Most financial institutions would follow the certain factors in the analysis of credit requests from a certain person or company. These points will determine whether the credit will be approved or not or whether only a certain amount will be given at a specific duration. This traditional five C’s of credit and banking stands for character, capacity, capital, collateral and conditions. When the person has high remarks for these specific points, request will be granted.

Character is one of the most important considerations in the proper determination of the credit rating of an individual. The character is the aggregate of your distinctive mental and moral qualities. It denotes your good moral risk built up by long years of honest dealing. If you are the borrower, your character indicates your willingness to discharge your financial obligation that is to repay the loan as promised. However, it does not fully indicate though that you have the high probability to pay.

The second basis of credit is capacity. This signifies the ability to pay when a debt is due. It needs to be stated very strongly that no matter how desirous an individual may be in discharging your financial obligations, if you suffer from lack of ability to pay which is the lack of inadequate income, you will represent and remain a poor credit risk. If you would approve credit to someone who is not able to pay, it would be like hitting yourself hard with a shock gun.

For credit purposes, capital represents the financial strength on the risk, that is, it consists of the amount and quality of goods and property expressed in terms of money which an individual or a firm possesses. From the standpoint of mercantile credit, it may represent the firm’s property like equipment, building and the like. A bank making loans to business concerns focuses its attention on the financial statement filed by the borrowing concern.

The fourth C is collateral. Creditors as a general rule would prefer loans or credits to be backed up by collateral as much as necessary for their self protection. It is like your self defense stun gun, ready to protect you in case something unpredictable happens. Thus, collateral must be something of value, which can easily be converted into cash, deposited as a pledge with a lender to secure the repayment of the loan. If you are unable to discharge the loan obligation when due, the lender is free to sell the collateral and collect the debt from the proceeds of the sale.

Lastly, economic conditions exert profound effect upon the grant of loans and credits. It may be rightly mentioned that loans and credits may be extended at certain times and may be denied at other times. When business conditions start from bad to worse, sometimes it happens that even those debtors who have shown exceptional business ability and the reputation for discharging their obligations on time become delinquent.

These are the 5 common and traditional Cs that the credit department of financial institutions use as determining factors in whether they will grant a loan or not.

Author Bio: Joseph Pressley is a certified TASER instructor and a Tae Kwon Do black belt and a father of two. He is the co-founder of BestStunGun.com which provides a good variety of Self Defense Products and TASER for personal protection. To learn more on how these products can save your life, please visit http://www.beststungun.com

Category: Finances
Keywords: financial institutions,credit rating,credit purposes,shock gun,self defense stun gun,creditors