The Five C's of Credit

In: Other Topics

Submitted By saponline
Words 320
Pages 2
There are five things that a creditor looks at before giving a person credit. Those are referred to as the five C's. They are capacity, capital, collateral, character, and conditions.

Capacity is the ability to pay back what you borrow. Lenders tend to look at the cash flow of someone before lending money out. They not only look at what you bring in but they also look at what you currently paying.

Capital is the cash value of assets. This is used to help lenders determine if you would be more likely to default on a loan. The lenders use debt to asset ratio as grounds for lending or denying an application.

Collateral and capital is very similar, collateral is something that is used to secure a loan. If the loan is than defaulted the bank or lender is entitled to what you used for collateral. Collateral can include but not limited to a car, truck, boat, home, or other expensive assets. The more expensive the collateral the more likely it is that you will get that loan you want.

Character is also a factor in determine loaning of money. This falls directly on you and what you have done in the past. If you have borrowed money before and made payments on time and the amount due then the lenders will consider this as good. A job history of six months or more also shows the lender that you are willing to stick with it and you have job security.

The final C is conditions. Sometime the conditions may vary depending on the lender. Conditions can include economic situation, being a student, or getting a new job in a new location and need moving expenses. Even though a applicant does not have sufficient credit history a loan may still be issued using a co-signer, or someone who will take responsibility for paying the debt if you…...

Similar Documents

Credit

...Essay on Credit What does mean “to be credit wise”? Being credit wise means use rationally the plastic card as well as to understand how to make good credit, and how to avoid different traps. Credits cards help many students to get financial freedom and desirable independence. Each student should use the credit card wisely as lately it helps him/her to reach the goals such as fulfill educational dreams or to buy a car. Credit card monitoring is important things for students that just require some common sense and responsibility. Our Service Can Write a Custom Essay on Credit for You! In fact, there are a lot of tips how to monitor the credit for getting good one. Following them student can easily prevent all possible trouble situations. Here are some of them: 1. Student should develop reasonable budget for each month, be thrifty and be able to stretch the money. 2. Student should not delay with bills payment. All the bills must be paid on time as in other case even one late payment can negatively impact on the student’s credit score. 3. If the student experiences some problems with bills payment, he/she should immediately provide the creditors with the changes. Student must keep in mind that this is his/her responsibility to inform the creditors about the changes. 4. The minimization of the card debt is also very useful in the student’s case. It is better not to exceed 30% of the available credit limit. 5. Charging more on the student’s card than the......

Words: 481 - Pages: 2

The 25 C's of Innovation

...The 25 C’s of Innovation by Cesar Malacon It is well known that most people would rather receive information in beautifully wrapped packages that help them ‘contain’ the message in a simpler way by connecting the info with a tool that allows them to access it when needed. Such is the value of a reliable acronym, reference or letter bundle that offers a welcome bridge over what might otherwise feel like a sea of unwieldy or unpackaged information. Maybe we were taught to do this in primary school or maybe the method is really useful to retain data more easily. The fact is that acronyms and letter bundles came to stay in the teaching/learning process, and we have many of them rolling in our minds since long ago. Maybe you are thinking in the famous 4 P’s of marketing right now! One of the strongest examples of a letter bundle is precisely the 4 P’s of Marketing that E J McCarthy popularized in 1960 for the marketing mix, and which has been widely accepted by academics and practitioners around the world ever since. The 4 P’s of Marketing were later changed to 4 C’s because Bob Lauterborn, professor of advertising at the University of North Carolina, thought the C was a better way to think about a marketing mindset. He dared to propose his new approach to the marketing mix, but stayed within the letter packages information-delivery method. Which is my point for this occasion. 4 P’s of Marketing, 4 C’s of Marketing, 7 P’s of Service Marketing, 5 S’s of Kaizen in Continuous......

