THE 4 C's of CREDIT 9-30-08

Character

More than anything, creditors want to know your character. That is, they want to know something about your nature or disposition. Who you are is not so much your name, the kind of residence you have, or the city you live in - although this is, no doubt, important information that will be required of you. Rather, your "credit character" is determined by what, if anything, you have done in the world of credit through the present. It's not what you can say about yourself that matters but what your past actions say about you.

Things you will need to consider in the area of character include answers to the following questions:

·	Do you have a checking and/or savings account? How long has it been established? What do your activities in these regards look like? Do you have a history of bouncing checks, for example?
·	What is your payment history? Do you pay your bills on time? Do you always pay your bills on time or are there instances where you did not? If so, why?
·	Do you currently have any credit cards? Have you had any credit cards in the past that are now closed accounts? If so, who closed them and why?
·	Do you have any other lines of credit at this time? If so, how much? How much credit have you applied for in the past? What was approved and disapproved and why?
·	Do you make minimum, partial, or full payments each month? Do you make monthly payments or are there instances where you did not? If so, why? Did you default on any of your credit cards or were any open accounts closed for you by the creditor in question? If so, how recently?

When reviewing your character, lenders want to know what actions you have demonstrated to date. Take some time now to collect all of the data you have in this regard and begin to build a file on yourself. Note any trends you see (on-time payments, late payments, full or partial payments, etc.) and try to get an idea of the picture that others will have of you when looking at the same information.

Capability

"Remember the root-beer principles of borrowing," often counseled a college professor of mine. "Borrowers must be A&W," he would say referring of course to the famed producer of root-beer.

What this learned individual was attempting to draw the attention of his students to, is the very idea that every potential borrower must be able AND willing to borrow. If both criteria - ability and willingness - are not met, a loan application will not be approved.

For most consumers, lack of willingness is usually not an issue. The primary issue in this instance is most often ability and that is precisely what a creditor is going to look at in determining whether or not to approve your application. While one's ability to borrow is determined by a variety of factors there is probably no larger consideration than the capability of paying the loan in question. Simply stated, lenders want to know whether or not you have the means of repaying the loan plus interest.

Things you will need to consider in the area of capability include answers to the following questions:

·	What is your current monthly or annual income?
·	What are your current monthly expenditures? How much of your monthly spending reflects needs? How much of your monthly spending reflects wants? How much discretionary income do you have?
·	Do you have any additional sources of income such as second jobs, investments, or other assets that deliver a regular dividend or payment of some kind?
·	Do you have hard assets (e.g., a car, personal belongings, home, etc.,) that can be used as collateral against the loan, if needed? Do you have soft assets that can be liquefied if needed?
·	Do you have a spouse with an income and/or similar assets who can serve as a co-applicant with you? Or do you know someone who is willing to guarantee the loan on your behalf should you fail to make the payments yourself?

Remember, you may be very willing to borrow but the key question for you is, "Can you borrow?" This is what lenders want to know and this is what they will look at when considering your "credit capability."

Capacity

"What is capacity?" you ask. In short, it is the difference between the amount of the total line of credit you are considering (any current lines of credit plus that for which you are applying), minus the actual amount of the credit line you are using.

Let's say, for example, that you currently have a total credit line of $15,000 via three credit cards and a personal signature loan at your local credit union. Let's assume further that of the $15,000 available, you have used $8,500 for various expenditures. That leaves you with a net credit line balance of $6,500. Stated another way, you have used about 57% of the total line of credit available to you. This is what lenders mean by capacity.

Things you will need to consider in the area of capacity include answers to the following questions:

·	How much total credit do you currently have?
·	How does your total line of available credit compare to your income, savings, and other assets?
·	Should you be approved for a new loan, what will your new capacity rate be?
·	Do you have a history of maximizing your available lines of credit?
·	Have you recently applied for any other loans or lines of credit? If so, how much? What are the re-payment terms and the interest rates in question?

Cheryl Tolan

805-478-9018