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5 C'S OF CREDIT

Definition

The 5 C's of Credit is a system that lendors use to determine your creditworthiness.  
The 5 C's are:

Character
Capacity
Capital
Collateral
Conditions


Why It's Important

Having all of your "C's" in great shape increase your chances of getting loans and/or better interest rates.  

Character is your credit history.  How have you treated other lendors in the past?  Did you pay on time?  Did you pay at all?

Capacity is your ability to pay back the loan.  What is your debt to income ratio?  Are you already over your head?

Capital can also be called your down payment.  Do you have enough of a down payment to lower the potential risk to the lendor?

Collateral is what you are willing to give up to ensure the debt is paid.  When you get a home loan, the collateral is the house.  When you get a car loan, the collateral is the car.  These are also called secured loans.

Conditions are the terms of the loan.  They can be in the form of an interest rate, prinicipal, how you can use the loan, etc.


Check out these articles for more information on how to pull your credit history and other credit topics:

The Importance of Credit (Part 1)

The Importance of Credit (Part 2)
The Importance of Credit (Part 3)
Methods to Tackle Debt

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