Despite comprehensive changes in the recording and reporting of financial information, lenders still use some combination of the traditional "three Cs" -- character, capacity, and capital -- to approve or decline loan and credit applications.

Character
If a lender has no personal contact with you (as is increasingly common), your "character" is determined solely by your credit report and/or score. The other two Cs may be critical for some loans, but character is usually the most important criterion. In the case of many credit cards, it's the only criterion.

Capacity
An estimate of the amount of debt you can handle, capacity is largely based on your income, especially in relation to the amount you owe. A low debt-to-income ratio may significantly bolster an application. As a general rule, your total debt payments, including mortgage payments and other installment payments, should not exceed 36% of your gross monthly income. A significantly higher ratio may cause your application to be denied; consider delaying the application until you can lower it.

Capital
"Capital" measures your current assets, including savings, investments, and property. In the case of a secured loan, capital reassures a lender by providing a means of repaying your loan in case you default. (That's why "collateral" sometimes replaces "capital" in the three Cs.) It may also provide evidence that you've met financial obligations in the past. A fully paid car, for example, shows that you've successfully paid off a car loan. Note that for unsecured loans, such as credit cards, capital is not normally a factor.

How the factors add up
It's difficult to generalize about the weight lenders assign to each of the three Cs -- different lenders emphasize different aspects of an application. Strength in one area may compensate for weakness in another, or a single shortcoming may nullify multiple strengths. Because weakness in "character" tends to be especially hard to overcome, strengthening your credit report should be your first priority.