Understanding the 5 C’s of credit: Your key to home loan approval

Character

Character pertains to your financial behaviour and history. Lenders’ scrutinise your credit file, employment stability, savings discipline, and payment history. Here are a few steps you can take:

• Maintain consistency in your job and residence to demonstrate stability.
• Ensure timely payment of rent and bills, as these are positive indicators of reliability.
• If you have a history of credit issues, focus on making current repayments promptly and explore options with specialist lenders who accommodate such profiles.

Capacity

Capacity evaluates your ability to repay the loan without financial distress. Lenders will examine your income, expenses, and existing debts. To improve your capacity:

• Ensure a stable and reliable income source; document additional earnings like bonuses or freelance work.
• If self-employed, consider low doc loans that require alternative proof of income.
• Avoid changing jobs or careers just before applying for a loan.

Capital

Capital involves your assets and liabilities, and how much you’ve saved for a downpayment. Demonstrating strong capital means:

• Showcasing significant savings and a solid asset base on your application to appear financially robust.
• Minimise your debt exposure, particularly high-interest credit card debts.

Collateral

Collateral refers to the property you intend to purchase. Lenders assess the property’s value and condition as security against the loan. To enhance collateral:

• Choose properties in desirable locations, preferably in major cities or towns.

• Opt for properties that are in good condition and do not require major renovations.