The Six “C’s” of Credit
How do you qualify for credit?  To know the answer, you need to  know what credit grantors look for when deciding whether or not to loan money, extend credit or issue a credit card to you.  Credit grantors gather information, primarily from your credit application and a credit bureau report, to determine whether you will be able and willing to repay your debt.  Are you a good risk?  In other words, credit grantors want to know if you are creditworthy.  Creditworthiness is based on a number of things, often referred to as the six “C’s” of credit.The intent of this analysis is to determine:

1) Will the borrower pay? (Character or credit reputation)

2) Can the borrower pay? (capacity)

3) Does the borrower have enough cash on hand to pay if a period of adversity arises? (Capital)

4) Will something adversely affect the borrower’s ability to pay? (Conditions)

5) Will the credit issuer be protected if the borrower fails to repay the loan? (Collateral); and

6) Does the borrower demonstrate an ability to make wise decisions? (Common sense).

Character or Credit Reputation:

This is probably the most important of them all when it comes to unsecured lending. Not many consider this as a factor especially if they can demonstrate capacity or collateral.

How trustworthy are you?  Are you the type of person who will willingly repay your debts as agreed?  Do you have a history of paying rent, telephone, utility and other debts in the past?  Have you made payments on time?  Have you contacted credit grantors directly and promptly if you’ve had problems repaying?

How a borrower handles financial obligations, especially during periods of adversity, is a significant indicator of character or credit reputation. Information compiled by CRB Africa, known as a credit report, is the most vital indicator of creditworthiness.

CRB Africa

Banks and other credit providers use credit reports obtained from CRB Africa as part of the lending decision process. The Banking Act mandates banking institutions to report to CRB Africa, as a licensed CRB, all non-performing credit obligations. Having only one half of the picture (negative information) runs the risk of it becoming the only deciding factor - a blacklist with the potential of restricting access to credit. That is why many customers will also want their positive information to be reported regularly to credit reference bureaus. If banks are aware of a customer’s good payment history, that consumer could benefit from lower interest rate, easier terms and/ or less collateral. It will be easier to shop around - go to another bank that might offer you better terms. By signing the consent to share positive information when asked to by your bank, you stand to benefit.

Your credit history plays a major role when you apply for any type of credit. It is a good idea to know what is included in your credit history before applying for credit or a loan. The law requires CRB Africa to supply you with one free credit report per year, and also issue you with a free credit report whenever a bank makes an adverse decision about you using information obtained from a credit report. You should therefore take advantage of the legal requirement to obtain free credit reports. You may also subscribe to CRB Africa in order to obtain regular updates on your credit report.
It is very important for you to update your details with your banks, in order to ensure the accuracy of the Credit Reports. You are also expected to point out errors in the credit report to avoid incorrect decisions on your credit application.

The above post is courtesy of  Steven Kamau of CRB Africa