THE 5 C’S OF CREDIT. Capacity Your ability to repay.

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Presentation transcript:

THE 5 C’S OF CREDIT

Capacity Your ability to repay

Capacity Income: Steady job? Salary? Other income?

Capacity Debts: Other loans (or co- signer)? Alimony or child support? Can you afford your lifestyle?

Capacity What is your debt to income ratio? What are the loan terms?

Character Are you honest and reliable? What is your reputation?

Character Bankruptcy: when a person is unable to pay their debts. An individual declares in court to settle debts and start over financially. Chapter 7: most (or all) debts are discharged Chapter 13: some debts are repaid through a payment plan; some assets can be kept

Character Foreclosure: when a homeowner is unable to make payments on his/her mortgage. It allows the lender (bank) to evict the homeowner and sell the home Tax lien: legal claim by a government to take property when taxes are not paid in full

Character Do you pay your bills on time? Do you have a good credit report/score?

Character How long have you lived at present address? How long have you had current job?

Character Can you provide references?

Collateral An asset used to secure a loan

Collateral Mortage: collateral = home

Collateral Auto loan: Collateral = car

Collateral Lender can take ownership if you are unable to pay loan (usually = lower interest rates)

Conditions The general environmental conditions that will affect your ability to pay

Conditions Is the economy growing?

Conditions How long have you worked for the same employer?

Conditions What is the long- term outlook for your occupation?

Capital What are your financial resources?

Capital What is your net worth? (Assets minus liabilities)

Capital How liquid are your assets? (Can they be converted to cash?)

Capital Are you able to generate cash flow?