What I have assimilated in the last few months: bunch of things may be considered to decide upon who is “creditworthy”.
1.) Does the borrower have an intention to repay
- Whether he has a past track record of taking loans and what does that track record look like. If he doesn’t have a track record you can’t tell whether he is a good borrower or a bad borrower. In other words, some history of borrowing is better than no history of borrowing when it comes to credit scoring.
- What do people known to him say? Would he make a good borrower?
- What does his historical track record of income and expenditure show? Is he financially cautious? Does he save money? Does he educate his children? Has he built assets over time from his income like savings, FD, property, gold, insurance, chit fund?
- Has he repaid both secured and unsecured loans?
2.) Does the borrower have an ability to repay.
- How much does he earn? How much is his expenditure? Does he have documented evidence? If not, what is the estimated income for somebody with similar profession in that particular geography? What do his suppliers say? What do his customers say? What do people who pay him say?
- What do people, who know him, say his earnings are? What kind of a locality does he stay in? How are his living conditions?
- Do the assets accumulated by him over the last 3-5 years reflect the income that he claims he has?
- What is the maximum and minimum earning possible per month?
- What is the residual amount of money left for the family after repayment of installment if the loan is given? Reduce loan amount or increase tenure if very little is left for the family.