Words: 1322 - Pages: 6

Credit Risk

...W. Ruland, Spring 2009 Credit Risk The Issue Will the loans will be paid on-time and in full. Who Should Understand Credit Risk? Borrowers Prospective lenders including those who sell on account Should they lend? How should they structure the loan? Shareholders Potential purchasers of products or services Credit Ratings Important to the business Influences the cost of borrowing; perhaps the ability to borrow, Influences the market for its securities given that some investors such as certain pension funds may invest in a firm only if the credit rating exceeds a certain amount. The firms pay the agencies to be rated. Ratings are for specific debt issues; not the entire corporation. In early 2008, Defaultrisk.com reported that at that time, there were 64 rating agencies worldwide. SEC registration. Nationally Recognized S Ratings Organizations are credit rating services that meet certain criteria enabling them to register with the SEC. Eight firms qualified when the book was published; increased to 10 (as of Fall 2008). Page 4-25 managerial decision case. When businesses take measures to improve credit ratings, what are the potential costs? Evaluating Credit Risk -- the Five C’s Character Expected reaction when things get rough Capacity Ability to generate future cash flow for loan service Conditions The future of the business and the economy Capital The balance......

Words: 1601 - Pages: 7

Credit

...was employed to identify factors influencing loan repayment and intensity of loan recovery among smallholder farmers. A total of 14 explanatory 431 International Journal of Economics, Business and Finance Vol. 1, No. 11, December 2013, PP: 431- 446, ISSN: 2327-8188 (Online) Available online at http://ijebf.com/ variables were included in the empirical model and out of these, six variables were found to be statistically significant. These are total land holding size of the family (hectare), total livestock holding (TLU), expenditure on social festivals, number of years of experience in agricultural extension services, purpose of borrowing and source of credit. Regarding the sign of the significant variables, expenditure on social festivals has a negative and significant effect on loan recovery rate while the remaining five variables have a significant and positive effect. Variance inflation factor were calculated to detect multicollinearity and association among all explanatory variables. Therefore, consideration of factors affecting loan repayment performance is vital because it provides information that would enable to undertake effective measures with the aim of improving loan repayment performance and hence helped lenders such as microfinance institution, nongovernmental organization and policy makers to have knowledge as to where and how to channel efforts to minimize loan defaults. IJEBF, all rights reserved. Keywords: Defaulters, Kalu, Loan repayment, Non-defaulters....

Words: 7778 - Pages: 32

5cs of Credit

...Hareez Bin Shaik (SCM-009956) Contents Introduction 2 The Five C's Of Credit 3 Article of Interest 5 ARTICLE TITLE: How To Get A Small Business Bank Loan 5 Article review 7 Conclusion 9 Reference 10 Introduction In considering the extension of a person's credit, a method called the “Five C's of Credit” is used by most lenders to determine the credit worthiness of a potential borrower. All in all, the system itself weighs five characteristics of a borrower, attempting to analyze the chances of them going default on their business. Hence forth, for business owner; the question of "What are you looking for from me and my business if I need to borrow?", are some of the most common question that they need to ask before permitting themselves to ask for a loan from lenders. That is why, while each lending situation is unique, most lenders and especially bankers will refer to the “Five C's” when they are making their credit decisions and that business owner should familiar themselves with this to insure good credit rating within their business. Following this further, the five C's of credit that is important to know are Character, Capital, Capacity, Conditions, and Collateral where each of the five will incorporates both qualitative and quantitative measures, that display a person's business portfolio("Five cs of," ). The Five C's Of Credit (Character) In terms of character, what must be noted is that it......

