The Five C's of Credit

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There are five things that a creditor looks at before giving a person credit. Those are referred to as the five C's. They are capacity, capital, collateral, character, and conditions.

Capacity is the ability to pay back what you borrow. Lenders tend to look at the cash flow of someone before lending money out. They not only look at what you bring in but they also look at what you currently paying.

Capital is the cash value of assets. This is used to help lenders determine if you would be more likely to default on a loan. The lenders use debt to asset ratio as grounds for lending or denying an application.

Collateral and capital is very similar, collateral is something that is used to secure a loan. If the loan is than defaulted the bank or lender is entitled to what you used for collateral. Collateral can include but not limited to a car, truck, boat, home, or other expensive assets. The more expensive the collateral the more likely it is that you will get that loan you want.

Character is also a factor in determine loaning of money. This falls directly on you and what you have done in the past. If you have borrowed money before and made payments on time and the amount due then the lenders will consider this as good. A job history of six months or more also shows the lender that you are willing to stick with it and you have job security.

The final C is conditions. Sometime the conditions may vary depending on the lender. Conditions can include economic situation, being a student, or getting a new job in a new location and need moving expenses. Even though a applicant does not have sufficient credit history a loan may still be issued using a co-signer, or someone who will take responsibility for paying the debt if you…...

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