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ICFE eNEWS #19-26 - August 2019

The Five C's Of Credit

By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors

QUESTION: What do lenders look for in determining whether or not to approve a loan? Surely, there must be a set of standard factors that play in their decision?

ANSWER: Your assumption is correct. To one degree or another, most lenders consider these five factors in determining whether to give you a loan. These are often called "The Five C's Of Credit."

CHARACTER. A lender studies your credit report to see how you have handled money/credit in the past because your past practice is the best predictor of your future performance. This allows him to concentrate on "what you have done" as well as "what you say you will do."

CAPITAL. Lenders are concerned with how much "skin you will have in the game." In other words, are you willing to put at risk your own monies, or just the monies of other people?

CAPACITY. This refers to your ability to repay the loan based on your income and outstanding debts. This is called debt-to-income ratio.

COLLATERAL. The lender looks for assets (security) that can make the loan "less risky" to him. A "secured" loan is less risky to the lender resulting in better terms than offered with unsecured loans. This explains why the lender holds the mortgage on the home or the title to the car until the loan is paid.

CONDITIONS. The lender also takes into consideration the amount of the loan, the purpose of the loan, and the prevailing interest rates, plus other conditions outside of the borrower's control, such as the state of the economy, industry trends, or pending legislative changes.

This article is taken from my new book, "The Nuts and Bolts of Cash and Credit: An Encyclopedia of Financial Knowledge," available on Amazon.com

Get questions like this one answered in my new book, The Nuts and Bolts of Cash and Credit: An Encyclopedia of Financial Knowledge" on Amazon.com.
Ask Mr. G
Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

Paul S Richard PhotoICFE eNEWS is available FREE upon request by visiting our Web site and filling out the contact form, and selecting "Yes" for "Add to Mailing List. Please pass this eNEWS on to your peers and interested others and invite them to subscribe for free. Also, visit the ICFE's new Web site: StudentDebtHelp.org

Sent by:

Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation and founder of the College for Financial Planning in Denver, CO.) The ICFE is dedicated to helping consumers of all ages to improve their spending practices, increase savings and use credit more wisely.

The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its financial continuing education courses programs and resources. In addition to eight Certification courses covering identity theft, credit files, credit repair and credit scoring, among others, it also publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE is a partner with the national Jump$tart Coalition for Financial Literacy and the California Jump$tart chapter. The ICFE staff is also active with San Diego Saves and Military Saves, both offshoots of America Saves.

The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

The ICFE helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G library, a free eNews service, and an online resource center for students, parents and educators, plus financial education learning tools in the ICFE Book Store.

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