The Three C's of Credit
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Lenders must evaluate the risks of lending money to others. In commercial lending, creditors generally follow the same principles to evaluate a borrower's creditworthiness.
These are the areas the creditor looks at prior to making a decision of granting credit. The 3 C's of Credit refer to 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?
