Your credit score is a measure of factors that may affect your ability to repay credit. It’s a complex formula that takes into account how you’ve repaid previous loans, any outstanding debt, and your current salary.
A credit score is dynamic and can change positively or negatively depending upon how much debt you accrue and how you manage your bills. The factors that determine your credit score are called The Three C’s of Credit – Character, Capital and Capacity.
Character:
From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt. Considerations may include:
- Have you used credit before?
- Do you pay your bills on time?
- How long have you lived at your present address?
- How long have you been at your present job?
Capital:
A lender will want to know if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income is unavailable.
Capacity:
This refers to your ability to repay the debt. The lender will look to see if you have been working regularly in an occupation that is likely to provide enough income to support your credit use.
The following questions may help the lender determine this:
- What is your current salary?
- How many other loan payments do you have?
- What are your current living expenses?
- What are your current debts?
- How many dependents do you have?
FAQs
A credit score is dynamic and can change positively or negatively depending upon how much debt you accrue and how you manage your bills. The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.
What are the 3 C's of credit? ›
Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit. A person's character is based on their ability to pay their bills on time, which includes their past payments.
What are the C's of credit management? ›
The five Cs of credit are important because lenders use these factors to determine whether to approve you for a financial product. Lenders also use these five Cs—character, capacity, capital, collateral, and conditions—to set your loan rates and loan terms.
What are the three C's of credit according to the workbook? ›
For example, when it comes to actually applying for credit, the “three C's” of credit – capital, capacity, and character – are crucial.
What are the 5cs framework of credit? ›
The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many lenders to evaluate potential small-business borrowers.
What does 3 Cs stand for? ›
It has been used as a strategic business model for many years and is often used in web marketing today. This method has you focusing your analysis on the 3C's or strategic triangle: the customers, the competitors and the corporation.
What does 3 Cs mean? ›
We are all innately curious, compassionate, and courageous, but we must cultivate these values — the 3Cs — as daily habits to foster the independent thinking, free expression, and constructive communication that will enable our society to reach its full potential.
Who uses the 3 C's of credit? ›
The three C's are Character, Capacity and Collateral, and today they remain a widely accepted framework for evaluating creditworthiness, used globally by banks, credit unions and lenders of all types.
What is the meaning of C's of credit? ›
The lender will typically follow what is called the Five Cs of Credit: Character, Capacity, Capital, Collateral and Conditions. Examining each of these things helps the lender determine the level of risk associated with providing the borrower with the requested funds.
What are the 5 C's of credit quizlet? ›
Collateral, Credit History, Capacity, Capital, Character. What if you do not repay the loan? What assets do you have to secure the loan? What is your credit history?
The factors that determine your credit score are called The Three C's of Credit - Character, Capital and Capacity. Character: From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt.
Which one of the three Cs of credit is a measure of your financial ability to repay a loan? ›
They are known as the “Three C's of Credit”: Capacity, Character, and Collateral: (1) Capacity: What is the individual's ability to repay the loan? (2) Character: What is the individual's reliability to repay the loan?
What are the 3 primary types of credit that makes up your credit diversity portion of your credit score? ›
A credit mix refers to the multiple types of loan accounts you hold, such as credit cards, student loans, mortgages, and car loans. Your credit mix includes revolving loans and installment loans. Credit mix determines 10% of your FICO credit score.
What are the 5 C's of underwriting? ›
The Underwriting Process of a Loan Application
One of the first things all lenders learn and use to make loan decisions are the “Five C's of Credit": Character, Conditions, Capital, Capacity, and Collateral. These are the criteria your prospective lender uses to determine whether to make you a loan (and on what terms).
Which of the following is not one of the three C's of credit? ›
Collateral is not one of the three C's of credit. The three C's of credit are character, capacity, and capital.
Which is not one of the 5 Cs of credit? ›
Candor is not part of the 5cs' of credit.
Candor does not indicate whether or not the borrower is likely to or able to repay the amount borrowed.
What is the meaning of Cs of credit? ›
The lender will typically follow what is called the Five Cs of Credit: Character, Capacity, Capital, Collateral and Conditions. Examining each of these things helps the lender determine the level of risk associated with providing the borrower with the requested funds.
What are the 3 Cs of credit Quizlet? ›
The factors that determine your credit score are called The Three C's of Credit - Character, Capital and Capacity. Character: From your credit history, a lender may decide whether you possess the honesty and reliability to repay a debt.
What are the 3 Cs of mortgage lending? ›
They evaluate credit and payment history, income and assets available for a down payment and categorize their findings as the Three C's: Capacity, Credit and Collateral.
