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Five Cs of Credit

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A method used by lenders to assess the credit worthiness of a potential borrower, and the chances of them defaulting on a loan. The system uses five factors to determine if the borrower qualifies for financing.

The five Cs stand for:

Character: This refers to the reputation of the borrower.

Capacity: This determines the borrower’s ability to repay their loan based on a comparison of their income to any recurring debts.

Capital: Lenders consider any large contributions toward the investment as a decreased chance of default.

Collateral: Property or large assets aid in securing the loan.

Conditions: The conditions of the loan, such as the principle amount and interest rate, influence the lender in their decision to finance the borrower.


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