The 360o Guide to the 3 C’s of Credit


01 Jun 2021 | 6 min read

Ever wondered how financial institutions decide whether or not you qualify for a loan? They check your credit score! Like several other people, you might be thinking that your credit score is just a number. But did you know how moneylenders reach it? 

Well, they enter the 3 C’s of Credit. This is a typical formula that allows lenders to perceive how likely you are to successfully clear their loan. 

In this blog, you will discover the 3 C’s of Credit in detail that are used to help the lenders whether or not they're going to extend you a loan. Let’s dive into the post below! 

Understanding The 3 C’s of Credit 

In simple terms, the 3 C’s of credit signifies the method employed by banks to determine if you qualify for a loan. Here, the lender plunges into your financial past to evaluate your repayment capability. 

For example, they observe how well you paid off your previous loans, how much you earn monthly or annually, and if you've got any outstanding debts. 

What Does the 3 C’s Stand For? 

The 3 C’s of Credit stands for Character, Capital, and Capacity. Read on to comprehend what each of the C’s is all about. 


1. Character 

By looking upon your credit history, the lending institution attempts to check out if you hold the honesty and reliability to pay off the debt. In pursuit of that evaluation, you might be asked the subsequent questions: 

  • Did you use credit in the past? 
  • Do you clear your bills timely? 
  • Do you possess a good credit report? 
  • Can you give character references? 
  • How long have you been living at your current location? 
  • How long have you been working in your current job? 

2. Capital 

The lending institution wills to know if you've got any worthy assets such as land, a personal asset like an automobile, or savings and investments that can be taken into use to pay off the debts just in case the income is unavailable to you. You might be asked these questions by the lender to evaluate your capital worthiness: 

  • What asset do you own which can secure the loan? 
  • Do you own a savings account? 
  • Do you own investments to using as collateral? 

3. Capacity 

This signifies your ability to pay off the debt. The lending institution will look upon your consistency in working in an occupation to assess whether it can supply adequate income to support repaying the loan timely and entirely. Lenders may ask you the subsequent questions to determine this C out of 3 C’s of Credit: 

  • Do you hold a gentle job? If yes, what's your salary? 
  • How many other loan payments do you own? 
  • What are your current living expenses? 
  • What are your current debt obligations? 
  • How many dependents do you have? 

Now, you have got what are the 3 C’s of Credit, you might be thinking, it does not have anything vital to do with you, all the essentials have to be performed by the lending institution. Well, if you thought so, then, you must know, how important it is for you and how it helps you alongside the lender. 

How the 3 C’s of Credit Facilitate Both Lenders and Borrowers? 

Well, the 3 C’s of Credit allows you to understand whether you can borrow money from a financial institution without any hassle and if so, then how much you can borrow. 

If all the 3 C’s of credit stand by your side, your loan requests get approved instantly. Afterward, you can negotiate with the moneylender to mitigate your rate of interest. 

Besides, if you think at a point in time that you have got an excess amount, consider prepaying the loan as a loan prepayment that helps you maintain the credit cycle without affecting your credit score. 

How To Ensure The Best 3 C’s of Credit? 

Now, as you have understood, how important the 3 C’s of Credit is for you, should also know how to keep it optimal. Here are some tips that will ensure to keep your 3 C’s of Credit best if you consider them applying: 

3cs of credit

  • Pay Timely 

Pay your credit card bills or loan EMIs on or prior to the maturity date. By means of the NACH, ECS, SI, and PDCs payment options, you can pay your debts and conserve 3 C’s. 

  • Credit Usage 

Restrict your credit expenditures to 30% of your limit and utilize it when there's an urgency. 

  • Borrow Mixed Sort of Loans 

Your credit would be in danger if you consider borrowing more unsecured loans. So, try to borrow the mixture of debts that is to say both secured and unsecured loans so as to take care of your credit health. Else, your credit score will get damaged even by your efforts of usual payment. 

  • Execute EMI Computations 

Check your EMI whenever you apply for a loan as it renders you an idea of the payment ahead and facilitates you to choose the repayment plan in accordance with your income. For instance, if you are applying for a personal loan, you can take the help of a personal loan EMI calculator online to get the precise result. 

  • Check Credit score 

You must perform a soft inquiry for your credit score from any of the online credit agencies to comprehend your credit capability and eligibility for the loan. Just in case you find your credit score low, you can avoid applying for loans and preventing a possible loan rejection. Moreover, you can read our special blog to figure out the top factors affecting credit score in 2022 and ahead. 

Should You Consider Focusing On The 3 C’s of Credit? 

The 3 C’s of Credit are structured for any applicant trying to find a loan or credit card. Nevertheless, the 3 C’s equation applies to some applicants more than others. 

So, to understand where you fall as a borrower and should you consider focusing on the 3 C’s of Credit, below we have listed the top 4 main sorts of applicants. Let’s take a look: 

  • Consumer Loan Borrowers 

The 3 C’s applies mostly to both salaried individuals and business owners. If you are trying to get an automobile loan, a student loan, or a personal loan, these qualify as consumer loans. In this event, you must continue to have all of your 3 C’s of Credit mastered. 

  • Small Commercial Loan Borrowers 

If you are the owner of a small business and looking to improve your finances by applying for an SBA (Small Business Administration) loan or the other business loan then, you cannot compromise focusing on the 3 C’s of Credit. 

  • Credit Card Applicants 

It could be a credit card to fund small and immediate expenses. Thus, it is vital for you to boost your 3 C’s since this is what will be taken into consideration to assess you. Your performance will facilitate the bank to decide how much credit they're willing to extend you. 

  • A Future Credit Card or Loan Applicant 

If you are considering applying for a personal loan or a credit card in the future, you create a transparent path for yourself by having the 3 C’s of Credit described above sorted. Bear in mind that the 3 C’s equation is employed to assess risk. If you default in your assessments, it implies that you are a high-risk borrower. 

Moreover, the lending institution will not consider extending you a credit facility with you as their interest is also to coat themselves from potential losses. 

Must To-Be-Followed Rules Before Borrowing A Loan 

Understanding the 3 C’s of Credit will help you assess your credit background and capability. But before you borrow a loan, regardless of sort of loan, whether you apply for a personal loan, home loan, or any other credit facility, ensure to follow these two rules always: 

must to be followed

  • Don’t Borrow to Invest 

It has never been a wise decision to borrow for investment purposes. For example, equity investments can get you higher returns but are often a risky affair. You can so easily lose the borrowed capital you invest in there because of their tense nature which might make your loan repayment quite tough. Whereas, investments in fixed deposits and debt instruments get you lesser returns than the interest rate chargeable to loans. 

  • Compare Interest Rates 

Always ensure to compare the loan interest rate before you apply for a loan in India. For instance, Afinoz has associations with over 25 leading moneylenders of India, if you apply for a personal loan, you can compare personal loan interest rates of varying lenders in one place. 

The interest rate determines the monthly EMI you can pay and the interest you'll pay to the lender across the particular loan tenor. So, pick the lender that extends you the loan at a lower interest rate so that you can pay the EMI timely and keep interest payments cornered. 

In A Nutshell 

In conclusion, whether you apply for a business loan, personal loan, credit card, or any other sort of consumer or commercial loan, most of the moneylenders consider the 3 C’s of Credit to decide whether or not to extend loans to a particular borrower such as you. Thus, the 3 C’s of Credit stands crucial before applying for any kind of loan. 

Moreover, contact us if you're trying to find a reliable financial partner. We provide instant personal loans at a low-interest rate as you get the option to compare over 25 lenders’ personal loan offers and choose the best offer for you as per your situation and needs. 

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