How Lenders Rate Creditworthiness

Lenders must evaluate the risks of lending money to others. In commercial lending, creditors generally follow the same principles to evaluate a borrower's creditworthiness.

A creditor usually looks at three factors known as the "three Cs": capacity, capital, and character.

In days of old, the "three Cs" may have been all that were needed to get the nod on a loan, but in today's information age, much more is required, such as a credit report and credit score.

The credit report represents a long list of a person's payment history, credit accounts, and other information. The credit report itself is available free, but the credit score is not included. Perhaps more important is one's credit score—called a FICO score—which is named after the company that developed it: Fair Isaac and Company ( The score is a three-digit number that falls between 300 and 850. The higher the number, the more confidence lenders have that a person will be able to repay their debt on time. Although other companies provide credit scores, the FICO is the dominant score used in the industry.

About 60% of people have scores of 700 or more. At 720, a person is considered a safe risk and typically receives a loan without a problem and at a low interest rate. The FICO score is weighted as follows:

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