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 for credit? ›
Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.
What are the three C's involved in your credit score responses? ›
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 3 C's 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.
Which of the 3 C's is the major reason for authorizing a credit check? ›
4. The 'Character' component is the major reason for authorizing a credit check. Lenders want to assess your past behavior in handling credit and determine if you are likely to repay the loan.
What does the three 3 C's stand for? ›
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.
What is the meaning of C's of credit? ›
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.
Which of the three C's of credit has to do with reputation? ›
Character. Character is the “common sense” factor that lenders look at when considering a loan application. It is your reputation as a borrower. Lenders look at your history and financial stability in the past to get a sense of how responsible you have been and how responsible you are likely to be in the future.
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. These factors help lenders to assess the creditworthiness of potential borrowers. Character refers to a borrower's credit history and reputation for paying bills on time.
What are the 3 factors that determine credit? ›
The primary factors that affect your credit score include payment history, the amount of debt you owe, how long you've been using credit, new or recent credit, and types of credit used.
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? (3) Collateral: What assets does the individual own that could be sold to repay the loan? 4.
What are three credit checks? ›
There are three national credit reporting agencies that collect information on consumers: TransUnion®, Equifax® and Experian®.
What are the 5 C's of credit in order? ›
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 is 3c credit? ›
The term “3 Cs of credit” was popularised in the 1960s, but the principles behind the concept date back much further. 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 one of the 4 C's of credit granting? ›
Standards may differ from lender to lender, but there are four core components — the four C's — that lenders will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.
What are the 6cs of credit? ›
The 6 'C's — character, capacity, capital, collateral, conditions and credit score — are widely regarded as the most effective strategy currently available for assisting lenders in determining which financing opportunity offers the most potential benefits.
