Character (5 C's of Credit)

What does it mean

In the 5 C’s of Credit Framework, Character refers to the borrower’s level of trustworthiness, honest, and ability to follow through with plans.

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Why does it matter

Character is the first step of the 5 C’s of Credit.  Character is the most important element of the 5 C's of Credit Framework, and part of its importance is the influence it can have on the other C's in the framework.  What do I exactly mean?  Businesses will go through ups and downs.  People with high character will answer questions honestly, and they will report their status truthfully.  A person with low character won't return your calls, and if they do, they may talk in optimistic generalities to get you to feel ok and hangup.  Then while you are living in blissful ignorance, they will liquidate their assets to supplement their struggling business (that sounds sinister, but this could look as innocent as selling inventory and then only partially restocking the shelves while not partially retiring your debt) and there goes the collateral protection you thought  you had.  

How does low character show itself in a person:

• A borrower's reputation
• Gut feeling during loan interviews
• Low credit scores
• How they treat people of lower status/position

Character in banking is kind of like a game of Monopoly.  If you do not have Character, do not pass go and do not collect $200.  Even if the borrower is strong in the remaining 4 C’s, you should not give them the loan because without Character, you are asking for trouble.  

Other Relevant Terms

• Capital
• Collateral
• Capacity
• Conditions
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