Future Business Leaders of America (FBLA) Personal Finance Practice Test

Which of the following is NOT considered one of the C's of credit?

1. Capacity

2. Collateral

3. Credit Rating

4. Capital

The correct answer is: Credit Rating

The correct response identifies "Credit Rating" as not one of the traditional C's of credit, which include Capacity, Collateral, and Capital. The C's of credit serve as a framework for lenders to assess the risk associated with extending credit to borrowers. - Capacity refers to the borrower's ability to repay the loan, which is evaluated through income, expenses, and other financial obligations. - Collateral is the asset that a borrower offers to secure a loan, providing the lender with assurance that they can recover their money if the borrower defaults. - Capital refers to the borrower's own investments or savings that can support their ability to repay. Each of these components directly relates to assessing a borrower’s creditworthiness and financial stability. In contrast, while a credit rating provides a numerical value reflecting a borrower's creditworthiness, it is not part of the C's of credit. The credit rating can be influenced by the factors represented in the C's but stands as an external assessment rather than a foundational framework like the C's. Understanding these distinctions is essential in personal finance, as it helps in making informed decisions about borrowing and lending.