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 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 a credit card? ›
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 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 are the 3 C's 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.
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 are the two most important C's of credit? ›
Character and capacity are often most important for determining whether a lender will extend credit. Banks utilizing debt-to-income (DTI) ratios, household income limits, credit score minimums, or other metrics will usually look at these two categories.
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 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 do the 3 C's stand for in health? ›
Lyon separated health care into sections that he denotes as the “three Cs” of health care: cost, care, and coverage. The first “C” of health care, cost, refers to the price that consumers pay for health care and health insurance.
Which of the 3 C's refers to the loan applicant's ability to repay the loan? ›
Capacity. Capacity refers to an individual's or organization's ability to repay a loan. It includes factors such as income, expenses, and debt-to-income ratio.
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.
Which of the 3 C's is the major reason for authorizing a credit check? ›
Which of the 3 C's is the major reason for authorizing a credit check? -Character, determines your credit history and if you are trust-worthy.
What is the three Cs of 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 3 Cs of conventional finance underwriting? ›
In considering your application, they look at a variety of factors, including your credit history, income and any outstanding debts. This important step in the process focuses on the three C's of underwriting — credit, capacity and collateral.
What are the 3 Cs lenders consider when deciding whom to give credit to? ›
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 is capital in the 3 C's of credit? ›
Capital: refers to current available assets of the borrower, such as real estate, savings or investment that could be used to repay debt if income should be unavailable.
What are the 3 R's of credit analysis? ›
There are three basic considerations, which must be taken into account before a lending agency decides to agency decides to advance a loan and the borrower decides to borrow: returns from the Proposed Investment, repaying capacity, it will generate and. The risk bearing ability of the borrower.
What are the three types of credit? ›
The three main types of credit are revolving credit, installment, and open credit. Credit enables people to purchase goods or services using borrowed money.
What does character mean in 3cs? ›
Character: refers to the moral qualities unique to an individual or entity. We believe that while all three Cs are important, Character can sometimes be the most important. If the principal falls a little short in one of the other Cs, character can often move the needle from declined to approved.
