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Banker: What is a million years like to you?
God: Like one second.
Banker: What is a million dollars like to you?
God: Like one penny.
Banker: Can I have a penny?
God: Just a second ...
The Three C's. Creditors look for an ability to repay debt
and a willingness to do so--and sometimes for a little extra
security to protect their loans. They speak of the three C's of
credit-capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for employment
information: your occupation, how long you've worked, and how much
you earn. They also want to know your expenses: how many dependents
you have, whether you pay alimony or child support, and the amount of
your other obligations.
Character. Will you repay the debt? Creditors will look at your
credit history, how much you owe, how often you borrow, whether you
pay bills on time, and whether you live within your means. They also
look for signs of stability: how long you've lived at your present
address, whether you own or rent, and length of your present
employment.
Collateral. Is the creditor fully protected if you fail to repay?
Creditors want to know what you may have that could be used to back
up or secure your loan, and what sources you have for repaying debt
other than income, such as savings, investments, or property.
Creditors use different combinations of these facts in reaching their
decisions. Some set unusually high standards and other simply do not
make certain kinds of loans. Creditors also use different kinds of
rating systems. Some rely strictly on their own instinct and
experience. Others use a "credit-scoring" or statistical system to
predict whether you're a good credit risk. They assign a certain
number of points to each of the various characteristics that have
proved to be reliable signs that a borrower will repay. Then, they
rate you on this scale. And so, different creditors may reach
different conclusions based on the same set of facts. One may find
you an acceptable risk, while another may deny you a loan.
God: Like one second.
Banker: What is a million dollars like to you?
God: Like one penny.
Banker: Can I have a penny?
God: Just a second ...
The Three C's. Creditors look for an ability to repay debt
and a willingness to do so--and sometimes for a little extra
security to protect their loans. They speak of the three C's of
credit-capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for employment
information: your occupation, how long you've worked, and how much
you earn. They also want to know your expenses: how many dependents
you have, whether you pay alimony or child support, and the amount of
your other obligations.
Character. Will you repay the debt? Creditors will look at your
credit history, how much you owe, how often you borrow, whether you
pay bills on time, and whether you live within your means. They also
look for signs of stability: how long you've lived at your present
address, whether you own or rent, and length of your present
employment.
Collateral. Is the creditor fully protected if you fail to repay?
Creditors want to know what you may have that could be used to back
up or secure your loan, and what sources you have for repaying debt
other than income, such as savings, investments, or property.
Creditors use different combinations of these facts in reaching their
decisions. Some set unusually high standards and other simply do not
make certain kinds of loans. Creditors also use different kinds of
rating systems. Some rely strictly on their own instinct and
experience. Others use a "credit-scoring" or statistical system to
predict whether you're a good credit risk. They assign a certain
number of points to each of the various characteristics that have
proved to be reliable signs that a borrower will repay. Then, they
rate you on this scale. And so, different creditors may reach
different conclusions based on the same set of facts. One may find
you an acceptable risk, while another may deny you a loan.
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