Words: 2718 - Pages: 11

Credit Management

...Part: FOUR Credit Management of The premier bank ltd. Part: Four Credit Management Credit Management: Credit management is a term used to identify accounting functions usually conducted under the umbrella of Accounts Receivables. Essentially, this collection of processes involves qualifying the extension of credit to a customer, monitors the reception and logging of payments on outstanding invoices, the initiation of collection procedures, and the resolution of disputes or queries regarding charges on a customer invoice. When functioning efficiently, credit management serves as an excellent way for the business to remain financially stable. The process of credit management begins with accurately assessing the credit-worthiness of the customer base. This is particularly important if the company chooses to extend some type of credit line or revolving credit to certain customers. Proper credit management calls for setting specific criteria that a customer must meet before receiving this type of credit arrangement. As part of the evaluation process, credit management also calls for determining the total credit line that will be extended to a given customer. Several factors are used as part of the credit management process to evaluate and qualify a customer for the receipt of some form of commercial credit. This includes gathering data on the potential customer’s current financial condition, including the current credit score. The current ratio between income......

Words: 10445 - Pages: 42

Credit Management

...Table of Contents Type chapter title (level 1)1 Type chapter title (level 2)2 Type chapter title (level 3)3 Type chapter title (level 3)3 Type chapter title (level 3)3 Type chapter title (level 3)3 Type chapter title (level 3)3 Type chapter title (level 1)4 Type chapter title (level 2)5 Type chapter title (level 3)6 TARGET MARKET:- BANK AL HABIB limited has conservative credit approach. They provide loan to those customers who are already their customers and have accounts with bank. We can say that they are solely focusing on relationship oriented lending for major corporate exposure. Thus it is clear that bank has mitigated their risk. This is the main reason that credit department have zero non performing loan. BANK AL HBAIB while providing loans to their existing customer’s bank pledge some security against that loan. So the risk is minimized. Against the loan the the security which is pledged by borrower should not be used by bank, but the pledged should be only for the purpose of security. For corporate sector bank also keep some proprety as a mortgage. Bank can use mortgage security. Procedure for mortgage is bank hire human resource for the legal opinion in which assigend person should prepare legal documents regarding the mortgage security, transfer letter. Assigned company also find the forseable value of the mortgagae security. For corporation bank also create a charge (portion). This is basically claimed of bank on the company assets. This......

Words: 4845 - Pages: 20

Three C's Theory

...Andres Diaz Business 201 9/26/14 Three C’s theory In “It’s Good Business”, Robert Solomon describes the importance of practicing good business ethics in decision making. He presents the three C’s theory of business ethics: compliance, consequences, and contributions. When talking about good business ethics we should be aware of the need for compliance with the rules, the contributions business can make to society, and the concern for consequences of business activity. Enron, a energy trader, was formed in July 1985 when Texas-based Houston Natural Gas merged with InterNorth. At first Enron was only a natural gas provider, but in 1989 Enron begun trading natural gas commodities, and in 1994 it began trading electricity. Enron was considered one of the most innovative companies of the late 20th century, after their scandal Enron became a symbol for corruption and mismanagement in businesses. The scandal started in the late 90s when Enron pushed their debt obligations to offshore partnerships, at the same time the company was reporting inaccurate trading revenues. Enron used its partnerships to sell contracts back and forth to itself and booking revenue each time. In 2001 Chairman, Kenneth Lay received an anonymous memo expressing wariness about the Fastow partnerships and warned of possible accounting scandals. On October 16th Enron announced a $638 million loss for the third quarter and took $1.2......

Words: 1322 - Pages: 6

Credit

...Building Good Credit Today, parents are unsure on when and how they can guide their teens to start building up their credit. First, they need to encourage their teens to get a job. Second, parents need to talk to their teens about saving techniques and opening up their own bank accounts. Third, teens should apply for a credit card for themselves; if not possible then become an authorized user on their parents’ credit cards. Fourth, teens need to be aware that the more inquires they make for credit cards; the more that it can hurt their credit. Fifth, teens need to understand that they need to pay their bills on time or suffer the consequences. Finally, teens need to use their credit card wisely and responsible in order to build their credit. It is wise for parents to encourage their teens to withhold a job. When teens are working for their own money they tend to be more cautious towards spending it. Without their own income, they will expect their parents to continue paying for everything” (Todorova). Law requires credit card issuers to check income for applicants under age 21.”  Credit card issuers do such things to assure themselves that the teen will be able to repay their credit card balances. The next step in guiding teens to build up their credit is for parents to have a mature talk about money saving techniques and opening up their own bank account. “Establishing a good banking history can help your child build a strong financial foundation, which is a stepping......

Words: 818 - Pages: 4

Credit

...Credit Card Use September 15, 2010 The article I found about interest rates is called “Credit Where It’s Due.” This article talks about credit unions and how they offer lower rates and how they are becoming more popular. This article states that more people are looking into credit unions because of lower interest rates and higher savings rates. I think it is relevant to credit card use because if more people saw this article, more people would think about joining these credit unions and receive lower interest rates on credit cards. Article 2 is called “Win at the Credit Scoring Game.” And is about credit reports and ratings. The first thing you need to do is learn your score. They also say that you should never, ever be late on payments. Also always remember the “magic 20%. This 20% is about how much you owe compared to how much credit has been extended to you. This article is relevant to credit card use because it tells you what to do if you spot an error, how to improve your score. All the things that people should realize if they have a credit card. The article that I found is about money management and is called “5 East Cost Cutting Tips”. It includes things like to stop paying credit card interest rates, get a better price no Internet service, slash cell phone costs, reconsider landlines, and reducing bank fees. This article gives you all the ways you can cut and how to do each. This article is relevant to the topic of credit card use because it shows you......

Words: 381 - Pages: 2

Credit

...Ian W Marsh The effect of lenders' credit risk transfer activities on borrowing firms' equity returns Bank of Finland Research Discussion Papers 31 • 2006 Suomen Pankki Bank of Finland P.O.Box 160 FI-00101 HELSINKI Finland + 358 10 8311 http://www.bof.fi Bank of Finland Research Discussion Papers 31 • 2006 Ian W Marsh* The effect of lenders’ credit risk transfer activities on borrowing firms’ equity returns The views expressed are those of the author and do not necessarily reflect the views of the Bank of Finland. * Cass Business School, London, and Bank of Finland. E-mail: i.marsh@city.ac.uk. This paper was written while the author was visiting the Research Unit of the Bank of Finland. The Bank’s hospitality was exemplary and I am grateful to participants at the Research Unit’s Summer Workshop, the Bank of Finland Economics Seminar, Iftekhar Hasan, Tuomas Takalo, and Wolf Wagner for comments. Susan Yuska at the Chicago Fed was very helpful in guiding me through the Bank Holding Company Database. http://www.bof.fi ISBN 978-952-462-340-7 ISSN 0785-3572 (print) ISBN 978-952-462-341-4 ISSN 1456-6184 (online) Helsinki 2006 The effect of lenders’ credit risk transfer activities on borrowing firms’ equity returns Bank of Finland Research Discussion Papers 31/2006 Ian W Marsh Monetary Policy and Research Department Abstract Although innovative credit risk transfer techniques help to allocate risk more optimally,...

Words: 9763 - Pages: 40

Credit

...& Laman, V.P. (2010)., the birth of the credit system has made the use of the documents covering credit transactions both imperative and important, such documents are known as credit instruments. While credit transaction need not be evidenced by written contract, nevertheless, it appears sufficiently clear that it is better than they are. Credit instruments are documents that serve as an evidence of debt, this defines the responsibility of the debtor to his creditor and the right of the creditor to collect from the debtor at the specified time. Bonds are promises of the payment of interest and principals to the holder at a particular time. It is a written or printed acknowledgment of debt. It is a certificate of liability or obligation. Bonds are debt and are issued for more than one year. Stocks are permanent invested capital contributed by the stockholders or owners of a corporation which are proved by certificates. It is a share of a company held by an individual. Miranda (2001) defined check as a written order drawn by a depositor, directing it to pay on demand a specified sum of money. Check is the most commonly used bill of exchange. It is a written, dated and signed instrument. Promissory note is the simplest form of a credit instrument. It is a written promise of an individual to pay a certain amount of money at certain time in the future to an appointed person or bearer. II. Kinds of credit instruments Credit instrument existed before coinage. In......

