What is credit rating?

Definition: The ability and willingness of a customer to meet his future payment obligations in full and on time.

The question "what is credit rating?" is closely linked to the granting of loans. Banks only grant loans to customers if they demonstrate a sufficient credit rating. Mail-order businesses and online shops also require a credit assessment before shipping goods on account. Find a descriptive explanation for the question "what is credit rating?" at inkassoportal.de.

Fundamentally, credit rating means creditworthiness or solvency. Before entering into a business relation, a bank or mail-order company checks whether the new customer is creditworthy. The credit assessment incorporates various criteria that banks use to verify the certainty of repayment. With the aid of a credit enquiry, suppliers determine the likelihood of customers paying their invoice within the payment period.


What is credit rating? - the conditions

The most important criteria for a credit rating are personal and commercial creditworthiness. The assessment also incorporates current circumstances and payment history. Here, the credit rating requirements of banks and suppliers differ. Mail-order companies mainly consider payment behaviour. They do not ask about current income and regular payment obligations. By contrast, these criteria are particularly important for a bank before it grants a loan. Banks and suppliers carry out the credit rating assessment according to different criteria.


What is credit rating? - the credit assessment

Banks that grant loans over a period of several years apply business-statistical methods for credit assessments. These result in an individual credit rating by way of systematically examining credit criteria. On the one hand, a credit assessment is a sound basis for credit decisions by a bank. On the other hand, the Banking Act obligates banks to do regular credit assessments. When you apply for a loan, the bank will thus ask you for your current proof of income. At the same time, you are required to provide information about your regular payment obligations and, under certain circumstances, to prove these. With the credit assessment, the bank determines whether the difference between income and expenses is sufficient for regular instalments of loan repayments. It also takes into account your living expenses and any assets that can serve as security. The bank collects information from credit agencies to determine your payment history. This information includes details on loans, bank accounts, customer accounts with mail-order companies and online shops, mobile phone contracts, etc. Because suppliers cannot demand proof of income for each order, they focus their attention on the information that they receive from credit agencies.


What is credit rating? - impact of credit rating

The answer to the question "what is credit rating?" is the borrower's economic capacity to repay and the solvency of customers. After the credit assessment, a credit rating is given by means of a rating grade or a score. Banks make their credit decisions dependent on the credit rating score. The credit rating can also influence the interest rate. A higher credit risk may result in a higher interest rate. Suppliers will only make a delivery on account if the credit assessment is positive. If this is not the case, traders usually deliver their goods against cash on delivery or advance payment.