Recipes for Financial Fitness

Credit Basics III

Am I credit worthy?

Being credit worthy means that you have a history of paying back money you owe, on time. But that is not the only thing that lenders look at when deciding to lend you money or approve you for a credit card.

Lenders also take a look at your:
•	Monthly income
•	Total monthly payments on other debts
•	Amount of monthly rent or mortgage payment
•	Employment history (the names of your employers and how long you worked at each one)
•	The four Cs of credit: collateral, capital, capacity, character

The Four Cs of Credit: Thinking Like a Lender
Collateral	This is an item of value lenders can take from you if you don’t repay the loan as promised. Lenders usually ask you to put up collateral, such as the value of your home or car, as a guarantee that the lender will get its money back. If you fail to make loan payments according to the terms of the loan, the lender may seize your property, then sell it to pay off the loan. Loans backed by collateral are called secured loans. Habitat for Humanity does not require you to put up collateral for a Habitat home.
Capital	A lender’s main concern in giving you credit is if you will pay back what you borrow. Should you slip up or experience hardship that keeps you from paying your loan bills, lenders want to know if you have items they can sell to repay the loan. Typical items they look for are an investment account and, in some states, your home.
Capacity	Again, a lender’s main concern is if you will be able to repay the loan. Two key factors they look at are your income and employment history. Patterns of rising income and steady employment work in your favor.
Character	Lenders want to know if you’re trustworthy. One way they measure this is by looking to see if you pay your bills on time.