Words: 2422 - Pages: 10

The Four C's

...Humans have a unique advantage compared to any other species in the world, and that benefit is teamwork. Everything that we see today in society is a direct or indirect result of some level of teamwork. From the cars we drive, to the doors we open, to the elevators we ride to the 100th floor of the freedom tower, were built using teamwork. The main focal point of teamwork can be described in four words I will refer to as the four c’s. One of the most important c-words is communication. Almost everything man-made takes deep and complex communication known as language. The ability to take a thought from your head and relay that exact thought to someone else is done quite easily with language. Although the origin of language has been widely debated, the importance of it has not. All experts agree language has single-handedly set us apart from any other animal in the known universe. Many societies throughout history believed that language is the gift of the gods to humans. The most familiar is found in Genesis 2:20, which tells us that Adam gave names to all living creatures. This belief predicates that humans were created from the start with an innate capacity to use language (The Origin of Language, Edward Vajada). Communication goes further than language. One of the revolutionary ways humans have to communicate is telegraphically. Phones, mail, e-mail, text, satellites, television, all are superior ways we as the dominant species have to communicate to one......

Words: 1020 - Pages: 5

Credit

...University of Phoenix Material Credit History Worksheet Directions Identify the following factor descriptions to their corresponding C of credit. Highlight, bold, or underline the correct answer. 1. Jack and Jill want to buy a car. They are using another car for ___________ as a promise to pay. a) Capacity b) Capital c) Collateral d) Character e) Conditions 2. Under these _______________, you may still be approved with a cosigner. a) Capacity b) Capital c) Collateral d) Character e) Conditions 3. Henry has a history of not staying with a job for an extended period of time. Which of the C’s would a lender be looking at? a) Capacity b) Capital c) Collateral d) Character e) Conditions 4. Madaline is a stay-at-home mom seeking to start a home-based business. She would need a cosigner in order to qualify for a loan. What other C’s might she need for this loan? a) Capacity b) Capital c) Collateral d) Character e) Conditions 5. Lenders use a debt-payment-to-income ratio to evaluate this particular C. a) Capacity b) Capital c) Collateral d) Character e) Conditions Credit Score Resources: • Five C’s web page located at the following link: http://www.loanuniverse.com/credit.html. • Annual Credit Report website www.annualcreditreport.com. • Fair Isaac website......

Words: 820 - Pages: 4

Credit

...RESEARCH METHODOLOGY Introduction to Credit Appraisal: Credit appraisal means an investigation/assessment done by the bank prior before providing any loans & advances/project finance & also checks the commercial, financial & technical viability of the project proposed its funding pattern & further checks the primary & collateral security cover available for recovery of such funds. Problem Statement: To study the Credit Appraisal System in SME sector, at State Bank of India (SBI), Uttarsanda. Objectives: * To study the Credit Appraisal Methods. * To understand the commercial, financial & technical viability of the project proposed & it’s funding pattern. * To understand the pattern for primary & collateral security cover available for recovery of such funds. Research Design: Analytical in nature Data Collection: Primary Data: * Informal interviews with Branch Manager and other staff members at SBI bank. * E-circulars of SBI Secondary Data: * Books and magazines * Database at SBI * Internal reports of the banks * Library research * Websites Expected contribution of the study: This study will help in understanding the credit appraisal system at SBI & to understand how to reduce various risk parameters, which are broadly categorized into financial risk, business risk, industrial risk & management risk associated in providing any loans or advances......

Words: 28662 - Pages: 115

A Ovelha Negra (Hrútar / Rams) 2015 | LEER MAS | Mpie (5)