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Homework answers / question archive / FIN 5309: Global Financial History Assignment 3a: Position Paper on a Current Event: “Extending Credit to a Business and a Consumer

FIN 5309: Global Financial History Assignment 3a: Position Paper on a Current Event: “Extending Credit to a Business and a Consumer


FIN 5309: Global Financial History

Assignment 3a: Position Paper on a Current Event: “Extending Credit to a Business and a Consumer.”

      Below are Reading Materials, Requirements, and Guidelines.

      Due Date is Tuesday, Dec 4 end of day. Maximum 95 points.


Assignment 3b: Post Position on Discussion Board on: “The Most Important C in 5 Cs of Credit.”

      Due Date is Tuesday, Dec 4 end of day. Maximum 5 points.




Recall from the text, “The Ascent of Money: A Financial History of the World,” that the emergence of money was a central feature in the development of credit markets. Money symbolized mutual trust (Ferguson, 2008; pp 22, 33). The author, Dr. Niall Ferguson, explained that the word “credit” has Latin origins in the word “credo,” which means “I believe” and explained the long history of marking money with words conveying trust. Yet Ferguson went on to describe in Chapter 1 how the Spaniards failed to understand that “value” is not an absolute, whether valuing silver, gold and other precious metals, or paper money. Ferguson added that money has revolutionized the world so dramatically that money we cannot even see has been valued in a market place we cannot see, either, while cash makes up only a small proportion of the money supply known as M2.

The underpinning of trust, or lack thereof, led to the credit markets developing standards that borrowers and lenders could utilize when valuing money to be used as a loan. These standards are known as “the 5 Cs of Credit.” Generally, these standards are associated with extending credit to a business, whereas extending credit to an individual consumer is represented by a credit score. Nonetheless, the principles are the same.


It is common for borrowers and lenders to agree on what the 5 Cs of Credit are for a business loan, but not all agree on the most important C. Character has been considered the most important. Capacity has also been considered the most important. The other Cs are: Collateral, Capital, and Conditions. One explanation for ranking Character the most important is believing it significantly influences the other Cs. In other words, if a borrower truly wants to repay a debt, it will be repaid. In contrast, if a borrower lacks desire to repay, the debt may not be repaid or paid on time even if the funds are available because more financial risk is taken than is prudent for debt repayment.


In recent years, there has been less focus on which of the 5 is most important, as more attention has been given to how each of the Cs is valued and how to secure debt with collateral, since collateral is viewed as a secondary source of repayment. Examples of collateral include the following. A house is collateral for a mortgage. A car is collateral for a loan. Unsecured debt has more risk, such as credit card debt, and the interest rates on this form of debt are higher to reflect the higher risk from lack of collateral.


Additionally, there are different opinions on which factors are most important for deriving a Consumer Credit Score. There is general agreement that traditional credit-scoring systems do not serve the needs of homebuyers, especially the younger buyers. This has led to recommendations for updates and revisions to the consumer credit scoring models. Examples of updates include assigning a reduced weight to medical debt. Other examples are including data from checking accounts; payment history for a consumer’s rent, telecommunications, and utility accounts. Despite the wide-spread agreement on updates to consumer credit scoring models only, about 1 percent of consumer files have rent data, 2.4 percent have utility data, and 2.5 percent have telecommunications data.

One company that has developed an alternative credit-scoring model is Aire. The company is based in the U.K. and recently expanded to Canada and the U.S. The CEO, Aneesh Varma, summarized the history of consumer credit scoring models and the imperative need for revisions (Ryan, 2016). He stated:

“The traditional Fico format has gaps for first-time borrowers — self-employed, foreign, or young people,” Varma said. “At the same time, credit scores are being used more widely than was ever imagined when Fico was introduced in 1956. It’s now used for car insurance, by rental companies, for brokerage accounts, leasing. We’re stretching Fico, and cracks are appearing.”

A counter to recent updates in the credit scoring models is Antonio Weiss, a counselor to the Treasury Secretary. He commented on the growing use nontraditional data, such as data gleaned from social media accounts that can include education level, professional certifications, and income (Hadley, 2016).Weiss said that “just because a credit decision is made by an algorithm, doesn’t mean it is fair,” citing the need for lenders to be aware of compliance with fair lending obligations when integrating nontraditional credit data. Weiss stressed that Statistically sound and accurate data protects both the borrower and the lender. Consumers are protected from unfair discrimination and lenders are protected from unfair claims under the Equal Credit Opportunity Act. 



Additional Readings


  1. Watch youtube video with background on the topic:


Published on Mar 18, 2012

For more info visit:
Business Loans can provide this video transcript of the 5 C's of Credit for visually impaired readers.


  1. Conduct research to find at least two appropriate sources on the topic of “The 5 Cs of Credit.”

Some possibilities are listed below, but you may use other sources.

  1. Capacity is arguably the most important C


  1. Character is arguably the most important C



  1. Conduct research to find at least two appropriate sources on the topic of “Updates and Revisions to Consumer Credit Scoring Models.” Some possibilities are listed below, but you may use other sources.


Requirements for Content in Assignment 3a include the following:

  1. Describe thoroughly each of the “5 Cs of Credit” in the context of extending credit to a business – possible a loan or a line of credit or other form of credit risk.
  2. Determine which of the 5 Cs you believe to be most important and fully explain your reasons. Keep in mind that credit risk takes many forms, including late payments, default on repayment, collateral that has lost value, etc.
  3. Describe some revisions to the models for Consumer Credit Scores. Include a brief history of these models.


Requirements for Content in Assignment 3b include the following:

  1.  Post your position on which of the 5 Cs of Credit is most important and explain it on the Discussion Board for this assignment.


Guidelines for Writing Assignments.

  1. Use headings and well-developed paragraphs throughout your paper.
  2. Use more formal speech than you would use in every day speaking.
  3. Use APA format for citations in the body of your paper.
  4. Include a Reference page that lists all sources cited in your paper and use APA format for the Reference page.
  5. Length of paper for Assignment 3a is 750 – 1000 words. Keep in mind that, generally, 1 page is 500 words when single-spaced, 250 words when double-spaced. 2 pages is 1,000 words when single- spaced, 500 words when double-spaced, and so on.
  6. Length of Post on Discussion Board is 50 -75 words.
  7. Type with spacing of 1.5 or 2.0.
  8. Consider using resources at the University Writing Center


Grading Rubric is below.


Rubric for Writing Assignment

Maximum Score

Complete Cover Sheet includes:

      Title of Assignment; Course Name

      and Number; Your Name; Date;

       and Total WORD COUNT.




Formatting/Organization – Complete    

       Cover Sheet; Citations in Body of

       Paper; Reference Page













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