The Six C’s of Credit

Question 1

Which of the following refers to an individual’s or business’s ability to repay a loan, often demonstrated through a history of timely payments?

A) Capacity
B) Collateral
C) Capital
D) Character

Answer 1

D) Character

Question 2

When a lender evaluates how much an applicant owns, such as real estate or other assets, this is known as:

A) Capacity
B) Collateral
C) Conditions
D) Character

Answer 2

B) Collateral

Question 3

The term capacity in the Six C’s of Credit refers to:

A) The financial resources and assets available to the borrower
B) The borrower’s ability to generate income to repay debt
C) The market conditions that could affect repayment
D) The reputation of the borrower

Answer 3

B) The borrower’s ability to generate income to repay debt

Question 4

Which of the following is an example of capital in the Six C’s of Credit?

A) A borrower’s credit score
B) A borrower’s net worth or savings
C) A borrower’s employment history
D) The interest rate on a loan

Answer 4

B) A borrower’s net worth or savings

Question 5

What does the conditions component of the Six C’s of Credit primarily evaluate?

A) The amount of income a borrower can generate
B) The borrower’s credit score
C) The economic environment and loan purpose
D) The collateral available for securing the loan

Answer 5

C) The economic environment and loan purpose

Question 6

When a lender assesses the borrower’s character, which of the following is being evaluated?

A) The type of collateral offered
B) The borrower’s past history of repaying debt
C) The current economic conditions
D) The borrower’s current employment

Answer 6

B) The borrower’s past history of repaying debt

Question 7

Which of the following best describes capacity in relation to a business seeking credit?

A) The business’s level of collateral available to back the loan
B) The business’s ability to manage debt repayment through cash flow
C) The market conditions in the industry the business operates in
D) The business’s historical performance in terms of profit

Answer 7

B) The business’s ability to manage debt repayment through cash flow

Question 8

If a borrower has a strong record of repaying loans, this reflects well on their:

A) Capital
B) Conditions
C) Character
D) Collateral

Answer 8

C) Character

Question 9

A collateral in a loan agreement might include:

A) A borrower’s employment history
B) Real estate, equipment, or inventory
C) The borrower’s annual income
D) A letter of recommendation

Answer 9

B) Real estate, equipment, or inventory

Question 10

When lenders assess capital, they are looking for:

A) The borrower’s investment in their own business or assets
B) The amount of money the borrower has in a checking account
C) The amount of debt the borrower is currently carrying
D) The borrower’s ability to sell collateral quickly

Answer 10

A) The borrower’s investment in their own business or assets

Question 11

Which of the following factors would improve a borrower’s character when applying for credit?

A) Having a large amount of available collateral
B) A strong history of paying bills and loans on time
C) High levels of savings or assets
D) A stable job with a consistent income

Answer 11

B) A strong history of paying bills and loans on time

Question 12

Which of the following would most affect the conditions component of the Six C’s of Credit?

A) A borrower’s savings account balance
B) The loan amount and the borrower’s credit history
C) Current interest rates and market demand for products
D) The amount of collateral available

Answer 12

C) Current interest rates and market demand for products

Question 13

In the context of credit evaluation, capacity is most concerned with:

A) The borrower’s business plan and future goals
B) The borrower’s willingness to repay the loan
C) The borrower’s assets available as collateral
D) The borrower’s ability to generate income to repay debt

Answer 13

D) The borrower’s ability to generate income to repay debt

Question 14

What is an example of conditions that a lender might assess when evaluating a credit application?

A) The borrower’s annual income
B) Economic trends, interest rates, and the purpose of the loan
C) The borrower’s credit score
D) The borrower’s past loan repayment history

Answer 14

B) Economic trends, interest rates, and the purpose of the loan

Question 15

What is the capital component of the Six C’s of Credit meant to assess?

A) The borrower’s debt-to-income ratio
B) The borrower’s available income to repay the loan
C) The borrower’s ability to generate future profits
D) The borrower’s financial investment in the business or property

Answer 15

D) The borrower’s financial investment in the business or property

Question 16

What might be included as collateral to secure a loan?

A) A borrower’s character
B) The borrower’s personal or business assets, such as property or vehicles
C) A borrower’s monthly income statement
D) The borrower’s previous credit card usage

Answer 16

B) The borrower’s personal or business assets, such as property or vehicles

Question 17

Which of the following would NOT be considered a condition in the Six C’s of Credit?

A) A borrower’s employment status
B) The current inflation rate
C) The economic climate
D) The borrower’s reputation for repaying debt

Answer 17

D) The borrower’s reputation for repaying debt

Question 18

A strong character rating for a borrower would indicate:

A) A good amount of savings and collateral
B) A high credit score and history of timely loan repayment
C) A large income stream and business assets
D) A high level of collateral and personal investment in the business

Answer 18

B) A high credit score and history of timely loan repayment

Question 19

When evaluating capacity, which of the following would a lender most likely examine?

A) The borrower’s physical assets or property
B) The borrower’s income statement and debt-to-income ratio
C) The borrower’s personal savings account
D) The borrower’s credit history and past loan performance

Answer 19

B) The borrower’s income statement and debt-to-income ratio

Question 20

Which of the following is true about collateral in the Six C’s of Credit?

A) Collateral can be anything of value that a borrower pledges to secure a loan
B) Collateral refers to the borrower’s credit history only
C) Lenders generally do not require collateral for business loans
D) Collateral must always be a business’s cash reserves

Answer 20

A) Collateral can be anything of value that a borrower pledges to secure a loan