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Q: Review p. 113 of Personal Finance and list the five C’s of credit. Provide a brief description of each.
A: A method used by lenders to determine the credit worthiness of potential borrowers. [ The system weighs five characteristics of the borrower, attempting to gauge the chance of default. The five Cs of credit are: -Character -Capacity -Capital -Collateral -Conditions. Judgmental factors which (in theory) bankers use to evaluate the quality of a personal or small business loan application. First
four of these are normally under the control of the applicant whereas the fifth is not: (1) Good reputation and track record (character) that indicates a willingness to meet one's obligations, (2) Stable and adequate capital base, (3) Capacity to generate cash flows adequate to cover debt-service, (4) More than adequate valuable assets for pledging as collateral, and (5) economic and other conditions conducive to the applicant's plans. In practice, however, the order of the importance of these factors often is: collateral, capacity, capital, conditions, and character. ]
Expert answered|bubbly_bob|Points 401|
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Asked 11/9/2010 7:08:31 PM
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