The Five Cs of Credit
Capacity the ability of borrowers to repay loans, is the most critical of the five Cs. It can be assessed by evaluating the debt service ratios and payment histories on existing credit relationships.
Capital is the amount of money borrowers have invested in the property. Lenders want to see that borrowers are committing their own capital and will check the capitals’ sources.
Character is the general impression of how trustworthy borrowers are to repay the loans. Assessing length of employment, propensity to save, and responsible credit utilization all help to establish character.
Collateral is the guarantee in the form of additional security that can be provided to the lender. For mortgages, collateral is the property itself.
What is the borrower’s credit history? More particularly, what does the repayment history show?