One of the biggest challenges faced by lenders is that of assessing potential borrowers’ creditworthiness. Lenders need to be reassured that the potential borrowers are creditworthy, before lending them money. The main question that the lenders usually ask themselves in this regard is as to whether the borrowers are likely to repay the money, once it is lent to them. And in order to get an answer to this question, they usually look at 3 things. In other words, there are 3 main ways in which lenders go about assessing borrower’s creditworthiness, namely:
- By looking at the borrowers’ earnings: upon looking at a person’s earnings, it is possible to tell how much money they can afford to borrow (or, in this case, how much they can be viably lent). Thus, for instance, if you are seeking to borrow money, and you work for a company like Walmart, you may be required to log onto the Walmart one portal, and produce some of your recent paystubs. On the basis of the said Walmart one paystubs, the lender can make inferences about your earnings — and the amount of money you can realistically afford to repay if you are lent.
- By looking at the borrowers’ other financial commitments: in this regard, the lender seeks to know if the potential borrower has other loans that he is currently repaying and what the repayment terms for those other loans are. Then on the basis of this information, he is able to tell whether the borrower in question can be given any more loans and if so, what the applicable credit limits would be.
- By looking at the borrowers’ credit scores: upon looking at the potential borrowers’ credit scores, the lenders are able to tell many things about their financial management habits and their level of financial responsibility. This information is then used in making decisions on whether to lend them any money, and what the applicable credit limits would be.