5 C’s of Credit: How to Become Credit Worthy?

What are the 5 c’s of credit?

What do they mean, and what are potential lenders looking for?

Character: The reputation of the Buyer or Borrower.

• We can check your reputation by pulling your credit bureau such as Equifax or transition. By viewing these we can take a look at the repayment history. Lenders want all of your trades to have the minimum payment made within 30 days of your bill. On the credit bureau this will be reported as a 1. It might say R1, that means you are in good standing.
• They will also check the overall credit score.
• They will check that there is not too many inquiries (meaning you hunting for credit a lot).
• They look to make sure there are no monies owing on collections or to revenue Canada.
• They also check your character by ensuring no one is suing you (such as a landlord).

Capacity: Can you afford to pay the bill?

• Do you make enough money to make the payments?
• In mortgages for example the use a number called a TDSR meaning total debt servicing ratio. It is your total debt vs total income. The number has to come to a maximum of 44% to qualify for a mortgage
• Is employment stable (or income)? They will look at how long you have been at an employer or industry. And the stability of the income. Is it salary? (Very stable) or is it hourly? Do you get minimum of 40 hours per week or are you hours casual?
• They will also consider you overall debt in capacity.

Capital: Do you have enough money for the Down Payment?

• They will also look at other assets that could potentially be sold if you cannot pay.
• They do consider cosigners income in this.
• Cash, jewelry, real estate, vehicles and any other liquidable assets are considered.

Collateral: Do you have equity or property you can put up against this loans?

Conditions: This is the reason you are applying for Credit

• If it is for a property to live in, then they will take into consideration, you will no longer have rental expenses.
• If you are buying a rental property, they will add rental income to your current income.