Five Cs Of Credit

Five Cs Of Credit

What do you think banks look at when deciding

whether or not to grant a loan to a borrower?

What Does Five Cs Of Credit Mean?

A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics of the borrower, attempting to gauge the chance of default.

The Five Cs of Credit are:

• Character• Capacity• Capital• Collateral• Credit History

Character – Will You Repay the Loan?

The first factor is character, which refers to a borrower's reputation.Sample Questions:• How long have you lived at your

present address?• How long have you held your current

job?

Capacity – Do you have the ability to repay a loan?

Banks compare income against recurring debts.Sample Questions:• What is your salary?• What are your current debts?

Capital –What are your Assets and Net Worth?

The lender will consider any capital the borrower puts toward a potential investment, because a large contribution by the borrower will lessen the chance of default.Sample Questions:• What are your assets?• What are your liabilities?

Collateral– What if you Don’t Repay the Loan?

Collateral, such as property or large assets, helps to secure the loan.If you fail to repay the loan, the creditor may take whatever you pledged as collateral.Sample Question:• What do you have to secure the loan (a

vehicle, a home, or furniture)?

Credit History – What is your Credit History?

The conditions of the loan, such as the interest rate and amount of principal, will influence the lender's desire to finance the borrower, depending on Credit HistorySample Question:• Do you pay your bills on time?• Have you ever filed for Bankruptcy?

What are the Five Cs of Credit?• Character• Capacity• Capital• Collateral• Credit History