The five C's of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender. But what are these five C's? The five C's of credit are character (the applicant's credit history), capacity (the applicant's debt-to-income ratio), capital (the amount of money an applicant has), collateral (an asset that can back or act as security for the loan), and conditions (the purpose of the loan, the amount involved, and prevailing interest rates).