Character: The Most Important (and Elusive) C in Credit

In credit risk, numbers tell a story—but they don’t always tell the whole story. That’s why Character has always been, in my view, the most important of the Five C’s of Credit. It’s also the hardest to quantify.

When I first learned about the Five C’s, Character stood out. It represents integrity, trustworthiness, and the willingness to meet financial obligations. A borrower’s credit score, past repayment history, and references all provide clues, but true Character goes deeper than what’s on a credit report. In a world increasingly driven by automated decisioning, understanding who you are lending to remains as critical as ever.

The Challenge of Measuring Character

Unlike Capacity, Capital, or Collateral—where data is plentiful and structured—Character is more subjective. How do you measure reliability? How do you assess ethical behavior or the willingness to pay under difficult circumstances?

Traditionally, lenders relied on personal relationships, reputation, and in-depth conversations to gauge Character. But as lending shifts toward digital platforms and algorithmic models, we risk losing some of these nuanced insights.

Some lenders attempt to proxy Character using alternative data—rental payments, utility bills, even behavioral analytics. While these can add context, they don’t fully replace the human judgment that comes with experience.

Why Character Matters More Than Ever

In times of economic uncertainty, Character is often what determines whether a borrower will fight to meet their obligations or walk away at the first sign of trouble. Two borrowers might have the same financial profile, but their behavior in a downturn can be dramatically different.

Think of the small business owner who prioritizes payroll over their own salary or the homeowner who does everything possible to avoid foreclosure. These are decisions based on Character, not just capacity to pay.

Balancing Technology and Judgment

AI-driven credit models and risk algorithms have made lending more efficient, but they must be used thoughtfully. Character should not be an afterthought simply because it’s difficult to quantify. Instead, we should look for ways to blend hard data with human insight, ensuring we don’t overlook the very foundation of trust in lending.

So, how do we reinforce Character in today’s credit landscape? How do we ensure that we don’t let automation override the most human element of lending? It’s a discussion worth having.