The 5 C’s of Credit – What you need to know

08 Sep The 5 C’s of Credit – What you need to know

We all know just how difficult it can be looking for the right property. Particularly in Canada, a wide range of Canadians are completely unaware of what you must consider before buying a property. It is without doubt that credit is an important factor however a lot of Canadians find it difficult to understand what this entails. In fact, credit involves a variety of different categories which is known as the five C’s of credit.

Lets discuss the five C’s of credit and what each of them represent in order to give you a better understanding of what you must keep in mind while looking for a property.

Credit is based around a variety of categories, these include;

1. Credit – It is no surprise that the first important piece is of course, credit. This particular factor is used to give the lender an idea on what the borrowers’ history is in terms of repayment. Credit is extremely important for the lender as it is the only way they are able to learn if the borrower is reliable or not.

2. Capacity – Capacity refers to the ability of repaying loans. Capacity is without doubt just as important as credit as it will allow the lender to look at the borrowers’ debt ratios including any payment history that has been made. These two points will show the lender if the borrower will be able to repay a loan or not.

3. Capital – This relates to how much money the borrower has invested into a property. The overall capital will allow the lender to see how much money you are willing to spend in a property and as a result, the lender can make a valuable decision.

4. Character – This particular factor relates to the borrower and if they can in trusted in terms of repayment. Areas such as the borrowers’ savings account as well as length of employment will help determine whether the borrower can be trusted to repay the loan.

5. Collateral – The last remaining C in credit is seen as a security blanket to the lender you could say. Collateral is used to include outside parties to ensure the loan will be repaid. A lot of the time if the borrower is unable to pay the loan back, the outside party must repay the loan.

Overall, the whole aspect using credit is to ensuring you receive an approval from the lender. Each of the C’s that are described above will allow the lender to fully understand and examine whether you are fully capable to repay the loan. As long as you are aware of what the lender is looking for then you should have no problem in getting a yes.