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What Is Creditworthiness and Why Is It Important?

6 min read

Last Updated: April 15, 2025

Table of contents

Key Takeaways

Creditworthiness measures how reliable you are in repaying your debts.
Lenders use your creditworthiness to help determine if you’re a good person to loan money to.
Good credit habits can help you build creditworthiness.

If you’ve ever applied for a credit card or personal loan, you may have wondered what factors go into approval. While many things may come into play when it comes to credit approval, one key factor is your creditworthiness.

Creditworthiness boils down to how reliable you are when paying back the money you owe. To get the full picture of what creditworthiness is, you must first understand how credit works.

How does credit work?

Credit is a system that allows you to borrow money to pay for goods and services, on the condition that you repay the money later. Lenders want to be sure that you will pay back any money they loan you. Lenders may review your credit report, credit score, income, and current debts to figure out your creditworthiness. Responsible credit card habits are one way you can help build creditworthiness.

Are you new to credit or need to rebuild your credit? The Discover it^® Secured Credit Card helps you build your credit history with responsible use.¹

How do credit cards impact creditworthiness?

When you use a credit card you are purchasing goods and services on credit, which is a type of loan. In other words, when you use a credit card, you are borrowing money from the credit card company. Credit cards are a revolving form of credit, meaning you can borrow up to your credit limit every month.

When you make your monthly payments you’re paying back your credit card company for a loan. Your monthly payments include new purchases (principal), and may also add in interest, fees, and any leftover balance from the previous month. When you pay back this amount monthly and in a timely manner it shows up in your payment history. If you miss a payment, it also shows up in your credit history.

Credit cards are a powerful financial tool. When used responsibly, they help you manage your finances and establish you as a good borrower.

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How does creditworthiness tie in with a credit score?

If you want to be worthy of credit, a lender needs to know that you can and will repay debts. Your credit score is one tool lenders use to see how you’ve managed past debt.

When applying for loans or new lines of credit, a high credit score indicates you’re less of a risk. A lower credit score may show you’ve had trouble paying back debt, which can make it more difficult to get credit on favorable terms.

Why is creditworthiness important?

A higher credit score makes you more attractive to banks and financial institutions when you apply for loans or lines of credit. This can include approval for a new credit card, auto loan, or home loan.

A high credit rating can save you money in the form of lower interest rates on loans and lines of credit. A lower interest rate means you will pay less interest over time, making your debt less expensive.

Some employers use background checks as part of the hiring process. This may include running your credit report.

Landlords may check your credit score when they review your application for a rental apartment. A high credit score might make it easier for you to get the apartment you want.

A good credit score may also help you get services without you having to pay a security deposit. Services such as electricity, gas, and phone contracts might look at your credit history.

How to improve your creditworthiness?

You should pay your bills on time, as your payment history makes up about 35% of your credit score.

Credit utilization is the ratio of how much credit you’re using compared to your total credit limit. You should aim for a credit utilization ratio of 1-10%.

A good credit mix includes managing installment loans (such as mortgages and auto loans) and revolving credit (such as credit cards).

The length of your credit history is another important factor in determining your credit score. You can keep old credit accounts open to help extend your credit history.

Every time you make an application for new credit, lenders may check your credit report. Making a hard inquiry on your credit report can temporarily lower your score. Try to limit the number of hard credit inquiries you make over time.

Why should you be in control of your credit report and credit score?

Your credit report is one way a lender determines your creditworthiness. It’s a good idea to make sure the information is accurate and up to date. Plus, knowing your credit score can show you how your financial actions affect your creditworthiness and help you make informed decisions.

Federal law allows you to receive one free credit report every 12 months from each of the three major credit reporting agencies. The Federal Trade Commission reports that the three credit bureaus have permanently extended the program to include one free report per week.

You can request your free credit report at AnnualCreditReport.com (the only website authorized by the federal government). Additionally, you can ask for a free credit report within 60 days of being denied credit.

Discover cardmembers can get a free Credit Scorecard with your FICO^® Score and important information behind it, like credit utilization, number of missed payments, number of recent inquiries, length of credit history and total number of accounts. Viewing your Credit Scorecard will never impact your FICO^® Score.²

Improve creditworthiness with wise credit card management

Create a monthly budget to help you keep track of your spending and avoid spending more than you can afford.

Avoid using credit cards for impulsive or unnecessary purchases. Instead, plan your expenses in your budget or save credit card use for one-off emergencies.

If possible, pay your credit card balance in full each month to avoid paying interest.

Check your credit card statement regularly. Make sure you’re not exceeding your credit limit and identify any unauthorized charges.

The bottom line

Creditworthiness allows you to access loans and lines of credit with favorable terms. It can help you gain employment and rent an apartment. By following the tips shared in this article, you can build and maintain a your creditworthiness and enjoy the benefits that come with it.

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What Is Creditworthiness and Why Is It Important?

Key Takeaways

How does credit work?

How do credit cards impact creditworthiness?

Credit cards are a powerful financial tool. When used responsibly, they help you manage your finances and establish you as a good borrower.

How does creditworthiness tie in with a credit score?

Why is creditworthiness important?

Approval of loans and lines of credit

Lower interest rates

Job opportunities

Rentals and leases

Utilities and phone contracts

How to improve your creditworthiness?

Pay bills on time

Maintain low credit utilization

Have a good credit mix

Keep old credit accounts open

Limit applications for new credit

Why should you be in control of your credit report and credit score?

Improve creditworthiness with wise credit card management

Establish a budget

Limit excess spending

Pay the balance in full each month

Monitor credit card spending

The bottom line