You 5 Cs of Credit They are generally used by financial institutions in the credit analysis process, in order to determine whether it is safe to offer credit to a particular customer.
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Therefore, knowing this criterion is essential to increase your chances of receiving a positive analysis, and thus obtaining the loan you have always dreamed of.
But what are these 5 Cs? What is assessed in each of them? How can this criterion be used to obtain credit?
These and other questions will be answered throughout today's content, so if you want complete and reliable information, keep reading!
Use the right strategies and increase your chances in credit analysis
If you believe that gaining credit depends solely on luck, you are completely wrong.
This is because the financial market works through precise and complex analyses in order to determine whether a given credit concession is safe or not.
At this point, you might be asking yourself: so why did my indebted neighbor get a loan, and I, who have a clean record, can't even get a credit card?
This doubt is very common, and it exists because we are used to considering only the criterion of compliance when granting credit, when in fact, banks consider some others.
It is worth mentioning that sometimes compliance has its degree of relevance reduced, if the customer meets the other criteria.
So, simply having a clean credit history does not guarantee approval for credit cards and loans. To do this, you need to use the right strategies.
Next we will talk about the 5 Cs of Credit, which will help in understanding this idea.
Discover the 5 Cs of Credit
Almost everyone who has ever had a credit proposal denied believes that the denial was due to the bank manager's stubbornness.
But, as we saw previously, credit analyses are not usually carried out by people, but rather by complex and detailed systems.
With this, several criteria are analyzed in order to determine whether the client's profile is safe for that operation.
Today we will talk about the 5 Cs of Credit, which will help us understand what these criteria are and how each of them affects the analysis. Check it out!
1. Character
The first C of the 5 Cs of Credit is Character, and as the word itself suggests, it concerns the customer's profile.
This criterion takes into account financial habits, including level of compliance and history of recent months.
Therefore, customers with a positive history of paying expenses and adequate financial transactions usually obtain approval in this criterion.
As it is the first of the 5 Cs, in general, defaulting customers end up being blocked from the start in the analyses, but it is important to say that this criterion does not have more weight than the others, and can be overcome.
2. Capacity
The second criterion of the 5 Cs of Credit is Capacity, and is directly related to the customer's payment potential.
Therefore, two main points are evaluated in this criterion: the customer's income and the available credit margin.
For example, let's suppose you have an income of R$5,000, but you already have loans in your name that total a monthly expense of R$2,500, which constitutes a commitment of 50% of your income.
In general, banks consider a margin of up to 30% of income commitment to be safe. So, in the example above, your chances of approval would be lower.
Therefore, to have a good chance of approval, it is important that your income is compatible with the credit requested.
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3. Capital
The Capital criterion considers your investments and applications, which directly affect your credit profile.
So, if you have a portfolio with applications and investments, this is considered when calculating your payment potential.
It is important to say that this analysis is not intended to use these applications as a guarantee, but it can still interfere with the overall assessment.
It is worth mentioning that for legal entities the analysis of this criterion is different, as it concerns the money invested in the business.
Therefore, the interpretation and impact vary according to the applicant, who may be an individual or a legal entity.
4. Collateral
We previously talked about the Capital criterion, and as we saw, this usually considers the income and investments in the name of the applicant.
The Collateral criterion of the 5 Cs of Credit serves to evaluate the applicant's assets, that is, everything that could be offered as collateral to obtain the credit.
So, if you have a property, car or even a business, this can be used when presenting guarantees.
It is worth mentioning that this criterion only becomes relevant when the presentation is made by the applicant. Therefore, the bank will not simply consider your property as collateral without authorization.
But, for a general analysis, the client's assets certainly count a lot in the classification of income and financial habits, so it ends up interfering in one way or another.
5. Conditions
Finally, the last of the 5 Cs of Credit concerns the Conditions criterion, that is, what is the purpose of requesting credit?
This criterion aims to “map” the customer’s financial behavior, and thus assess the chances of them being able to make payments.
So, very risky reasons tend to weigh heavily in this criterion, after all, offering credit for a company's bold plan can be a risk, because if it doesn't work out, the loan payment could go down the drain.
To “get around” this criterion, many banks establish terms and conditions that aim to favor the fulfillment of the financial commitment.
Should I consider the 5 Cs of Credit to increase my score?
Throughout this content we were able to understand what the 5 Cs of Credit are and how these criteria interfere in the customer's credit analysis.
With that, we just need to answer the central question: after all, should we consider the 5 Cs of Credit to increase our score and, consequently, our chances of loan approval?
And yes, following the 5 Cs of Credit can certainly help you obtain positive reviews that favor your financial profile.
So, if you want to ensure ease in obtaining credit, make use of strategies to achieve the ideal profile in the analyses.
Read also: What is a direct debit loan? What are the advantages? (consultacred.com.br).
