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The following is a guest post from Jack Reed.  Jack is a financial writer with Oak View Law Group. He writes on various financial topics with a special focus on bankruptcy.

Credit worthiness is an important thing to reckon with whenever you think of taking out credit. On your credit worthiness depends the approval or rejection of your credit application. Now the obvious question is how to determine whether you are worthy of credit or not. Well, the prime pointer of your credit worthiness is your credit report. But, scrutinizing your credit report day in and day out may not be of much help if you do not know how to evaluate it properly. What most people would say is that credit worthiness is all about good credit score. Indeed, it is true but only partially, for, credit worthiness has more facets to it.

Here is what you need to consider while evaluating your credit worthiness:

How you handled your credit in the past -

One of the most important factors considered in credit evaluation is your payment history. In simplest terms it refers to the entire record of your past handling of credit and their repayment and also the evidence of noncredit-related collections or money-related public actions. A creditor will get all the details about your credit history before approving your credit application. The review will not only take into account the frequency of any repayment problems, but also their severity, date of occurrence, dollar magnitude and also your mode of repayment. Suppose, you have resorted to some debt relief services, such as debt consolidation or debt settlement programs, then your credit worthiness is likely to get affected. However, if you have a clean history of credit repayment where you have handled your accounts responsibly and repaid your debts on time, you will be considered worthy of credit.

Type and amount of your debt -

The next important thing that will determine your credit worthiness is the type and amount of debt you have and your credit utilization rate. For revolving accounts, the credit utilization rate is measured in terms of available credit in use. For installment and mortgage accounts, credit utilization is usually measured in terms of the original loan amount that is yet not paid. Higher credit utilization rates are usually regarded as an additional risk factor because they might indicate that an individual has maxed out all available credit to deal with a financial slow down.

Length of your credit history -

The next in the order of significance is the length of your credit history. Taking a look at your credit report, your prospective creditor would know how long you have been involved in credit borrowing and whether you have obtained credit recently. The longer your account is open, the more details will it convey about your keenness and ability to make payments as scheduled. On the other hand, new accounts will convey little information other than that a consumer has had a recent need for additional credit and has been approved for credit.

Acquiring new credit -

Last but not the least, your acquisition of new credit will affect your credit worthiness. The number of attempts you have made to get new loans along with your acquisition of new debt accounts gives the picture of your present credit profile. Your frequent credit application will be viewed as your credit risks getting over-extended. Also, if your credit applications are found to get frequently rejected, then it might also question your credit worthiness.

These are the key factors that determine the extent of your credit worthiness. In order to evaluate your credit worthiness, you need to delve deep into these factors and understand them carefully. Credit worthiness does not end in making a fair score. Instead, it is something you build over time through responsible financial decisions.

Do you have any other tips for making sure you’re worthy of credit?

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