What are the 5 C's of Credit?

The 5 C's of Credit refer to the key factors that lenders evaluate when determining the creditworthiness of a borrower. The correct choice identifies these essential components as Character, Capacity, Capital, Collateral, and Credit history.

• Character reflects the borrower's reputation and track record in repaying debts, often assessed through credit scores and professional references.

• Capacity measures the borrower’s ability to repay the loan, primarily by evaluating income, employment history, and existing debt levels.

• Capital refers to the raw financial assets a borrower has, which may indicate a level of investment in the venture or property being financed.

• Collateral represents any assets that can secure the loan and provide the lender with a safety net in case the borrower defaults.

• Credit history encapsulates the borrower's past borrowing and repayment behavior, giving lenders a context to judge risk.

These elements combine to provide a comprehensive view of an applicant’s financial reliability, aiding lenders in making informed decisions. This framework is critical not only in real estate transactions but also in various lending scenarios across different financial services.