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The basis for obtaining a bank loan is having a creditworthiness for requested amount. It determines the maximum amount you can borrow from the bank regarding requested repayment period. The creditworthiness for 30 years will be higher than for 20. This is due to the fact that with 30 years the loan installment is lower and to a lesser extent charges borrower’s home budget. Few people realize that when planning a property purchase, it is the creditworthiness assessment that should be done first.
When assessing creditworthiness, banks take into account many factors that determine the final decision for the client. These include:
- The amount of money you want to borrow
- The value of the property, which will be a collateral for the mortgage
- Loan period
- The amount of your net income
- Your credit liabilities
- Number of people in the household
If your income is not sufficient enough to obtain the required amount, there are several ways that can help you. In this article, we’ll show you the 9 most effective methods to increase your creditworthiness:
1. Take care of the minimum length of employment
In order for banks to take into account your income as a source of creditworthiness, they must meet certain criteria. In addition to the amount of remuneration, the length of employment is the key factor. The minimum required length of work for one employer is (in the case of an employment contract for an indefinite period) 3 months. This gives you the opportunity to apply for a loan after the third salary has been credited to your account. It is important to choose transfers to your account as a form of receiving remuneration, thanks to which banks will verify income more quickly and it will be more reliable.
The situation is different in the case of a fixed-term contract or a contract of mandate. Here the income will be acceptable after 6 months and must be designated according to the contract for the next 12 months.
If you run your own business you will have to wait a minimum of 12 months, although in some banks this period reaches 18 or 24 months. If you plan to buy a flat and apply for a mortgage, and you have the option to change job, get a raise or start an extra job – do it sooner.
2. Repay the liabilities that you can settle in advance or consolidate them into one loan
Often, our creditworthiness is limited by currently liabilities. Cash loans, credit cards, installment purchases or billing limits that banks add when you open an account – all of this has a significant impact on the amount of loan you can take. We often maintain our liabilities from convenience and at the same time being able to pay them back earlier. By paying off your liabilities before maturity, you increase your creditworthiness.
If you cannot pay them back sooner, you can think about consolidating (combining) multiple loans into one. This allows you to get a better interest rate and a smaller installment of one commitment (often with a longer repayment period).
We will help you find the right offer and estimate how much you can improve your monthly home budget.
3. Change the type of income for contract of employment
In many cases, the company in which you work can employ staff on contract work, contracts for specific work or fixed-term contracts, which are less attractive to the bank when assessing creditworthiness. When planning a flat purchase and mortgage, try to get a change to the contract of employment for an indefinite or specified period of time with a longer deadline (e.g. for a further 3-5 years). Thanks to this, you will increase the chance for full acceptance of income.
4. Running your own business – take care of high net income
Recently self-employment has become very popular, i.e. employment as a B2B contractor. Thanks to this, you can utilize the benefits of a contract of employment (fixed salary, allowances, benefits) while remaining an entrepreneur with a sole proprietorship.
When running a business, entrepreneurs often try to reduce the amount of income tax by balancing revenues with high costs. It gives benefits in the form of a smaller tax due, however, it reduces the net income, which is the basis for calculating the creditworthiness. Remember that the banks most often examine the last financial year settled. That gives you a chance to prepare and present higher net income by lowering the operation costs.
We will help you analyze your situation and prepare a plan of action to obtain the required output.
5. Sign a property separation agreement
In a situation where one spouse does not get income or his income is not accepted by the bank due to, for example, too short period of obtaining, you may consider signing a notarial agreement on property separation. In most banks, it is accepted even the day after it is signed. That will allow to take loan by one of the spouses with an acceptable income. It will also increase the available amount of the loan, because the bank will take into account the cost of living for one person.
6. Choose annuities installments
Most of the banks offer a mortgage with repayment in equal installments(annuities) or decreasing installments. With equal installments, monthly repayments are of similar size (assuming a fixed value of the reference rate, which is the basis for interest). With decreasing installments during the initial period repayments are higher due to the larger share of capital in the installment. The bank calculates your ability to repay the loan by comparing your income with the first installment to be repaid. For this reason, equal installments will give you greater creditworthiness.
However, the equal installments are lower in the initial loan period, but they cause that the total interest paid to the bank over the entire loan period will be higher than in the case of loan repayment in the form of decreasing installments.
7. Extend the loan period
The longer the repayment period, the smaller the installments and therefore the higher the creditworthiness. However, you should be aware that the age of the main borrower, at the time of loan repayment, may not exceed the maximum limit set by the banks. In most institutions, this age is 70 or 75 years.
8. Involve an additional borrower
If you cannot get enough credit amount by yourself, you can offer an additional borrower to the bank. If this person has an acceptable income, he can be of help to you. In this case, it does not have to be a co-owner of the property you are buying. Remember that such a person is responsible for repayment of the loan on an equal basis as you and his obligations are taken as the full installment of your loan (which imposes the creditworthiness of that person). Remember that the bank determines the creditworthiness taking into account the age of borrowers. The older the person, the shorter the loan period will be set by the bank. For this reason, when considering the selection of the additional borrower, please pay attention to whether his/her age will not be a problem for the bank.
We will help you estimate the ability for you and the additional people you would like to choose and find a bank where you will get the required creditworthiness for the appropriate loan period.
9. Take care of your bank rating and credit history in BIK
BIK (Biuro Informacji Kredytowej) or Credit Information Bureau collects all information regarding the history of your bank liabilities. Data can be stored there up to 5 years after the liability expires. Of course, the main form of ensuring good valuation in BIK is timely repayment of bank liabilities. However, there is also an additional factor influencing the assessment, namely the number of bank inquiries related to loan applications. Do not submit applications to more than 2-3 banks. Banks see in how many institutions you asked for a loan, it is visible in the register of the BIK. The more inquiries, the more your score will be lower. This may result in a higher interest rate on the loan that the bank will set or even a negative decision. For this reason, credit inquiries should be as few as possible.
Most banks give you the opportunity to pre-assess your creditworthiness based on information about your income and liabilities. It is important that the calculations are made using current and dedicated tools. Online comparison websites or financial platforms may give inaccurate results and therefore may introduce you into a costly error.
If you came to Poland from abroad as a foreigner you also have to take care about basis documents required by banks regarding your right to stay. Most important document will be residence card It has to be valid for at least 12 month ahead (only mBank allows applying with residence card with 6 months validity). We described that matter in other articles:
Mortgage in Poland for a NON-EU citizens
Mortgage in Poland for an EU citizens
At POLASSETS, we will help you professionally and reliably calculate your creditworthiness using current banking tools, develop a plan of action to increase it and prepare you for procedures related to finding your dream property.
