Question

How can you use the 5 Cs of credit in situations that occur in your personal life?

Answer 1

The 5 Cs of Credit is a system that lenders use to evaluate any business’s creditworthiness and ability to repay a loan on time.

Five C's of Business’s are character, capacity, capital, collateral, and conditions.

Character is determined by past record of business. Its previous loans and repayment schedule adherence. They look at credit report from credit rating agencies.

Capacity: This aspect looks at financial health, turnover of a business. This helps to determine the volume of a loan. Cash flow statements. Debt service ratios also comment on this.

Capital: This involves inspection of owner's capital in the business. more the better.

Collateral: This is a security (Eg. Property/cash in bank) that business has to keep in case of secure loan. However, unsecure loans may base on other four C's.

Conditions: This involves deciding interest rate acceptable to lender and borrower. Economic condition of a business or state can also be analysed in this case.

In personal life also a person can think of following these 5 C's before applying for a loan or lending to any person or business. A person should keep/ask all records proper to increase possibility of getting/giving loan.