The Three C’s of Credit
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. These are areas a creditor looks at prior to making a decision about whether to take you on as a borrower.
From your credit history, the lender attempts to determine if you possess the honesty and reliability to repay the debt.
In pursuit of that assessment, they might ask the following questions:
- Have you used credit before?
- Do you pay your bills on time?
- Do you have a good credit report?
- Can you provide character references?
- How long have you lived at your present address?
- How long have you been at your present job?
The lender will want to know if you have any valuable assets such as real estate, personal property like an automobile, or savings and investments that could be used to repay credit debts if income is unavailable.
They might ask these questions with regard to capital:
- What property do you own that can secure the loan?
- Do you have a savings account?
- Do you have investments to use as collateral?
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 will help the lender determine this:
- Do you have a steady job? If so, what is your 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?