What Are the Five Cs of Credit?
The five Cs of credit is a set of criteria used by lenders to gauge the creditworthiness of potential borrowers. This type of approach weighs five different characteristics of potential borrowers and conditions of the loan, to help predict the chance of potential default and overall risk or loss for the lender. The Five Cs are: Collateral, Credit, Capacity, Capital and Character.
Ownest’s Software Automatically Calculates the Five Cs
Ownest’s advanced proprietary software automatically calculates a borrower’s credit score using the Five Cs of Credit and summarizes the information in an easy-to-read stoplight snapshot (green, yellow, red rating system). This data empowers our affiliate and lender partners with key insight and visibility of the borrower’s overall credit profile – faster and more accurately than any other software on the market – so you know where you’ll get the best return for your sales efforts.
Why is it Important to Use the Five Cs of Credit?
Evaluating a borrower’s creditworthiness based on the Five Cs of Credit is important because it gives the lender a better overall picture of the borrower and their ability to pay off the loan. It also takes into consideration the more “personal” side of financing by considering the borrower’s character, as opposed to simply looking at past credit history and collateral. For example, if the credit check reports a default payment, it could have been due to unique or rare circumstances, such as an illness or divorce. These types of questions will help lenders understand the borrower’s credit – looking back to the credit history and looking forward to the client’s future capacity.