Last Updated: 2nd September, 2021

When you apply for a home loan, a lender will look at more than just your credit file. So what do banks and lenders assess when they look through your application? It’s the 5 C’s of credit.

What are the 5 C’s of credit?

The 5 C’s of credit is a framework that a lender will use to assess you as a borrower. The 5Cs of Credit for home loan approval
The 5 C’s of credit What does it assess?
Character Your credit file Money management
Capacity Whether you can afford the loan Stability of your income
Capital Your assets and liabilities
Collateral The property you’re buying
Conditions Everything else about your situation
Let’s look at each of the 5 C’s and what they mean to the lender and borrower.


This refers to your financial conduct and financial history. Lenders will assess your credit file, savings history, employment history, etc. Your credit file is the main area of concern for the lender. The questions the bank will assess are:
  • Are you willing to pay the home loan?
  • How long have you been in your current job?
  • How often do you change jobs?
  • Do you have any savings?
  • Do you pay your rent on time?
  • How often do you change your address?
  • Do you pay your bills on time?

What if I have a bad history?

Try to make your repayments on time going forward. This is positive credit behaviour, and it looks great to a bank. There are specialist lenders who can help if you have a bad credit history. While the interest rate for a bad credit home loan might be higher, we can refinance you to a lower rate later, if you’re consistent with repayments. If you experienced a life event like divorce, illness or business failure two years ago and you’re borrowing less than 80% of the property, Home Loan Experts mortgage brokers can convince a lender to approve your home loan.


Capacity covers your borrowing power. The lender will look at capacity to gauge your means and your ability to repay the home loan. Lenders will assess your income, living expenses and current debts to work out if you can make repayments without getting into hardships. They will use an assessment rate to determine if you can make repayments even if there are sudden rises in interest rates. The questions the lender will ask are:
  • Can you make repayments without getting into financial hardship?
  • Is your income stable?
  • Are you earning riskier income types like overtime, casual shifts or bonuses?
  • Do you earn overseas income?
  • Do you get child support or worker’s compensation?

How can I show my capacity?

Some people may have a harder time demonstrating their means to a lender than others. If you are such an earner, there are things you can to do to demonstrate to the lender that you have the capacity to service a loan. If you’re self-employed, low doc loans are available, which allow you to prove your income with alternative documents such as bussiness activity statements, bank statements or an accountant’s letter. If your income is considered risky, like overtime, bonuses, commissions, etc, it’s about applying with a lender that will assess these incomes. If you want to change jobs, talk to a mortgage broker. Some lenders will not accept your application if you’re on probation with a new employer.


The banks will look at your assets and liabilities and how much deposit you’ve saved for a home loan. Having a lot of savings is good, while too much credit-card debt is bad. Earning $300,000 annually but not having any assets is a signal to the lender that you’re frivolous with spending and have not saved much. Mortgage broker tip: When you’re applying, put everything you own in the application form. The more assets you have, the better you look.


Collateral refers to the property you’re buying. The bank will consider your property against the loan you secure, because if you default on your home loan, the bank will foreclose on your home to recoup the loss. The questions assessed are:
  • Do you have good security for the loan?
  • Is the property a standard property?

What do banks consider standard property?

Point of difference Standard property Non-standard property
Location The property is in a capital city or major town The property is in a remote area.
Condition of property The property is in good condition and does not require major renovation work. The property is in a depleted condition and requires major renovation work.
Land size The size is under 2 hectares. The land size is more than 2 hectares. This includes hobby farms on large blocks of land.
Apartment size The apartment has more than 50m2 of internal area. This excludes car spaces and balconies. The apartment has less than 50m2.
Number of units There are less than 30 units in the building There are more than 30 units in the building.
A good way to assess whether your property is considered standard to a bank is to ask, “Would most people want to buy this property?” There are other property features that can scare potential buyers, especially:
  • If the property is located near a high-voltage power line
  • If the property is in flood-prone areas.
  • If the property requires extensive repairs.
  • Having a non-standard property does not mean your loan will automatically be declined. It’s just a little harder to get approved for a home loan.
  • Applying with the right lender is vital. In some cases, you’ll need to save a larger deposit, and in very rare situations, there might not be a lender that will accept the property.
Getting pre-approved for a home loan when you haven’t told the bank what property you’re buying does not guarantee formal approval. This means even with a pre-approval and winning an auction; you can be declined for a mortgage. Mortgage broker tip: Before you make an offer on a property or go to an auction, send your mortgage broker a link to the online listing and ask if they can see any problems.


This includes everything else about your situation and also external factors that can affect your application. The questions assessed are: