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Before you use credit, it's important to understand why you would use it and how to use it wisely.
Here are some questions you can ask yourself before you reach for your credit card to make that purchase. Asking yourself these questions will also help you spend wisely and not incur unnecessary debt.
The four C's of credit helps you further understand the use of credit and what it means to pay your credit debt.
Character refers to your desire to pay off your debts when due.
Potential creditors will look into your financial history to determine how likely you are to pay back your debts when they are due.
Capacity refers to your ability to pay back your debt.
Potential creditors will consider and review your income, expenses and savings. This gives creditors an idea of whether or not you’re able to pay back your debts in a timely manner.
Capital refers to your long-term financial strength and assets to pay off future debts.
Having a house, car, job and other valuable assets will increase your chances of receiving credit from financial institutions.
Conditions refers to events and conditions that are beyond your control that could impact your ability to pay off debts, such as being laid off at work or in an economic recession.
If you want to learn more or get more resources on how you can manage your money, book an appointment with a financial coach.