Posted in Finance, Accounting and Economics Terms, Total Reads: 267
Definition: Credit Worthiness
Credit Worthiness means how much an individual or a company is worthy of getting credit from Banks or other financial institutions. It is also termed as the ability to borrow money and fulfil all its debt obligations at the ending period of the loan. It is checked on the basis of three basic factors, also known as 3C’s i.e. capacity, capital and character.
• Capacity: It denotes the ability of the person or company to accomplish its financial obligations i.e. Debts.
• Capital: It denotes the amount of savings and other assets that can be used as collateral for taking loans.
• Character: It denotes the ability and punctuality in paying existing bills and other debts / loans, and also earlier credit history.
Apart from these 3 basic factors, other crucial factor required to calculate creditworthiness is Credit Score.
• An Individual’s credit worthiness is calculated by FICO Score (Fair Issac Corporation). The score is a 3 digit number which varies from 350 to 800. Higher the score, lenders have more confidence in the borrowers that they will repay their loans on time.
• A Company’s credit worthiness is calculated by credit rating.