What are the 5 Cs of credit?
The “5 Cs” are a common framework lenders may use to assess creditworthiness. A mortgage decision also depends on lender policies, your application, supporting documents and the property. No single factor guarantees approval.
1. Character: Your credit history
Lenders may review your credit report, payment history and existing accounts. Check your credit report for errors, make payments on time and avoid unnecessary new credit applications before applying.
2. Capacity: Your ability to repay
Capacity considers whether your income and cash flow can support the proposed mortgage alongside other obligations. Lenders may consider income stability, debt payments and debt-service ratios. Prepare a realistic budget and gather current income documents.
3. Capital: Your savings and assets
Capital can include savings, investments and funds for the down payment and closing costs. Keep records showing where funds came from, including documentation for gifts or large deposits if requested.
4. Collateral: The property securing the mortgage
The property is generally the mortgage collateral. Its value, condition, location and lender-required valuation may affect the decision. An accepted purchase offer does not guarantee mortgage approval.
5. Conditions: The wider circumstances
Conditions may include loan purpose and amount, property type, market environment and the lender’s current rules. Qualification requirements and documentation vary by lender.
How can you prepare?
- Review your credit report and correct errors where possible.
- Pay bills on time and track balances and minimum payments.
- Organize proof of income, assets, debts and down-payment funds.
- Avoid taking on new debt before discussing plans with a mortgage professional.
- Ask which documents and steps apply to your situation.