What Are the Three C’s of Credit?
The Three C’s of Your Credit
Your credit status tells a lot about your borrowing and debt management history; how you dealt with your previous debts. Although it is subject to change from time to time, it gives a fair idea of your current situation. Since your credit score reflects that in a numeric form, direct lenders may run through it while you apply to take out a loan. Have you ever gotten curious how by looking at your credit status they get to know your creditworthiness- and grant you financing on its basis? There are actually 3 basic factors they look at in your credit. Popularly, they are called “the three C’s of credit”.
1. Character
The first C of credit is character. As a borrower, lenders want you to have a clean character. That means they look at your credit reports to know if you cleared the previous debts on time without violating your obligation to repay. Before lending money, naturally, anyone would want to establish the honesty of a person. In order to do that, they would also ask you:
• Do you have any outstanding loans?
• Did you miss any dues, and if so, did you contact your lender beforehand to convey that?
• Have you paid any penalty for any irregularities while in debt?
• If you have positive remarks in your credit report from the previous lender,?
2. Capital
The second C of credit is capital. To take out a payday loan it might not be a real necessity, but for secured loans like a mortgage, this aspect is required. Here the lender estimates the asset owned by the debtor. This also includes savings in terms of money and investments. In order to gather the details about capital, the financing company might ask-
• What kind of properties do you own? Do you live in your own house?
• Since when do you have a savings account?
• What kinds of investments have you made over the years?
3. Capacity
This is the third and probably the most important C of the credit. This is what even the payday lenders check before approving an application. Because at the end of the day the borrower’s capacity to pay back the loan decides if s/he should be financed. Payday loans can be borrowed even with a bad credit score if this C of the credit assures that the loan will be paid back. To make sure that, the lender would want to know-
• If you have a regular job? How much do you get paid?
• How much do you save per month?
• Do you have a second job or any other income source?
• How many people in your family are employed and how many are not?
The debtor who has gotten all three C’s of credit right can avail any kind of loan. However, since payday advances are collateral-free debts, “capital” is not considered to be important. While the “character” assures the lender that it can trust you, your “capacity” suggests that the loan can be recovered.