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When you want to borrow money, lenders will look at a number of things before agreeing to grant credit to you. First, lenders want to know if you have the cash flow to repay the loan. This is known as capacity. Second, lenders look for any property you have to back the loan – this is called collateral. And third, lenders want to know if you will make payments and how you have handled other loans in the past. This is called character. Capacity, collateral, and character represent the three C's of credit.

Lenders tell us there are sometimes two additional Cs that are factored into their decision-making process – capital and conditions. Capital is the amount of money that the borrower can put down towards the loan at the time of closing (also known as a down payment or owner investment). Conditions refer to current market conditions. With an economy in a downturn, these conditions are less favorable to people trying to qualify for a loan. There is very little that any of us can do about this factor, which is why it is very important to have high marks in the other four areas.

To understand the role a lender plays in the credit-granting process, you might think about what you would want to know if someone wanted to borrow money from you. You certainly would want to know that they have a job and that they would make every effort to pay you back. Knowing whether the potential borrower had repaid their other loans on time and in full would also be important to you. Lenders are no different. Lenders are in business to lend you money – that’s their job. They have federal and state government regulations, as well as company guidelines they have to follow. Some people think that lenders look for any reason not to give a loan, but this is simply not true. Lenders want to make loans, though they want to make them to people who will repay the loan.

When you want to borrow money from a lender, you need to fill out the application completely and honestly. If you get turned down for the loan, ask why. You may be turned down for any number of reasons. Ask the loan officer what actions you could take to qualify for the loan in the future. The way you handle loans made to you will determine whether you have “good credit.” You can achieve good credit by making all of your payments, as agreed, in full each month.

If you're having trouble qualifying for a loan because your credit has taken some hits recently, consider contacting our office to learn about our Credit Education program. Our counselors can help you understand your credit reports and work with you to develop or imprrove your overall creditworthiness.