Which of the following best describes the five Cs of credit?

• A. Credit, capacity, collateral, character, and conditions.
• B. Credit, capital, collateral, condition, and compliance.
• C. Capacity, collateral, cost, currency, and collateral.
• D. Character, cash flow, compliance, collateral, and credit.

Answer: (A)

In lending, risk is assessed through five key factors that together describe a borrower's ability and willingness to repay, the resources behind the loan, and the surrounding environment. These five Cs are capacity, collateral, character, capital, and conditions. The best option lists capacity, collateral, character, and conditions, with “credit” standing in for capital. In this context, creditworthiness (often called capital or financial strength) is about the borrower's net worth and cushion, so the set aligns with the standard five Cs.

Explain each piece: capacity measures the borrower's ability to repay based on income and cash flow; character reflects trustworthiness and repayment history; collateral provides security in case of default; capital shows the borrower’s financial reserves or net worth to weather setbacks; and conditions cover how loan purpose, terms, and the broader economic environment affect risk.

Other options mix in terms that aren’t part of the five Cs, such as cost, currency, cash flow, or compliance, or replace a core C with an unrelated concept.