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 What Are The Four C’s Of Credit?

  1. Credit History – Your history of payments, age of credit, and the total number of accounts you have controlled
  2. Collateral – Items of value that can be used as a safety net for your credit
  3. Capacity – Your ability to repay what you owe
  4. Conditions – The condition/terms of the loan in question

When you apply for a loan, you will be asked several questions about your credit score and credit history. Your credit score is a number that lenders use to measure the amount of risk associated with approving your loan. In other words, when you apply for a loan from a bank, you meet with someone who doesn’t know you personally, which means they don’t know how responsible you are. To help them determine whether or not they should give you a loan, they look at your credit history, collateral, capacity, and conditions. These are called the 4 C’s of credit.

Understanding the 4 C’s of credit will help you utilize each of them in the most effective way, enabling you to improve your chances of getting approved for a loan.  

Credit History

Three credit bureaus provide your credit score to lenders: Equifax, Experian, and TransUnion. Your lender may only check one of these, or they may look at all three to learn about your credit history. With these scores, which range between 300 and 850, lenders can see whether you pay your bills on time and if you have other debt. This information can help them determine whether it would be risky to lend you money. When you have a higher credit score, it shows that you are responsible with your financial choices, and banks are more likely to approve your loan.


Some loans require collateral for you to be approved otherwise known as a secured loan. Collateral is something of value that the banks can use as a safety net. If you don’t pay back the loan, they can use that collateral to get their money back. For example, if you are using the loan to buy a car, then that car is technically owned by the bank until you pay off the loan. If you fail to make payments, the bank will keep your car as payment. 

When you apply for a loan, the lender will ask about items or accounts that you may be able to use as collateral. Common examples include your house, car, or a savings account.


The third of the 4 C’s of credit is capacity. Capacity refers to your ability to repay the loan. Basically, the lenders want to know if you are employed, how long you have had your current job, and if you consistently get paid or work on commission. They also want to be sure you make enough money to cover the cost of the loan payments on top of your other financial obligations. They may look at your job history or ask you to bring in a copy of your most recent paycheck to verify your income. 

This is also where they will take a closer look at your other debts. If you have several loans and credit cards, they may see this as a sign that you are not very responsible with your money.


Finally, the lender will want to know the conditions of the loan, which means they want to know what you will be using the loan for. For example, are you buying a new car or home, paying for school, or putting it toward paying off other debts? They may also consider the conditions of the economy and how that might affect your ability to make payments in the future.

Get Out of Debt

The factor that plays the biggest role in your ability to qualify for a loan is the amount of debt you currently have. Your debt affects each of the 4 C’s of credit in one way or another, which is why it makes such a large impact on your credit score. Thanks to interest charges, the more debt you have and the longer you keep making payments, the more money you will just throw away over the life of your loan.

Although it can seem difficult to get out of debt, there are options available to help you. CreditAnswers provides services to help you pay off debt for less in a shorter amount of time with a lower monthly payment. You can also stay informed about your credit and debts using our DebtApp once enrolled.

Learn more about how you can be debt-free and get a free debt assessment with CreditAnswers today!


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