Creditworthiness and Ways to Improve Your Credit Standing

A woman stands proudly knowing she is doing everything she can to improve her creditworthiness.

On a mission to unleash your financial potential? Whether you're just beginning your military journey or managing a small business, understanding "creditworthiness" is the key to finding the best financial opportunities. Keep reading to learn about creditworthiness, how it’s measured, and good strategies for improving your credit. Plus, we offer tools and resources to help you get started, including financial calculators and secured credit cards. Let's commence!

Definition of Creditworthiness

“Creditworthiness” shows how likely you are to pay back your debts, reflecting how trustworthy you are with money. While it is closely tied to your credit score, they are not identical. Creditworthiness includes many factors (which we will discuss next), while your credit score is a single number that shows the strength of your credit. Understanding both can help you make smarter financial decisions.

Lenders, landlords, and even insurance companies rely on both metrics to determine your terms, rates, and approval for future loans, apartment rentals, and insurance premiums.

How is Creditworthiness Measured?

Creditworthiness shows whether you qualify for credit. But what decides this? Here’s how creditworthiness is measured:

1. Credit Reports

Credit reports are in-depth records of your financial behavior over time. They involve credit history (including accounts), payment history, outstanding balances, and any inquiries or records related to your credit. Credit bureaus (like Equifax, Experian, and TransUnion) compile this information from creditors and other sources.

2. Credit Score

Your credit score is portrayed by a three-digit number that represents your creditworthiness. It’s calculated with the information from your credit report, and it helps lenders to gauge your likelihood of repaying loans. A higher credit score indicates you have stronger credit standing.

3. Income and Employment Status

Having a higher income helps your creditworthiness by showing to lenders that you have the money to repay borrowed funds. Additionally, maintaining consistent and long-term employment is viewed favorably because it signals that you have a steady income stream.

4. Assets and Property

By building your savings, investments, or other assets, you strengthen your financial stability and improve your creditworthiness. In a similar way, owning property—particularly a home with significant equity that can serve as collateral—also makes you more creditworthy.

5. Public Records of Financial Difficulties

Bankruptcies, foreclosures, and judgments can significantly hurt your credit standing. They indicate that you've had serious financial troubles and issues with paying past debts. This causes lenders to be concerned about your ability to repay loans in the future.

6. Additional Financial Responsibilities

Other financial obligations such as alimony or child support can impact how much money you have available to repay debts. Lenders consider these responsibilities because they may reduce your capacity to repay loans.

How to Improve Your Credit Standing

Becoming more creditworthy is fairly straightforward. Make wise financial decisions and watch as things come together. Here’s the best way to build credit:

Ways to Build and Maintain Good Credit

  1. Pay Bills on Time: Late payments can significantly harm your credit score, so always pay on time.
  2. Keep Credit Card Balances Low: Use less than 30% of your available credit to maintain a healthy credit utilization ratio.
  3. Limit Excessive Hard Inquiries: Apply for new credit only when necessary to prevent a negative impact on your score.
  4. Vary Types of Credit: Having a mix of different types of credit can help improve your credit score over time.

What to Do if You Have Poor Credit

  1. Review Your Credit Report for Errors: Mistakes can happen. Make sure all your information on your credit report is correct.
  2. Develop a Plan to Repay Debt: Start with high-interest debts and make regular payments.
  3. Use Financial Tools: Utilize resources like a Managing Debt Calculator to get a better understanding of your total debt and a Credit Card Pay Off Calculator to strategize repayments.
  4. Build Credit with a Secured Credit Card: Consider products like Armed Forces Bank's Credit Builder Secured Credit Card, which helps you build (or rebuild) credit. This card reports your responsible financial habits to the three major credit bureaus, meaning you get recognized for your good behavior.

Achieve Creditworthiness at Armed Forces Bank

Understanding creditworthiness is crucial for making smart financial decisions, whether you're applying for a loan, renting an apartment, or trying to improve your financial stability through military banking. Knowing how credit works can give you a significant advantage in the end.

Remember, regularly review your credit report, make payments on time, and use our Credit Builder Credit Card to improve your credit score. Ready to take the next step? Open the best credit card for building credit 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 card without closing the savings account and the credit card.