What does 'Capital' refer to in the context of credit?

In the context of credit, 'Capital' refers to your assets. This includes any resources of value that you own, such as savings, investments, real estate, or other forms of wealth. Lenders consider your capital when evaluating your creditworthiness because it provides a measure of your financial stability and ability to repay borrowed funds. High levels of capital can indicate that you are less likely to default on a loan, as you have tangible resources to draw from if needed.

Having significant assets also improves your chances of securing loans, as it gives lenders a sense of the financial cushion you possess. For instance, if you own a home or have substantial savings, you demonstrate to creditors that you have the means to handle repayment, making you a more attractive candidate for credit. This is a vital aspect of credit risk assessment, as it helps lenders make informed decisions about extending credit to individuals.