Housing Counselor Certification (HUD) Practice Exam

A client's payment history affects which factor of creditworthiness?

1. Capacity

2. Capital

3. Character

4. Collateral

The correct answer is: Character

A client's payment history is an essential component of evaluating their creditworthiness, and it primarily relates to the character factor. Character reflects the borrower's reliability and willingness to repay debts, which is often assessed by looking at their past payment behaviors, such as any late payments, defaults, or bankruptcies. A strong payment history demonstrates responsibility and a commitment to fulfilling financial obligations, indicating that the client is likely to continue making timely payments in the future. In contrast, the other factors such as capacity, capital, and collateral cover different aspects of credit assessment. Capacity refers to the borrower's ability to repay debts based on their income and existing financial obligations. Capital is related to the borrower's net worth or the assets they hold, which can be used to cover loans. Collateral involves property or assets that a borrower offers to secure a loan as a backup for the lender in case of default. While all these factors play a role in a comprehensive credit evaluation, payment history squarely aligns with the concept of character.