Do You Know the Four C's of Credit?

By now, you probably know that a great credit score can help you get a great home loan, but did you know that there are other factors that banks and other institutions use when determining if you qualify for a loan?

The four primary factors that financial institutions consider are commonly known as the four C’s. They stand for:

  • Character
  • Collateral
  • Credit Score
  • Capacity

Here’s a closer look at what you need to know about these four C’s of credit.


“Character” refers to your borrower reputation. For this piece, a potential lender will take a look at your borrowing history to get a feel for how responsible you have been with borrowing in the past. Unlike the other C’s, the Character of your borrowing history isn’t measured by numbers or a scale.


Not only will a bank review your borrowing character, they will also take a look at the property you will be purchasing with the loan. This is done in order to determine whether or not the property’s value equals roughly the amount of the loan you are seeking.

With collateral, the bank will also take a look at the loan-to-value ratio (LTV) of the property. This is the ratio between the value of the property and the amount the bank is lending. A higher LTV is riskier for the bank; this is because, in the event of a foreclosure, it is more likely that the bank will not recoup the entire amount of the loan.

Credit Score

Your credit score is determined based on your loan or credit card payment history, the amount of debt you carry from month to month, and the overall length of your credit history. Understanding your credit score can be tricky, but a long history of on-time payments will help raise your credit score over time and can improve your chances for obtaining a loan.


Capacity refers to your own capacity to pay back the loan you hope to obtain. Capability will be measured differently depending on the financial institution you choose; however, these areas will likely be looked at:

  • Your debt to income ratio (this includes credit card debt)
  • Your monthly disposable income (this includes your net income)
  • How much your home loan payments would be in comparison to your gross income every month
  • Employment history
  • Your savings

Each institution is different, so be sure to ask which areas will determine your loan capacity.

If you’re concerned about your Four C’s of Credit, CNE offers a one-on-one approach to purchasing a home. Whether you are having credit issues or are struggling with a down payment, our Homeownership Coach will give you the information and tools you need to make good financial decisions.

Contact us today to learn more or schedule an appointment: 423.756.6254 or