The Three C’s of Lending

Lenders evaluate three main criteria when considering extending credit: the consumer’s ability to pay, any security offered as security, and his or her personality. Although a lender representative may not know the borrower personally, all of the information needed to make these decisions is included on the credit report and is calculated by the credit score. Limiting the lending activity to those with higher credit scores reduces the potential overall risk faced by the lender.

  • eligibilityThe calculation of the amount of debt that the borrower can realistically repay depends on the income (income) and outstanding debt. Lenders also take into account the borrower’s employment history and the potential for increased earnings. The stable job and stable earnings of the borrower can be worth an increase in the ability to calculate and improve his qualifications for the insurance.
  • side Assets that a lender can seize to repay an unpaid debt are considered collateral, whether or not directly pledged as security for the insurance by the borrower. Creditors can make a insurance conditional on the borrower’s deposit of sufficient collateral to secure the debt, depending on the borrower’s credit history and the size of the insurance. Even if the insurance is given without collateral, the lender can still sue to force the borrower to give up those assets as repayment of the defaulted insurance.
  • LetterSeveral factors are evaluated to determine the financial character of the borrower. Stability in employment and residence of the individual are considered. Whether the consumer owns, rents or rents is important. Although a credit report cannot state the value of checking or savings accounts, having these accounts in good standing are signs of financial character.

Data models that credit bureaus use to calculate consumer credit score factors for each of these lender requirements. Before extending credit, lenders can automatically set limits, rates, and term based on a consumer’s credit score. Most major lenders have procedures in place to review those automated decisions, if circumstances indicate the need. Consumers can usually request a review of their credit report from major lenders to increase the credit limit or lower the interest rate.