When you apply for credit the issuer of the loan or credit limit evaluates a number of factors to determine your “creditworthiness”.
Along with credit reports, which will be discussed later, lenders determine whether or not to issue you credit based on the following criteria:
The Five “C’s” of Credit:
- Character: Are you honest and reliable at paying obligations? To determine this, the lender will look at:
- Length of time at present address
- Renter or homeowner
- Age (legal age for contract
- Previous credit history
- Capital: Do you owe more than you own?
- Do you have savings accounts, investments, or real estate such as a home or land
- Did you make a significant down payment on the item you wish to finance?
- Collateral: What items of value could the lender liquidate in the event that you were unable to pay the debt?
- Capacity: Can you afford to pay? To determine this, the lender will look at:
- Length of time on the job
- Other debt
- Checking/Savings account
- Conditions: What are the current economic conditions? To determine this, the lender will look at:
- Federal Prime Interest Rates
- Stock Market
Your “Creditworthiness” Determines: