Ever wondered how banks or other financial institutions determine whether or not you qualify for a business loan? They check your credit score!

Like many people, you may think that your credit score is merely a number. Want to know how lenders arrive at it? Enter the 3 c’s of credit. This is a standard formula that is used to establish how likely a borrower is to successfully clear their loan.

Discover the three c’s of credit used to help creditors decide if they are going to loan you money.

So What Exactly Is the 3 C’s of Credit?

In simple terms, the 3 C’s of credit is a method used by banks to establish if you qualify for a loan. Here, the creditor delves into your financial history to determine your creditworthiness.

For instance, they look at how well you repaid your previous loans, how much you earn monthly or annually, and if you have any outstanding debts. For you to have a good credit score, you need all the 3 c’s to check out or balance.

Creditors use credit bureaus to help them gather information about your financial status. The credit bureaus, on the other hand, source this crucial information from your past and current employers, as well as past lenders. They also look back at the places you have lived in for the last five years.

Part of looking into the borrowers’ history entails looking into your criminal record, if any, finding out whether you have any judgments, civil suits, convictions or bankruptcy cases pending in court.

In addition, if you have gone past your deadlines when it comes to settling bills or you’ve accumulated a significant amount in debts while factoring in all other aforementioned aspects, you may end up getting a poor or a good credit score.

A poor credit score makes it quite difficult to find an institution willing to give you a loan.

If you’re lucky enough to get approved for a loan, you may be forced to repay your installments at higher interest rates than other borrowers with better credit scores.

What Does the 3 C’s Stand For?

The three C’s of credit stands for character, capital, and capacity. Read on to find out what each of the c’s is all about.


Many assume that if they show up in front of their creditor, dressed really smart and talk eloquently and politely to everyone is what portrays a good character. The truth, however, is that while it helps to look good and be polite, it also helps to have a good financial history.

To look into your character as the borrower, the creditor looks at your past debt history. How forthcoming were you in repaying your loans, were you a willing borrower or were you a difficult one?

If you were a difficult borrower, is it because you were living beyond your means or did you simply just refuse to prioritize your previous loan repayments?

In addition, if you prove that you were honest by giving truthful information about yourself when you first made the loan application, it could work in your favor.

If you are able to show stability by staying in the same rental apartment or the same job for a long time you also heighten your chances of getting approved.

The bottom line here is that to show good character, you must prove that you can spend wisely.

This way, the lender knows that have the kind of honesty, reliability, and the integrity they need you to have to make sure that they are approving the right person for the loan.

During character assessment, you may be asked questions like:

  • Whether or not you have been approved for a loan before?
  • Do you pay your bills before the stipulated deadline?
  • Can you give examples that show that you have good character?
  • How long have you worked at your current workplace?
  • How good is your credit report?
  • How long have you lived in your current place of residence?


Capital, in this context, is what the lenders use to determine how viable a candidate you are. Your net worth is what helps the financiers to establish your capital.

For example, if your net worth is significantly low and yet you are asking for a loan amounting $30,000 there’s a high probability you won’t be approved. Having a small net worth means that you may struggle to pay back the loan.

Capital is also called collateral because it refers to any tangible asset that you can sign off as leverage to be possessed by the creditor in the event that you default or are unable to repay your loan.

Examples of collateral include cars, jet skis, houses, campers, and boats among others. This property can be either sold or seized by the lender as a way for them to get their money back in case you default on your loan.

For example, if you are applying for a car loan, you may be asked to put up the new car as collateral. If you want to buy a house, you are required to put up the house as collateral. Once you successfully repay the loan to completion, then full ownership rights are signed over to you.

In some cases, the lender may ask for money as collateral. Here, you will use your savings or intangible financial investments to present annuity or a certificate of deposit as collateral or pledge in exchange for the loan.

Some of the questions you can expect during your capital assessment session include:

  • Do you own a savings account?
  • Do you own any property that can act as collateral to secure the loan?
  • Do you have any financial investments?


Here, the borrower’s capacity (or the lack of it) to repay the loan is brought to the table. The creditor’s responsibility is to establish whether or not you have the capacity to repay the loan you have applied for. They carefully look at your financial information.

If they see that you previously had a credit card and you paid for it diligently, or you had a loan before which you repaid without any problems arising, it shows you have a good history meaning that you have a good chance of getting approved.

Do note that you are purely judged on your ability or inability to repay the loan. Take, for example, you earn, $4000 in a month yet your expenditure adds up to $5500 in the same month.

This clearly shows that you are living beyond your means. As a result, the lender may be unwilling to approve your request for a loan.

Part of establishing your capacity involves looking at the total number of dependents you have, what your current income is, your expenses, whether you have any alimony or child support payments pending or settled and so on.

To determine if you are in a position to support credit use, in your capacity assessment session, you can expect questions such as:

  • Have you been working regularly in your current occupation and for how long?
  • How much income do you currently earn?
  • How many other loans do you have currently?
  • What are your total living expenses?
  • Do you have any pending debts? If yes, how much?
  • How many dependents do you have?
  • Do you have a stable job?

Are you a first-time borrower? Here’s how to get a business loan.

Why the 3 C’s Matter

It is easy to dismiss the 3 c’s and say that they do not matter. But considering how keen lenders are to look into it, you are better off getting your finances in check before applying for a loan.

When you approach any creditor for a loan it means you have a financial deficit. If this is the case, wouldn’t you want to make sure that you do anything in your power to make sure that you increase your chances of getting approved?

Some of the ways you can use to help build your 3 C’s include:

Fulfill Your Financial Obligations

Meeting your current financial obligations is crucial to improving your credit score. You do this by paying your bills, taxes, and other financial obligations in good time.

Plan Wisely

The domestic and world economies can be very unstable. This may affect how well you are able to repay your loans and manage your expenses. If you plan wisely, it is going to reflect on your financial history and put you in good light with lenders.

Consider the Amount of Collateral You Have

In the event that you do not have enough collateral to secure your loan consider getting a smaller loan and ask to repay it within a reasonable period.

Look at it this way, if you are seeking a business loan, getting your financial house in order helps to set you up for success – success in your loan application, success in growing your company and success in growing yourself financially and in your personal life.

If you are asking for a loan for your own private or personal use, you can work on building your financial history in exchange for a good credit score. In the long run, you’ll have the financial security to fall back on during tough times and also increase your chances of quickly getting approved for that loan.

Check out these easy first time loans for your business.

What Type of Applicants Should Focus on The Three C’s of Credit?

The 3 c’s are designed for practically any applicant looking for a loan or credit card. However, the 3 c’s formula applies to some applicants more than others.

Want to know where you fall as a borrower? Here are the four main types of applicants who should focus on having all their boxes checked when it comes to the 3 C’s of credit.

Small Business Loan Borrowers

If you are a small business owner simply looking to boost your finances by applying for an SBA (Small Business Administration) loan or any other business loan then, you cannot compromise of the three c’s.

Credit Card Applicants

It could be a credit card to fund a small business or to act as your own personal credit. Whichever way, it is prudent for you to improve your 3 c’s as this is what is used to evaluate you.

Your performance will help the bank determine how much credit they are willing to give you.

Consumer Loan Borrowers

The three c’s may apply mostly to both small and established business owners but that doesn’t keep other people out. If you are out looking for a car loan, a student loan or a mortgage, these qualify as consumer loans.

In this case, you still need to have all your 3 c’s mastered to be rendered a creditworthy applicant.

A Future Credit Card or Loan Applicant

If you plan to apply for a loan or a credit card in future, you create a clear path for yourself by having the 3 c’s described above sorted. Remember that the three c’s formula is used to evaluate risk. If you fail in your assessments, it means you are a high-risk borrower.

More often than not, the lender will want little or nothing to do with you as their interest is also to protect themselves from making future losses.

Did You Find Something That Fits You?

If you did, it is crucial that you strive to maintain solid financial health to better your chances to get credit approval. The better your assessment of the three c’s turns out, the higher the chance you have to get the money loaned out to you.

Read on to learn more about lending solutions available to you.

A Reliable Lender Can Help to Determine the Best Credit Solutions for You

Most creditors rely on the three c’s of credit to establish whether or not to extend loans to borrowers like you.

Contact us if you are looking for a reliable financial partner. We offer credit to businesses that the banks usually turn down.