What are the five C's of credit used for?

The five C's of credit are a critical framework used by lenders to determine the creditworthiness of a borrower, which directly influences loan approval decisions. They consist of Character, Capacity, Capital, Conditions, and Collateral.

Character refers to the borrower's credit history and reliability; lenders assess this to gauge how likely the borrower is to repay the loan. Capacity evaluates the borrower's ability to repay based on income and existing debts. Capital looks at the borrower's net worth and the amount they are willing to invest in the venture, while Conditions pertain to the terms of the loan and the economic environment. Lastly, Collateral involves any assets that could secure the loan in case of default.

By analyzing these factors, lenders can make informed decisions on whether to approve a loan and under what terms. While the other options relate to aspects of credit, such as interest rates or evaluating savings and credit cards, they do not centralize on the core purpose of the five C's, which is fundamentally about assessing loan approval.