The perfect credit score is something that many desire. But understanding finances and how your credit works can also be very confusing.
Salt Lake Community College is there to help by offering multiple courses that allows students the ability to better understand how it all works.
Finance professor Dennis Wilson states that the “5 Cs” of credit is the golden rule in developing a good credit score or profile.
“It can direct an individual to make wise choices and enjoy the fruits of good money management, which includes a good credit score,” Wilson says.
According to Wilson, the “5 Cs” of credit include:
1. Character
Fulfilling promises starts with always doing what you say you’ll do.
2. Capacity
This is a measure of your available cash-flow to meet monthly obligations. Fixed obligations should be less than 20 percent of your gross monthly income.
3. Capital
Your reserves or savings for emergency plus additional net worth after your total debt.
4. Collateral
When borrowing lenders typically offer better rates and terms if you finance tangible assets with market value and pledge these assets in the event you are unable to repay the loan.
5. Conditions
Economic conditions play a large part in the availability of credit. Lenders are very cautious and credit extension is limited during a recession, but just the opposite if the economy is expanding.
