Five C's of Credit

Five C's of Credit

Getting a mortgage quote is one of the first steps when purchasing a property. The amount that you are able to borrow and the cost of the loan will be determined based on a number of different criteria, known as the Five Cs of Credit. Before you start looking at properties and applying for a mortgage loan, it is important to understand what these criteria are. The Five Cs of Credit are:

  • Character
  • Capacity
  • Capital
  • Collateral
  • Conditions

Although every lender has their own method for evaluating a borrower before offering a mortgage loan, the Five Cs of Credit are used widely. By understanding what each of the Five Cs means, you can better prepare your finances before you get a mortgage quote so you can improve your chances of being accepted.


Character refers to the reputation of the borrower and how financially responsible they are. In most cases, this is measured using their credit score. Credit reports are generated by three major credit organizations and they give details of past borrowing and payments. If there are late payments and high levels of borrowing, this will be shown on the report. Individual credit scores are calculated based on this report and lenders will consider the score when deciding whether to approve a loan or not.

If you have a low credit score when applying for a mortgage loan, the rate will not be as favorable. In some cases, lenders may refuse your application altogether. As a result, character is one of the Five Cs of Credit.


Capacity is a measure of whether the borrower is able to afford the repayments on the mortgage loan. Lenders will compare existing debt payments and the borrower’s debt-to-income ratio. To calculate this ratio, they will add up all monthly debt payments and divide it by monthly income. All lenders have different criteria about debt-to-income ratio but the lower it is, the more likely they are to approve the loan.


Capital is one of the simplest of the Five Cs of Credit. It simply means the amount of capital that you put towards the investment that you are taking the loan out for. When buying a house, this just means your down payment. Borrowers that put down a large deposit on a home do not need to borrow as much and their monthly payments are smaller as a result. So, as a general rule, a larger amount of capital means that you are more likely to be approved for a mortgage loan. This is one of the first things you will be asked about when you get a mortgage quote.


Collateral means securing the loan against a physical asset. Often, the collateral is the asset that the borrower is using the money for in the first place, like a car or a house. A mortgage loan is secured against the property you are purchasing. This reduces the risk for lenders because, if the borrower defaults on the loan, the asset can be reclaimed. As a result, the rates on secured loans tend to be lower.

Of all of the Five Cs of Credit, this one affects borrowers the least because it is not based on their own financial situation.

Five C's of Credit


When you get a mortgage quote, it will outline the conditions. When considering the Five Cs of Credit, it is important to understand the conditions of your mortgage loan. These include the principal (the base amount to be paid each month), as well as the interest owed. The conditions also outline the term of the loan (the period over which it will be paid back). These conditions are often dependent on the other Five Cs of Credit and they will be more favorable for borrowers with a large down payment and a good credit score. The conditions also specify what the money is to be used for. In the case of a mortgage loan, the money will be used for costs related to buying the property, but it may be used for other things, depending on the conditions of the loan set by the lender.

Understanding the Five Cs of Credit is crucial if you want to find the right loans and manage your finances effectively. Speaking to a professional broker before you get a mortgage quote can help you understand the different factors that affect borrowers. You can use our mortgage education resources to answer some of the basic questions you have. If you are currently trying to buy a property, get in touch and we can help you access the top lenders in your area.