Obtaining and Using Credit
Lenders expect to be repaid along with interest and other fees for letting you use their money. No wonder lenders check the credit history of loan applicants to determine if they are credit worthy.
In judging a person’s credit worthiness, lenders often look at the “three Cs” of credit: character, capacity, and capital.
• Character refers to your personal qualities—your honesty and willingness to repay debts. If your record shows you have paid your bills on time, lenders will assume you will continue to do so in the future.
• Capacity is a measure of your ability to repay debts. Creditors will want to know about your income sources, how much you earn, and your other financial obligations.
• Capital refers to what people own—money in the bank or property. In general, the more you own, the easier it is to repay debts. Lenders also may ask that some capital be used as security (collateral) for a loan.