Have you ever heard someone refer to the 4 Cs of credit? There are four main pillars that a creditor will use to evaluate a borrower’s creditworthiness. Character, capacity, collateral and capital are all key items you should review prior to submitting a loan request. However, many individuals may not understand the meaning behind these 4 building blocks. Let’s go ahead and break that down:

Character: Have you ever heard someone say that you have good character? They weren’t referring to you as a storybook character. When thinking about character in regard to your credit it means that you have displayed trustworthiness and reliability, which is typically determined through your payment history and your credit score.

Capacity: An individual’s capacity is determined by whether they have the means to pay back on the amount that is being lent. This is probably one of the most important building blocks that lenders will analyze by different means such as the amount of debt you carry, the amount of debt you hold compared to your income and how your new payment would affect this ratio.

Collateral: When looking to make a purchase through a loan, most loans will require collateral to secure the amount. Often times, lenders will have a minimum LTV (loan-to-value) requirement in place to ensure the collateral’s value is relevant to the loan amount. Collateral can be a home, car, certificate of deposits or anything that holds a value similar to the requested loan amount.

Capital: This can be deemed as any asset that can be converted into cash to make payments. Lenders will look at all your accounts, including investment accounts, and add that as capital in the event you are unable to make the payments. This gives a lender reassurance that you have access to other funds to put towards the loan.  

Lenders will look at other factors like your credit score and your debt-to-income ratio to determine your creditworthiness. When you work on these 4 pillars the chances of getting approved for your next loan can drastically increase. Reach out to one of our lenders today if you are in the process of finding a loan or if you have questions on how to help improve your credit by calling 1-833-372-4968.