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Many people believe that the decision-making process for creditors boils down to just one thing: the credit score. Who can blame them when it seems like your score is the end-all and be-all to getting approved?

Here’s the thing, though: Credit scores are really nothing more than a naturally occurring byproduct of the financial lives we live.

Sure, you may be able to jack up your score in the short run with a trick or two. But while that may make the difference on a rapid-response credit application for a high-rate credit card, a lending institution that’s trying to decide if you’re worth a lower-rate, longer-term bet is going to take a more deliberative approach.

I’m talking about the five C’s of credit — Capital, Capacity, Conditions, Collateral and Character — that underlie all serious underwriting efforts. I outline the five C’s in more detail in my recent book on personal finance.

Taking the C’s one at a time, the first, Capital, represents the difference between what you own and what you owe. That’s another way of describing your financial worth or equity, provided you own more than you owe!

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Capacity measures your ability to handle more debt, which is determined by dividing the sum total of your monthly obligations by the salary you earn during the same period. Lenders become skittish when that number—which represents your debt load—approaches 30%. (You can see how your debt load compares to other Americans using the free Credit Report Card, which gives you a snapshot of your credit and grades you on important factors.)

The Conditions C refers to personal circumstances with current economic conditions taken into effect. In plain English, that means the security of your job and your ability to replace the income if that becomes necessary. This is where the education, experience and skills you’ve acquired over time are taken into consideration.

Collateral is what you’re seeking to finance, such as a house or car. The lender is focused on its market value today and over time, in case you default on your loan.

Last but not least, the Character C has nothing to do with how great your mom may think you are, but everything with how you’ve conducted yourself. More than a moment-in-time credit score, your credit bureau report is the story arc of your personal financial life. From my standpoint, it’s also a make-or-break element of the credit underwriting process because history often repeats itself.

The Choices Lenders Make Based on Your Credit

Lenders use these five C’s to assess your credit worthiness as they endeavor to make four important decisions.

Whether or not they want you as a borrower. Your personal circumstances and history—stability, absence of derogatory credit information, such as payment delinquencies, lawsuits and tax liens, and so forth—are the influencing factors.

The amount of the loan to approve. This is where Capital and Capacity come into play.

How much to charge for the loan. Interest rates and fees are directly tied to risk—the higher the perceived risk, the higher the cost. All aspects of the five C’s are brought to bear on this.

The terms and conditions to require. Ever hear of the “golden rule?” He who has the gold makes the rules. When you borrow money, you become obligated to the entity that lends it to you. Lenders will impose stricter limitations and certain prohibitions on those they view to be higher credit-risk borrowers.

Now for the flip side.

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If you know that your personal circumstances are good (your personal and professional lives are stable, and your financial history is respectable) and the loan that’s being proposed has the potential to do more harm than good (the interest rate is too high, the terms and conditions unreasonably restrictive), search out alternatives.

Start by considering smaller community banks and credit unions that are nearby, and compare their rates with what you can find online. Keep in mind, though, depository lenders (banks) value depositors more than they do non-depositors when it comes to their loan-making. So don’t be surprised if you’re asked to move your banking relationship in order to get the loan you want—a decision that can present logistical complications when the lender isn’t nearby.

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