The 5 Cs of credit are very important for lenders in determining the credit score of the borrower. The process comprises of 5 system which will be used in the evaluation process of the borrower before granting of a loan offer.

The 5 Cs will indicate the appropriate chance the borrower has in obtaining the loan as well as the amount of risk the lender is willing to take. During the evaluation process, the lender might check your credit reports and scores, bank statements, and debt load.

Some lenders may even request for your personal information like birth dates and permanent residential address information. Here are the 5 Cs of credit that will determine your qualification for a perfect loan;

·         Capital 

The capital is the total of what you own, whether it’s your business or property. The total net worth of what you have and own determines your wealth. Business owners are advised to focus on improving their capital before think about applying for a loan. Lending companies access your money to learn the best loan offer for you because they can only give you what you can be able to pay back.

·         Capacity

The capacity of your income determines whether you can be able to pay back any loan offer given to you. It all depends on your current income rate from your business, which will determine the amount of loan offer you will receive.

Lenders will always access your capacity from your debit load and bank statements to determine what you will be able to repay. It doesn’t end on the lending company approving the loan offer, which you seek because all the stress lies through the repayment process. 

The lender needs to check your capacity, determining that you will be able to repay the loan granted through the estimated time while still saving some money from your income. The lower the ratio of debt you have, the more confident the lender will be in granting you a massive loan offer.

Lenders have already advised borrowers to keep their debt load (DTI) to a minimum of 35% according to the protection bureau to obtain loan success quickly. Once the debt loan passes 43%, you will have a hard time getting a good loan offer because it will determine that you might not be able to repay the loan on time.

·         Collateral

Having collateral is very important when applying for a loan because lending companies often value it. With you having a valuable property as collateral, it will show the lending company that you are serious about your loan offer. Depending on the worth of the property used as collateral, you are likely to get a good loan offer with fast approval. Using your asset as collateral won’t make your life miserable if you have a steady income that can repay the loan offer you want.

·         Conditions

The current interest rate requesting by the lender might affect the status of the loan offer between the lender and the borrower. The lender might evaluate the borrower’s condition determining how the loan will be used when obtained. The lenders might even require documentation of how you will use the loan before making the final decision.

The condition can be the state of your business, company, or property value will help the lender determine the appropriate loan offer for you. The status of your business is likely to affect the repayment of the loan offer when due. They will need to evaluate how you can handle any problem that affects your business while checking your income value.

·         Character

Your character matters depending on how you behave during business activities or during the meeting with the lending company. They will check your credit history as well as an attitude toward other lending companies that you have used their service before.

During this period, they might request some of your details, ranging from your social security number (SSN), date of birth, and permanent residential address. All information will be filed accordingly while using the provide information for verification. 

The lending company will likely contact other lending companies that have already granted you a loan offer before for verification of your character. They might even go further to obtain a report from the credit bureau as well as your current credit score.

Most of the lending companies out there combine the 5 Cs with other evaluation processes from their end in making the process of loan offer a little bit easy.

The new factors which they might use in evaluating your creditworthy might be based on your credit used and credit available. Once the process is joined with the 5 Cs, the lender will have a proper evaluation of your business condition and financial status, which will determine how you will pay back in the future. 

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