What Are The 6 C’s of Credit?

For an individual to be classified as someone with a good credit, you have to have these C’s:

Character. You need to be a person who is of good character. You should comply with requirements and contracts. You should not disrupt any agreement and go against issues that you have already settled with the other party. This qualification also takes into account your promptness or tardiness in paying bills. When you are early, you will have plus points for a good credit. But if you are someone who pays his or her bills late most of the time or all of the time, you can be easily regarded in a negative light.

This can also be called as the credit reputation of a person. This pertains to your status in terms of your financial obligations at present and in the past.

Capacity. The next C of credit talks about a person’s power or capability to pay off debts or bills. When you have taken out a loan some time ago, your schedule of payments and your ability to pay will be assessed. Your creditors will be ensuring that you will have enough money or earnings to be able to pay off what you have borrowed from them.

Another factor that considers the capacity of a person is the amount of his or her income. The more income a person has, the higher can be his capacity to pay.

Capital. In order to make sure that you will be able to pay what you owe a creditor, you need to have a good net worth. This is computed by searching for the difference of all of your assets and your liabilities. Your assets are the things that you own. These might also be considered seizable properties as they can be able to serve as payment for your debts. In addition, your debts or the amount that you owe another party will constitute your liabilities.

When you will subtract your liabilities from your assets, the remaining value will represent the other C in credit, the capital.

Conditions. This is another factor that you have to keep in mind. In a general sense “conditions” is a set of factors that might be varied to be classified into a specific category. But, they are considered the things that affect a person’s credit one way or another. These factors can be big or small. Small factors can be personal factors. Other bigger factors will be the presence of other debts, employment stability and a lot more.

Collateral. This is a property that will serve as security against a loan or an amount that you owe a lender. The collateral will be repossessed by the lender if the person is unable to pay off the debt as agreed. The lender will be able to take back the money that they lent you by selling the property to an interested buyer.

Common Sense. This can be related to how sound a person’s judgment is when it comes to your decisions in actual or hypothetical conditions.

Source by Willie Rhoades

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