You most likely be acquainted with the fact that having a healthy credit rating is imperative for getting a loan from banks or lenders online. However, are you aware of what the lending companies are looking for in customers while approving loan applications?

Whether you take a personal loan, vehicle loan, or want to refinance your property loan, or applying for a mortgage, today lending institutions characteristically look at the three C’s of credit when determining your creditworthiness and your ability to repay the loan.

The 3 C’s of credit are the quantitative and qualitative contemplation a bank or lending company will analyze before ascertain whether to approve or refuse a loan application and if approved, at what rate of interest. The entire process helps to know a borrower’s credit risk. What are the chances of repayment if you take out a loan from the lender?

According to an article published on , you can take out a credit-builder loan to improve your credit score. Read on to understand how you can master the three C’s of credit to become eligible for a low-interest loan from an online lender.

1. Capacity

Capacity is one of the most significant of the 3 C’s of credit. Though there are 5 C’s of credit, we discuss the three C’s in this article. Fundamentally, a lending agency will analyze your current income, job history, and due debts to find out if you can have the ability to take another loan and shell out monthly payments on time and without defaulting.

The lenders might employ debt-to-income ratio (DTI), understand your financial capability and your ability to repay the loan. It is the ratio between the gross (prior to tax) monthly earning and the existing loans that you need to repay as soon as possible.

The less the DTI, the more ability you gain to take out a loan from a lender. As far as the kinds of earning and loan a lender will think about, it depends from one company to another.

To compute your DTI, consider your gross earnings and break it up by the sum of all your existing loans. You would get a decimal figure that you can next change into some percentage. For instance, if your computations give you 0.65, your DTI is 65 percent. It is that simple.

You might be wondering how to become the master of capacity. Most lending companies fancy DTI to be less than 40 percent so that you can pay off some debt to achieve the ratio before you apply for a new loan.

2. Credit history or reputation as a borrower

Today, the lenders look at the financial status or character of borrowers. It is nothing but looking at your credit or payment history to determine how well you manage your debts.

When it comes to your credit history, it is available on your credit report that defines in an elaborate manner what your payment history is. It also informs the lenders about the kinds of credit you have at the moment. It helps the lending agencies to get a hang of how accountable you are as a borrower and how possibly you would repay your entire loan to the creditors on time and without failing to pay for months. You can learn more about improving your credit score from websites like or similar platforms.

Your credit rating might also be considered when approving your loan application. A numeral shows your threat as a borrower. Usually, if you have a higher credit score, the less uncertain you appear to your lender. Many lending companies need minimum credit ratings for people, who borrow money and lenders look at your credit rating as well as payment history to figure out the rates. You can master character by keeping your credit score healthy, which is possible when you make all bill payments on time each time.

3. Collateral

Based on the kind of loan you take from an online lender, you might have an option to choose from a secured loan or an unsecured loan. When it comes to an unsecured loan, it is one in which you do not require to attach any collateral to the loan, while a secured loan would require to attach some collateral as security. Collateral is nothing but an asset you concur to surrender to the lending bank or agency if you fail to repay the borrowed money. For instance, if you take out a vehicle loan, the collateral is usually your car.

A lending agency will evaluate the worth of your collateral security or asset; add any debt that has previously been protected by it. The available equity is usually used to find out whether your loan application would be approved or rejected or you require making some extra deposit to protect the amount you borrow.

The thing is done employing the loan-to-value ratio (LTV). As far as the LTV is concerned, it is the proportion of your collateral’s existing value to how much you would like to take out as a loan from the lender. For instance, an 80 percent LTV implies that you’re taking out 80 percent of what your security is worth.

To be candid, lenders wish for the LTV to be as little as possible to shield their investment. If you fail to pay the amount you have borrowed, the lender has the legal right to take back and sell off your asset to make up for the loss. Your asset could be your home, car, furniture, or anything that has enough value to recover an unpaid loan.

The wonder LTV ratio is 80 percent and that is how you can master collateral. When it comes to car loans or car refinancing, the lending companies will usually look for an LTV below 30 percent of the total worth.


Now that you know what banks or online lenders look for when assessing your loan application, you know how to take the appropriate steps to ensure that your loan is approved and not rejected. The ground rule is to take out a loan but repay the same on time to increase the possibilities of getting your loan approved at reduced rates.


I am Web and Tech blogger from India. I love to explore new things via traveling or surfing on Internet.

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