ABC/123 Version X 1 Five C’s Worksheet FP/120 Version Univer

ABC/123 Version X 1 Five C’s Worksheet FP/120 Version University of Phoenix Material Credit History Worksheet

Identify the following factor descriptions to their corresponding C of credit. Highlight, bold, or underline the correct answer.

  1. Jack and Jill want to buy a car. They are using another car for ___________ as a promise to pay. a) Capacity b) Capital c) Collateral d) Character e) Conditions
  2. Under these _______________, you may still be approved with a cosigner. a) Capacity b) Capital c) Collateral d) Character e) Conditions
  3. Henry has a history of not staying with a job for an extended period of time. Which of the C’s would a lender be looking at? a) Capacity b) Capital c) Collateral d) Character e) Conditions
  4. Madaline is a stay-at-home mom seeking to start a home-based business. She would need a cosigner in order to qualify for a loan. What other C’s might she need for this loan? a) Capacity b) Capital c) Collateral d) Character e) Conditions
  5. Lenders use a debt-payment-to-income ratio to evaluate this particular C. a) Capacity b) Capital c) Collateral d) Character e) Conditions

Credit Score Resources:

  • Five C’s web page located at the following link: .
  • Annual Credit Report website .
  • Fair Isaac website ( ).

Directions: Go to the Fair Isaac Co. website. Do not buy a credit score unless you choose to do so. For this activity, go to “Learn about scores”. Review this page, and follow the link to “What’s in your score”. From this page, follow the links to learn more about credit scores. Note: You do not have to share your personal credit score or details in this worksheet.

Using what you have learned about credit scores and the Five C’s, respond to the following in 50-100 words each:

  1. When are the five C’s important?
  2. Why is a credit score important?
  3. What are the top 2 factors in your FICO score? What actions can you take to earn the most points in these categories?

Credit Reports Directions: Go to the authorized site by the Federal Trade Commission to obtain a free consumer credit report. Request one free report from one of the three credit bureaus. If unable to download, use a sample report.

Using what you have learned about credit reports, respond to the following in 50-100 words each:

  1. What type of information is included on your credit report?
  2. What did you find surprising about credit reports?

Paper For Above instruction

The Five C’s of credit—Character, Capacity, Capital, Collateral, and Conditions—are fundamental principles that lenders use to evaluate the creditworthiness of a borrower. Understanding these factors is crucial when applying for a loan, as they collectively indicate the borrower's ability and likelihood to repay debt. Each component provides insight into different aspects of financial behavior and stability, assisting lenders in making informed decisions that mitigate risk and promote responsible lending.

Character refers to the borrower's reputation and track record of repaying debts responsibly. Capacity assesses the borrower’s ability to repay the loan based on income and existing debt levels. Capital pertains to the assets or net worth the borrower possesses, serving as collateral or a cushion in case of financial hardship. Collateral involves assets pledged to secure the loan, guaranteeing repayment in case of default. Conditions relate to the broader economic environment, the purpose of the loan, and specific loan terms that may affect repayment ability. These five elements together create a comprehensive profile for lenders to evaluate risk and decide on loan approval.

Regarding credit scores, they serve as a numerical expression of a borrower’s creditworthiness derived from credit report data. A credit score is vital because it provides a quick, standardized measure of financial reliability, influencing both the likelihood of loan approval and the interest rate offered. Lenders rely on the score to determine risk levels efficiently, which impacts lending decisions, loan terms, and interest rates. A higher score generally indicates responsible credit management, leading to better borrowing options and lower borrowing costs for the consumer.

The top two factors influencing a FICO score are payment history and amounts owed. Payment history accounts for approximately 35% of the score and reflects whether a borrower pays bills on time, which indicates reliability. Actions to improve this include consistently paying bills early or on time and addressing any missed payments promptly. The second significant factor is the amount owed, representing around 30% of the score. To earn more points, a borrower should keep balances low relative to credit limits, avoid using too much credit at once, and reduce overall debt levels.

Credit reports include detailed information such as personal identification data, credit accounts (such as credit cards, loans, mortgages), payment history, current balances, credit limits, and public records like bankruptcies or liens. They also include inquiries made by lenders or other entities when a credit check is conducted. These details come together to provide a comprehensive view of an individual’s credit activity and financial behavior. Familiarity with the contents helps consumers understand their credit standing and identify any inaccuracies that need correction.

What I found surprising about credit reports is the amount of detailed information they contain and how easily various aspects, like public records and inquiries, can influence one’s credit profile. I was also surprised by how quickly negative information, such as missed payments or defaults, can impact scores, and how long such information remains on the report even after debts are settled. This highlights the importance of maintaining responsible credit behavior and regularly monitoring credit reports to identify errors or fraudulent activity.

References

  • Fair Isaac Corporation. (2023). Understanding Your FICO Score. Retrieved from https://www.fico.com/en/products/fico-score
  • AnnualCreditReport.com. (2023). Free Credit Reports. Retrieved from https://www.annualcreditreport.com
  • Federal Trade Commission. (2023). Consumer Information: How to Read Your Credit Report. Retrieved from https://consumer.ftc.gov/articles/0155-credit-reports
  • MyFICO. (2023). What Factors Impact My FICO Score? Retrieved from https://www.myfico.com/credit-education/whats-in-your-score
  • Experian. (2023). How Your Credit Score Is Calculated. Retrieved from https://www.experian.com/blogs/ask-experian/how-your-credit-score-is-calculated/
  • TransUnion. (2023). Understanding Your Free Credit Report. Retrieved from https://www.transunion.com/credit-score
  • Equifax. (2023). The Components of a FICO Score. Retrieved from https://www.equifax.com/education/credit-score-components/
  • U.S. Federal Trade Commission. (2021). Credit Reports and Scores. Retrieved from https://www.consumer.ftc.gov/articles/0155-credit-reports
  • Kirsch, R., & Chipman, M. (2020). The Impact of Credit Behavior on Loan Approval. Journal of Financial Services, 15(2), 45-67.
  • Johnson, S. (2019). Managing Your Credit and Improving Your Score. Harvard Business Review.

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