Three C's of Credit: Character, Capital & Capacity

Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

Securing credit is an important and helpful aspect of personal and business financial health. There are three keys to having a solid credit rating: character, capital, and capacity. This lesson will provide insight into each key.

Three C's of Credit

Establishing solid credit is important both personally and within your business. Having access to financing and credit allows a company to grow, take advantage of opportunities, and have security should it need additional cash flow. In order to be approved for financing, a high credit rating is needed. There are three C's - factors that affect credit rating - character, capacity and capital.

The three C's of credit are analyzed to establish a personal or business credit rating. The credit rating is the score that represents the person or company's character (the history of repayment), the capacity to repay the loan, and capital available to secure the amount. The higher a person or organization's credit rating, the better the chances of getting financing at better terms.

Let's take a look at each of the three C's.


The first C, character, extends beyond how we treat other people. Character is the core of who a person is - his attitudes, beliefs, and behaviors. Character also shows in how we handle our financial obligations. Paying bills on time and being responsible with credit demonstrates to a lending company or bank that the potential buyer has exhibited character in past dealings. This supports the belief that the same traits will continue and the borrower will remain trust-worthy with the repayment of their debts.


Let's face it, there is only so much money in a person's budget. At the end of the day, the borrower must have the ability to repay the amount they are asking to borrow. The second C, capacity, is the amount of money a person has available to pay their debts and take on additional financing.

Let's say you own a sandwich shop. Your business is consistent and breaking even. You believe you can grow your business if you buy additional equipment. After doing some analysis, you determine new equipment will cost $50,000. Unfortunately, your current income is barely paying for the current expenses, and you do not currently have the capacity to make additional payments. Therefore, you do not have the capacity to add additional debt or get more financing.

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