Understanding the 5 Cs of credit

Your credit score is an important part of your loan application that’s impacted by five main factors, commonly known as the 5 Cs of credit. Lenders will often use these factors to determine and assess your creditworthiness. The higher you score on each of these factors, the higher your overall credit score will be. These factors include:

• Character: Credit history, including repaying debts on time​. Paying bills and loan payments on time can improve your payment history score.
• Cash flow/Capacity: Whether you have enough revenue and capacity to repay the loan you are requesting.
• Capital: How much of your own money you have invested in your business​, which shows lenders that you are invested in the outcome of this business.
• Collateral: Property or assets that can be pledged as security​ or guarantee the loan you are requesting.
• Conditions: Outside factors that could impact your business, such as industry trends, economic conditions, and how your business may fare in changing conditions.

Learn more about the 5 Cs of credit with NerdWallet.

Understanding these factors and following some key strategies can help you build, repair and maintain strong credit. Keep on reading our creditworthiness series to learn some basic steps to solving common credit score challenges and how each factor impacts your overall score.