The 5 C’s of Credit: What Lenders Are Really Looking For When You Apply for a Mortgage
When it comes to getting approved for a mortgage, there’s a lot more going on behind the scenes than just your credit score or income. Lenders look at the full picture—and one of the key tools they use is something called the 5 C’s of Credit.
Understanding these five areas can help you better prepare for your application, avoid surprises, and put yourself in the best position to get approved.
Let’s break them down together:
1. Character: Who Are You as a Borrower?
Lenders want to understand you—not just the numbers. Character speaks to your stability, personal responsibility, and overall financial track record.
They’ll consider:
Your marital status (single, married, separated, etc.)
Whether you pay or receive spousal/child support
Any major life events (like divorce, illness, or loss of employment) that may have impacted your finances
Your history of repaying debts
If you take pride in ownership and financial responsibility
Tip: Be honest and thorough on your application. Sharing the context behind your story—especially if you've had financial setbacks—can make all the difference in helping a lender understand your situation.
2. Credit: Your Borrowing History
Your credit score is a big piece of the puzzle, but it’s not the whole picture. Lenders look at why your credit is where it is and what kind of history you have managing debt.
They’ll want to know:
Have you ever filed for bankruptcy or consumer proposal?
Were there any foreclosures? Are you discharged?
Do you have outstanding collections or judgments?
Were your credit issues a one-time event due to something like illness, injury, or loss of a loved one?
Tip: If your credit has taken a hit in the past, don’t panic. Explain what happened, what you’ve done to rebuild, and where things stand now. Context matters.
3. Collateral: The Property Itself
The home you’re purchasing or refinancing is the security behind your mortgage. Lenders will evaluate:
The condition and age of the property
Whether it’s been renovated, or if there’s work in progress
Location (urban, rural, remote, or outside the lender’s service area)
Any red flags like power lines, cell towers, or environmental restrictions
Tip: If the property is unique or unconventional in any way, flag it early so we can find a lender who’s comfortable with it.
4. Capital: Your Down Payment and Net Worth
This is about how much skin you have in the game. Lenders look at your overall financial strength, including:
Your down payment and where it’s coming from (savings, gift, equity, etc.)
Your total net worth (assets minus liabilities)
What you own—like vehicles, RRSPs, TFSAs, investments, rental properties, or a vacation home
Tip: The stronger your capital position, the more confidence a lender will have in your ability to handle the mortgage long-term.
5. Capacity: Your Ability to Repay the Mortgage
This is where your income and debts come into play. Lenders want to know you can comfortably afford the mortgage, even if your financial picture isn’t perfectly traditional.
They’ll review:
Employment income (and whether it’s full-time, guaranteed hours, or includes bonuses/commissions)
Business-for-self (BFS) income
Side income or support payments
Existing obligations (like car loans, credit lines, or student debt)
Tip: If your income is variable, seasonal, or non-traditional, we can help present it in the best possible way—just make sure we have all the documentation upfront.
By understanding and preparing for the 5 C’s of Credit, you’ll not only improve your chances of approval—you’ll also feel more in control of the process.
My job is to help you tell your financial story in a way that makes sense to lenders. Whether you’re a first-time buyer, refinancing after a major life change, or working with non-traditional income, we’ll make sure your application checks all the boxes.
Let’s connect and start planning your mortgage approval together. The better prepared you are, the smoother and faster the process will be.