As the name suggests, “creditworthiness” is a measure of whether you’re worthy of getting credit. When they make lending decisions, creditors look at your credit score and other factors to decide if you’re a low or high credit risk. 

What is creditworthiness?

Before a lender, credit card company, or any other financial institution agrees to extend you credit, they want to know if they can depend on you to pay it back. Your “creditworthiness” — good or bad — is what they look at when making their decision. 

The best way for lenders to assess your creditworthiness is by looking at how you’ve handled credit in the past. To do this, they consider a few different things:

• Your credit report – A comprehensive record of your credit use and history, along with information compiled from public records.
• Your credit score – The three-digit number based on the information in your credit report. There are many different credit scoring models, with the FICO® score and VantageScore being the two main competitors. 
• Your debt-to-income ratio – How much you earn compared to how much debt you owe.
• Other information – Anything that helps your lender’s decision-making. This might be how long you’ve been at your current job, or the value of the collateral you’re using to secure a loan. 

Just because creditors might look at all these factors doesn’t mean they always do. Generally, the more credit you apply for, the more in-depth a creditor will go when reviewing your creditworthiness. If you’re borrowing a lot of money, you can count on the lender wanting to know as much as possible about your financial past and present. 

For example, if you’re applying for a mortgage, you can expect your lender’s review process to involve a lot more documentation and analysis than you’ll see when applying for a low-limit credit card. 

While a mortgage lender will want to see your credit report, along with numerous other pieces of information, other kinds of lenders are typically satisfied with simply pulling your credit score.

This is where creditworthiness (or a lack of it) can make a big difference. Although a low credit score might not stop you from qualifying for a credit card, a bad score can make it almost impossible to get a mortgage, take out a car loan, or get funding to start a business. 

How to check your creditworthiness (credit reports + credit score)

According to one survey, 34 percent of Americans have never checked their credit report. If you’ve never looked at your report, you can be certain potential creditors have — and they’ve used it to assess your creditworthiness.

Fortunately, checking your creditworthiness is easy and free. Here’s how to do it: 

Step 1: Check your credit reports

The first step is to review your credit reports from all three major credit bureaus: Experian, Equifax, and TransUnion.  

By law, you’re entitled to one free credit report from all three bureaus every 12 months. You can order yours at annualcreditreport.com. Check out our guide to ordering your credit report for a step-by-step look at how to get your report.

Step 2: Check your credit score 

Next, you’ll want to check your credit score. Keep in mind that your credit report and your credit score are two different things, so you won’t see your credit score on any of your credit reports.

You can get your FICO® score for free by signing up for the Discover Credit Scorecard. See our guide for an explanation of how it works, plus steps for signing up.  

Credit score factors

Although your credit report and credit score are two different products, lenders base your score on the information contained in your report. 

This is why it’s important to understand the factors that make up your credit score. Because the majority of lenders use the FICO® score, we’ll look at the five factors that go into this scoring model.

As you can see, some factors carry more weight than others. Your payment history is by far the most important contributor to your credit score, which is why it’s so important to always pay your bills on time.

At 30 percent of your score, your credit utilization is also a big player when it comes to your score. Generally, you should aim to keep your credit utilization rate below 30 percent.

For example, if you have a credit card with a $5,000 limit, you should keep your balance below $1,500.  

What doesn’t impact your creditworthiness?

While many factors play a role in determining your creditworthiness, others have no bearing at all.

In some cases, lenders simply don’t consider certain factors. In other cases, fair lending and anti-discrimination laws make it illegal for lenders to look at specific factors when making lending decisions. 

For example, by law, lenders can’t base lending decisions on race, gender, color, religion, age, marital status, national origin, or whether you receive public assistance. 

5 tips for improving your creditworthiness 

If you’ve been turned down for credit, there are several things you can do to improve your creditworthiness. Here are five strategies to keep in mind.   

1. Dispute errors on your credit report

Review your credit report for accuracy. According to a Federal Trade Commission study, 1 in 5 people have a mistake on their credit report. These errors can pull down your score and hurt your creditworthiness. 

Once you have your credit reports, look them over carefully. If you spot a mistake or inaccuracy, dispute it. 

2. Remove late payments and negative items

Sometimes, negative information is unfortunately accurate. However, this doesn’t necessarily mean you’re stuck with it.

Even if a late payment or negative item on your credit report is correct, it’s worth seeing if you can do something about it.

For more information, check out our step-by-step guides:

• Here’s How to Remove Late Payments from Your Credit Report
• Here’s How to Remove a Negative Item from Your Credit Report 

3. Always pay on time

Your payment history makes up 35 percent of your credit score. Because it counts for so much, even a single 30-day late payment on your report can negatively impact your score for years. 

One way to establish a positive payment history is by opening a secured credit card. With a secured card, you make a down payment to the lender when you open your card. This payment acts as collateral. If you stop making payments, your lender keeps the down payment. 

As you make purchases and pay them off (on time) each month, your credit card company reports your positive payment history to the credit bureaus. Over time, this helps boost your credit score.

4. Use credit cards (responsibly)

It may sound counterintuitive, but a lack of credit cards can actually hurt your creditworthiness.

Lenders look at your past credit use to predict how you’ll use credit in the future. If you’ve never used a credit card, they may have no way of knowing whether you’re capable of managing debt.

Of course, it can be hard to get credit when you don’t have any to begin with. If you don’t have much of a credit history, you might need to piggyback on someone else’s. To do this, ask someone with good credit if you can become an authorized user on their account. 

One caveat, though. Before you sign up as an authorized user, make sure the credit card lender reports authorized user activity to the credit bureaus. There’s no point asking someone to add you to their account if you’re not going to get credit for your payments.   

5. Don’t take on too much new credit at once

Using credit can help improve your creditworthiness, but this doesn’t mean you should run out and open a bunch of new accounts all at the same time.

Taking on too much new credit can be a red flag to lenders, as it makes it seem like you’re desperate to get access to more cash. Rather than opening several new accounts at once, pace yourself by spreading out new accounts over time.       

Wrapping up

Creditworthiness can mean different things depending on what type of credit you’re applying for. For example, you can probably get a low-limit credit card with so-so creditworthiness, but you’ll need good credit to qualify for a home loan — and excellent credit to get the best interest rate.

While there isn’t an exact scale for measuring creditworthiness, knowing your credit score is an important first step. With your credit reports and credit score in hand, you can start working to improve your creditworthiness and, in turn, improve your chances of receiving favorable lending decisions.