Getting approved for a line of credit can seem like a complicated and confusing process. But it turns out there’s a method to the madness and it’s known as the Four C’s.
Here’s Five Fast Facts About the Four C’s of Credit:
- 🪪 Character - Lenders will look to see if you have a history of consistently making your payments on time.
- 💳 Capacity - This one sounds like a no-brainer: lenders will look to see if you have the ability to pay back your loan. That includes your debt-to-income ratio (DTI), which is your total debt relative to your income. They’ll also look at your revolving debt, such as how many credit cards you have and what you owe on them.
- 💸 Capital - Lenders want to know how much money you have in your savings and investment accounts that can be converted into cash as a way to make sure you have funds beyond your gross monthly income.
- 🏠 Collateral - This is the amount of assets you have that can be used as security against the loan. If it’s a mortgage, the collateral is the home itself.
- 📄The Secret Fifth C - Depending on the loan, lenders will look at the conditions surrounding you. If the intended use of the loan seems slightly risky it may have an influence on whether or not you get it.
🔥Bottom line: Loans are confusing? You don’t say! The Four C’s may help you get things in line before your next application. Whether or not you get it is another thing entirely, but it certainly helps to be prepared.
What do you think of the Four C’s?
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