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
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 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 do the 3 C's stand for? ›
What do the three C's stand for in order? In credit the three C's stand for character, capacity and capital. Typically, these factors of credit are used to determine the creditworthiness of a business or an individual before giving them loan.
What are the 3 C's when a creditor evaluates a credit application? ›
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 C's of credit management? ›
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 is character in the 3 C's of credit? ›
Character: refers to how a person has handled past debt obligations: From the credit history and personal background, honesty and reliability of the borrower to pay credit debts is determined.
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.
What is 3 C's concept? ›
The 3 Cs of Brand Development: Customer, Company, and Competitors. There is only a handful of useful texts on strategy.
What is the 3C principle? ›
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 are the 3 C's requirements? ›
The Three Cs of Requirements: Consistency, Completeness, and Correctness.
The 3 C's—Capacity, Character, and Collateral—are key factors assessed by underwriters to gauge a borrower's creditworthiness and risk level. These elements provide a comprehensive view of the applicant's ability and willingness to meet financial obligations.
Which of the 3 C's is the major reason for authorizing a credit check? ›
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 are the 5 C's of credit? ›
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
What are the 3 Cs of credit? ›
The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.
Which of the three Cs of credit has to do with reputation? ›
1. Character. Character, the first C, more specifically refers to credit history, which is a borrower's reputation or track record for repaying debts.
What are the Cs of credit risk? ›
The five Cs of credit are character, capacity, capital, collateral, and conditions. The five Cs of credit are a crucial framework used by lenders to assess the creditworthiness of potential borrowers. The 5 Cs of credit remain fundamental in evaluating credit risks.
What are the 5 Cs to credit? ›
The 5 C's of credit are character, capacity, capital, collateral and conditions. When you apply for a loan, mortgage or credit card, the lender will want to know you can pay back the money as agreed. Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more.
What is one of the 4 Cs 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.
Which of the 3 Cs is the major reason for authorizing a credit check? ›
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 are the three types of credit? ›
The three main types of credit are revolving credit, installment, and open credit.
