When a credit analysis is done, financial institutions review the credit performance of a person with the 5 Cs.
The review process is based on five key factors that predict the probability of a borrower defaulting on debt.
The 5 Cs of credit, can be measured in different variations but overall, the process of determination is the same.
1. Capacity: Lenders look at your capacity to borrow so they know you are capable of repaying the loan amount.
2. Capital: Your savings or investments show your additional means to repay debt obligation if income is interrupted.
3. Conditions: The actual terms of the loan itself along with the economic conditions of the person borrowing.
4. Character: A borrower's reputation or track record on their financial matters defines the character in credit.
5. Collateral: Personal assets pledged as security for the loan. Either savings, a vehicle, or home serve as collateral.
You can build your credit score keeping these 5 Cs in mind while working on improving your credit history.