The 5 Cs of Credit: What Lenders Look At for Your Mortgage
Simple ways to build your credit and get mortgage-ready.
The 5 Cs of credit
Before a lender approves your mortgage, they look at five key areas, known as the 5 Cs of credit. Here is what each one means for you.
Character: do you pay your bills on time? This is your credit history and score. What helps: on-time payments and credit you have had for a while.
Capacity: can you afford the payment? The lender compares your income to your monthly bills. What helps: steady income and low monthly payments on loans and cards.
Capital: what are you bringing? This is your down payment and savings. What helps: savings you can show, and a down payment from a clear source.
Collateral: what is the home worth? Your home secures the mortgage. What helps: a home that appraises at or above the price you pay.
Conditions: what are the details? The mortgage amount, the term, your type of work and the lender's rules. What helps: a clear plan. That is my job. I match you with the lender whose rules fit you best.
New to credit? Start here
Step 1: Open a bank account in your name.
Step 2: Get a phone plan in your name and pay it on time.
Step 3: Ask about rent reporting. On-time rent can count toward your credit.
Step 4: Get a secured credit card. Your deposit, like $300, becomes your limit.
Step 5: Use it a little and pay it off. Groceries or gas work well.
Smart credit card habits
Keep it under one third. On a $1,000 limit, keep your balance under about $300.
Never miss a payment. Pay at least the minimum. Pay it all when you can.
Set up automatic payments. Then you never have to remember.
Keep old cards open. A longer history helps your score.
How long things can stay on your credit report
Late payment: 6 years, even after you catch up.
Collection: 6 years from your last payment. Paying it still helps.
Bankruptcy: 6 years after discharge.
Consumer proposal: 3 years after it is paid off, or 6 years from filing, whichever is first.
Judgment or NSF cheque: 6 years.
Credit check: 3 years.
Closed account paid as agreed: up to 10 years, and it helps you.
Applying for a mortgage? Too many credit checks can lower your score. When you work with me, I check your credit once and shop the lenders for you.
Check your report: you can check your Equifax and TransUnion reports for free. Look for mistakes or accounts you do not recognize.
Let us get you mortgage-ready
Good credit is built one on-time payment at a time. Planning to buy, renew or refinance? Book a call and I will show you what lenders will see and what to work on first.
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