The 5 C’s of Credit

Written by: Daryl Marsden

The 5 C’s of Credit

When it’s time to borrow we all go through a nervous period. Even those with perfect credit will break a sweat when applying for credit. They may put on a look of confidence but everyone has a little fear about the outcome of requesting credit.

Lenders tend to rely of 5 basic principles when evaluating you for credit. These are the basics that we all must demonstrate in order to make the lender feel confident in lending you money or credit.

They want to make sure that you will repay your debt in full, on time, and as promised.

The lenders will consider the 5 C’s of your situation in one way or form. Each will put a higher priority on each of the C’s. In no particular order here they are:


Your character is based on a few items, first impressions count! If meeting in person take this into consideration, dress well and make sure cleanliness.
They will check your background and your experience in your current work and living arrangements. The longer you have worked for a company or owned your own business the better your chances.

The longer you have lived at the same address the more reliable you become in their eyes. Don’t be fooled this is a large factor in their review.


What do you bring to the game? How much money have you saved to prove you are serious about asking for a loan? This is normally the down payment when buying large items like cars, and homes.

Capital is also reviewed from your overall savings and saving habits. The larger your assets in cash and investments and assets the better you look to lenders.

What do you have to fall back on in cash of an emergency like job loss or emergency expense? Can you pay your bills for a while if you lost your income source for a few months?

These are all questions that lenders ask before granting credit.


This is the security that you have available to make sure the lender can recover if you default or fail to pay as you have agreed on. In most cases this is related to the reason you are requesting the loan.

Real estate is a main source of security for land and home deals. The vehicle for car loans and even furniture for household furnishing loans all become the collateral for loans.

If you fail to make your promised payments the lender can take action through the courts to regain ownership and control of the collateral. They use the courts to do this and one they have control of the assets they sell it to try to recoup the loss.

These steps cost money and a lender only resorts to this as a last step. Many are willing to discuss new terms to help give you leeway when things get tough.

Communication is critical when things start to look bad. Always remember to talk to the lender and ask for help and advice when things get tough.


This is the third-party evaluation of your history and a light prediction of what your near future habits will be.
Your history is recorded through up to 3 National reporting agencies in North America. This is discussed in full later in the book.

You are evaluated over your last 6 to 7 years history with the last 12 months being the most critically looked at. The last 12 months determine your current credit history and can be a good predictor of your next 12 months.

The credit agencies will keep your history on file for 6 to 7 years. In some cases they will keep it longer when dealing with bankruptcies and foreclosures.
Missed or late payments are very damaging to your credit history. My advice to my clients is that you always try to make the minimum payment on all accounts. By doing this you never have a late or missed payment.

If you have a history of late or missed payments especially in the last 12 months you hurt your chances of being approved. In most cases this is enough to decline you.

You can appeal these decisions but appealing is the last resort and should be only used when you have to.


This is one of the leading factors with lenders. Your ability to repay the loan is a critical factor. Based on your current credit and commitments are you capable for taking on this increased debt?

Lenders use your debt ratios to evaluate your ability to repay your loans or lines of credit. If all your carrying costs are less than or equal to 32% of your total monthly income then you are in a good position. If over 40%, than you may suffer a possible default in the future as you are heavily extended.

How you make your income is also important to lenders and they will check this in detail. If you have multiple sources of income they will take this into consideration.

There is one other C that is not normally mentioned but is always considered:


This C refers to the current economy in the area of the lender. Since lenders tend to be either national or regional, lenders will take into consideration what is happening with the local economy in your area.

If the country or region is having good job growth and showing signs of strong consumer purchasing and buying this becomes a factor in making a loan.
If the region has lost a main employer or there is a looming recession lenders will hold back funds and will restrict access to only good or great risks.

Rising interest rates and falling jobs numbers can cause lenders to carefully evaluate all loans. The good news is that the government still provide incentives and programs to help consumers during these tough times.

Buying consumers are critical to all country’s economies. When you stop buying things the economy starts slowing down. We need everyone to keep buying regular necessities plus the odd luxury item as this is what drives business.

There you have it the 5 or should I say the 6 C’s of Credit.

Determining how you rank in these C’s is an important first step to consider when applying or rebuilding your credit.

No matter where you are at now, by carefully managing these 6 factors you can maintain or rebuild any credit situation. It does take time to rebuild but starting over is a part of all our lives and worth the effort for a more comfortable future.

We all have the ability to start over. You can’t fail unless you give up and quit trying.
You will find a general review of credit maintenance and rebuilding and can get more detailed information and resources at our website:

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