The 4 C's of Mortgages | TBA Credit Union (2024)

FAQs

What are the 4 C's of credit mortgage? ›

Standards may differ from lender to lender, but there are four core components — the four C's — that lenders will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.

So, what do lenders look at when deciding to approve or deny an application? Lenders consider four criteria, also known as the 4 C's: Capacity, Capital, Credit, and Collateral. What is your ability to pay back your mortgage?

Meet the Fantastic Four - the 4 C's: Capacity, Credit, Collateral, and Capital.

They look at four main factors, commonly known as the four C's: credit, capacity, capital, and collateral.

The 4 C's to 21st century skills are just what the title indicates. Students need these specific skills to fully participate in today's global community: Communication, Collaboration, Critical Thinking and Creativity.

After the above documents (and possibly a few others) are gathered, an underwriter gets down to business. They evaluate credit and payment history, income and assets available for a down payment and categorize their findings as the Three C's: Capacity, Credit and Collateral.

Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.

This includes strategic and tactical steps to continually evaluate and improve four key financial indicators: cash flow, credit, customers, and collateral. We call these indicators the 4 C's.

The Underwriting Process of a Loan Application

One of the first things all lenders learn and use to make loan decisions are the “Five C's of Credit": Character, Conditions, Capital, Capacity, and Collateral. These are the criteria your prospective lender uses to determine whether to make you a loan (and on what terms).

The “4 Cs” of credit—capacity, collateral, covenants, and character—provide a useful framework for evaluating credit risk.

What are the 4 Cs of credit CFA? ›

Capacity, Collateral, Covenants, and Character. Traditionally, many analysts evaluated creditworthiness based on what is called the “Four Cs of credit analysis”.

The factors that determine your credit score are called The Three C's of Credit – Character, Capital and Capacity.

Shipley, the founder of GIA, coined the term 4Cs to help his students remember the four factors that characterize a faceted diamond: color, clarity, cut and carat weight.

It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions. These Cs have been extended to 5 by adding 'Collateral', or extended to 6 by adding 'Competition' to it (Reference: Credit Management and Debt Recovery by Bobby Rozario, Puru Grover).

If you are a business owner or potential borrower, understanding the “4 C's of Commercial Lending” is your key to success. These are Capacity, Collateral, Capital, and Character.

Lenders also use these five Cs—character, capacity, capital, collateral, and conditions—to set your loan rates and loan terms.

Students classify those characteristics based on the three C's of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.