What are the 3 C’s of Credit?


  • Ever wondered what 3 C’s of Credit Mean?
  • These 3 C’s are - Character, Capital and Capacity - Let’s know more about

Lenders pull your credit report before providing you a loan or credit card. Ever wondered what they try to figure out by checking the credit report? Well, there are 3 C’s of credit that lenders try to figure out. These 3 C’s of Credit are Character, Capital and Capacity based on which the lender decides on lending you. The score ranges from 300-900, and the ideal score to borrow an instant loan is 750.

3 C’s of Credit


The lender will check your credit report to assess the kind of borrower you were. Whether you were an honest borrower or a difficult one for the lender to deal with. In case you were a difficult borrower, what made you like that. Whether it was due to spending beyond your ability to pay it back. This is called character.


Your income, savings, property or any collateral is taken into account while calculating your credit capacity by the lender. Greater income empowers your repayment potential and thus makes lenders confident while lending you the money.


The capacity to repay the loan is also considered by the lender when they decide to set a loan amount for you. In this, your income, existing obligations and your proposed loans are taken into account to know how much debt you can handle. If your income is high enough to accommodate the existing obligation and the one you are likely to have, your capacity will be seen as good.

How the 3 C’s of Credit Help Both Lenders and Borrowers?

The 3 C’s of credit tell whether you can borrow money from a bank or NBFC without any hassle and how much you can borrow. If all 3 C’s of credit are good, your loan requests are approved quickly. And you can negotiate with the lender to lower your interest rate. But if you get a lump sum amount in the form of a bonus, do use it to prepay the loan. A loan prepayment helps you maintain the credit cycle without affecting your credit score.

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Rules to Follow When You Borrow a Loan

  • Don’t Borrow to Invest: It is bad to make an investment by borrowing a loan. For example, equity investments can fetch you greater returns but can be a risky affair. You could so easily lose the borrowed capital you invest here because of their volatile nature. This could make loan payment tough. Whereas, investments in fixed deposits and debt instruments have returns lower than the interest rate chargeable to loans.
  • Compare Interest Rates: Always compare the loan interest rate when you apply for a loan in India. The rate determines the monthly EMI you will pay and the interest you will pay to the lender over the loan tenure. So, choose the lender that offers you the loan at a lower rate so that you can pay the EMI on time and keep interest payments at bay.

How to Ensure Optimum 3 C’s of Credit?

To maintain optimum 3 C’s of credit, you need to do timely payment of your borrowed amount and use the credit limit carefully. Excessive utilization of credit cards can lead to negative impacts on your credit score.

  • Pay on Time: Pay your credit card bills or loan EMIs on or before the due date. Using the NACH, ECS, SI and PDCs payment methods, you can pay your debts and maintain 3 C’s.
  • Credit Utilization: Limit your credit spends to 30% of your limit and use it when there is an emergency.
  • Borrow Mixed Type of Loans: Your credit would be at risk if you borrow more unsecured loans. So, try to borrow both secured and unsecured loans to maintain your credit health. Otherwise, the score will be damaged even by your efforts of regular payment.
  • Do EMI Calculations: Check your EMI whenever you apply for a loan as it gives you an idea of the payment ahead and helps you choose the repayment plan as per your income.
  • Check Credit Score: You should do a soft inquiry for your credit score from any of the online credit bureau to know your credit capacity and eligibility for the loan. In case your credit score is found to be low, you can avoid applying and preventing a possible loan rejection.
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