Which three items should a lender/underwriter consider when deciding on a credit application?

The three items that a lender or underwriter should prioritize when deciding on a credit application are credit, capacity, and collateral. These three factors form a foundational framework commonly referred to as the "Three Cs" of credit analysis.

Credit refers to the borrower's credit history and credit score, which provide insight into how responsibly the individual has handled debt in the past. A strong credit history indicates reliability and trustworthiness, making the applicant a more favorable candidate for credit.

Capacity assesses the borrower's ability to repay the loan, which often includes reviewing their income and existing financial obligations. By evaluating income stability and current debt-to-income ratios, lenders can determine if the applicant has sufficient cash flow to manage additional debt.

Collateral represents the assets that could secure the loan, providing the lender with a safety net in case the borrower defaults. For secured loans, collateral might include property or other valuable assets that the lender could claim if necessary.

Together, these three elements help the lender evaluate the overall risk involved in approving a loan application, focusing on the applicant's ability to repay the loan, their financial history, and the security backing the loan. This comprehensive approach ensures that lenders make informed decisions based on a thorough assessment of the borrower's financial situation.