What do the 3 C's of Credit refer to?

The 3 C's of Credit refer to Character, Capacity, and Capital, which are essential factors lenders evaluate when determining a borrower's creditworthiness.

Character involves the borrower's reputation and trustworthiness. It reflects how reliable an individual has been in fulfilling financial obligations and managing credit in the past. Lenders assess this through credit history, payment patterns, and references.

Capacity refers to the borrower's ability to repay the loan. This involves analyzing income, employment stability, and existing debt obligations. Lenders want to ensure that the borrower has sufficient income to manage current debts along with any new borrowings.

Capital represents the borrower's wealth or net worth, including savings, investments, and other assets. Lenders consider what assets the borrower can use to repay the loan, especially in case of financial difficulties.

Together, these three components give lenders critical insight into the potential risk of lending funds to an applicant, forming a comprehensive picture of the borrower's financial profile. Understanding the 3 C's is vital for anyone looking to apply for credit and should be part of a broader financial literacy education.