alternative financial or asset resources
- what is the probability that alternative financial or asset resources remain available for the entire duration of the loan or loan
On the basis of this analysis, the banks and financial intermediaries assign to the requesting party a code in letters that represents the rating of its creditworthiness, within an evaluation scale. The AAA rating corresponds to a very high credit rating. Contrary to a high risk of insolvency on the part of the consumer, the lender does match the C rating.
Indicators of low creditworthiness are therefore:
- presence of further debts
- very low income
- absence of owned property and consequent payment of rent or mortgage
- unstable work situation
A credit rating below the average may result in the refusal of the loan, as for banks and financial intermediaries the risk of consumer insolvency would be too high.
The cost of a loan or a loan is therefore inversely proportional to the creditworthiness of the consumer.
This means that, for a subject with low creditworthiness, the providers will apply a risk premium to the credit cost to compensate for the uncertainty of the repayment and which will require greater guarantees.
WHAT NEEDS THE CREDIT MERIT?
The calculation of creditworthiness therefore has a dual function. First of all it allows the Credit Institution to have sufficient guarantees that the debtor actually has the ability to repay the loan received. Secondly, it has the function of protecting the interests of individuals with low creditworthiness . In fact, the supplying companies deny the granting of the financing above all to prevent the consumer from being in the condition of not being able to repay the debt.