What is creditworthiness?
Posted: Wed Feb 19, 2025 5:06 am
Banks use different assessment methods to protect themselves and potential borrowers. One of these methods is creditworthiness assessment. It helps to understand how much money can be lent to a specific client and for how long. We will tell you what creditworthiness is and how it is calculated.
Why do you need a credit score?
The main objective of the creditworthiness assessment pursued by the bank is to reduce its own risks. According to the law, credit institutions are required to conduct such an analysis not only when issuing a loan, but also during its servicing. The procedure is regulated by Bank of Russia Regulation No. 590-P of 28.06.2017. It describes the procedure for forming reserves for possible losses on debts. Creditworthiness analysis must be carried out with the following frequency:
for loans to individuals - at least once per quarter;
for loans issued to legal entities - every ukraine mobile database quarter and at the end of the year;
for loans issued to other credit institutions - at least once a month.
After conducting the assessment, commercial banks calculate the amount of reserves for different types of loans and send the reports to the Bank of Russia. If the Central Bank finds that the credit institution has provided false data, it will order the formation of a reserve in the amount of 50% of the amount of the loan issued. And if there are no documents confirming the level of creditworthiness of the borrower for a specific loan, the bank will receive an order for a reserve covering the full amount of the debt.
The Bank of Russia controls the credit activities of commercial banks in order to reduce risks to the economy. Credit institutions cannot use funds that have ended up in the reserve until the loan is fully repaid. If a commercial bank violates these regulations, it faces serious sanctions, including the loss of its license.
Methods of creditworthiness assessment
Each bank chooses its own method, but always uses two directions of analysis - quantitative or qualitative. They are carried out in stages.
Why do you need a credit score?
The main objective of the creditworthiness assessment pursued by the bank is to reduce its own risks. According to the law, credit institutions are required to conduct such an analysis not only when issuing a loan, but also during its servicing. The procedure is regulated by Bank of Russia Regulation No. 590-P of 28.06.2017. It describes the procedure for forming reserves for possible losses on debts. Creditworthiness analysis must be carried out with the following frequency:
for loans to individuals - at least once per quarter;
for loans issued to legal entities - every ukraine mobile database quarter and at the end of the year;
for loans issued to other credit institutions - at least once a month.
After conducting the assessment, commercial banks calculate the amount of reserves for different types of loans and send the reports to the Bank of Russia. If the Central Bank finds that the credit institution has provided false data, it will order the formation of a reserve in the amount of 50% of the amount of the loan issued. And if there are no documents confirming the level of creditworthiness of the borrower for a specific loan, the bank will receive an order for a reserve covering the full amount of the debt.
The Bank of Russia controls the credit activities of commercial banks in order to reduce risks to the economy. Credit institutions cannot use funds that have ended up in the reserve until the loan is fully repaid. If a commercial bank violates these regulations, it faces serious sanctions, including the loss of its license.
Methods of creditworthiness assessment
Each bank chooses its own method, but always uses two directions of analysis - quantitative or qualitative. They are carried out in stages.