It's all about character

Personally, I always believe that the character of an individual is the totality of distinctive mental and moral qualities belonging to an individual. A person of good character is generally considered or almost always regarded as one possessing highly developed or strongly marked moral qualities. Moral in the sense that it signifies living with a firm degree of principle or as what my former boss Dr. Cayetano W. Paderanga Jr. always mentions, “an active sense of what is right and wrong”. Foremost among moral qualities is honesty. Others include integrity, fairness, responsibility, temperance, trustworthiness and industry among others.

The relationship between character traits and credit discipline and inherent credit risk is close. A borrower’s honesty is a barometer of his willingness, intention, or determination to pay his debts when due and to discharge his obligations promptly. Honesty is evident in one’s past activities. This is the reason why it is basic for credit investigators to check ones paying habits in the present and past dealings, moreover in the treatment he gives to others, his attitude toward men and business. It can often be sensed, documented although there may be no material evidence of it. The honest person will pay his debts, albeit with difficulty and sometimes delay, because he has a proper sense of the rightness of meeting just obligations.

Similar to character is one’s reputation, as a guide in credit extension. A familiar and much-quoted distinction between the two is this: “In truth, character is what a person is; reputation is what he is reported (or reputed) to be.” Whichever may be the higher, for one’s character often exceeds the popular estimation of him, and vice-versa, it is character which must be the first and foremost basis of the credit risk analysis.

Likewise, integrity is also a good basis for ones character. Dictionary defines integrity as unimpaired moral principles; honesty; soundness while character is a description of a person's attributes, traits, or abilities. From among the five C’s of credit – Character, Capacity, Capital, Collateral and Conditions – we can relate integrity under character.

In all of my seminars and trainings, I always ask my participants if they have delinquent customers that seem to be with capability, as in rich, but not willing to pay. If you have these kinds of customers, the answer to this is that your customer might be considered having a “flawed character”. So, in conclusion, it is important that character must be always considered the first and the most important among the other C’s of credit. Character, in credit parlance simply means the applicant’s or borrower’s willingness to pay; this is the most basic quality on which the entire structure of all business and personal credit evolves. This First C of Credit - Character, answers the question: will he pay?

For comments, rejoinders and questions on credit & collection, Mr. Ed F. Limtingco can be reached at [email protected].