The 5 C’s Of Credit — How it Affects Mortgage Approval

Your credit score plays a major role in the mortgage process. Banks and lenders will need to see your creditworthiness prior to approving you for a loan. The better your credit score is, the better chance will be at getting favourable terms, including a low mortgage interest rate.

There are five main factors that go into determining your credit score, the five C’s of credit:

• Capacity. What is your track history of borrowing and how much debt have you shown that you can comfortably handle in a positive way?
• Character. This boils down to whether or not you pay your bills, and if do you do so in a timely fashion.
• Capital. Lenders want to know that you have some cash and/or assets to cover your mortgage, should you find yourself in financial trouble.
• Conditions. What is the current state of your personal finances; what has your financial situation looked like in the last five years, and what will they look like over the next five years?
• Collateral. Cash might be most important, but what kind of collateral do you have with which to secure the loan should your financial situation become less than ideal?