How to Improve the 5 Cs of Credit
March 27, 2023

5 Cs of credit serve as the basis for a lender to gauge your repaying capacity. Whether you borrow a small sum or a large sum of money, you have to prove your creditworthiness. Online lenders are more liberal than traditional lenders when it comes to signing off on bad credit loans, but it does not mean that they will loan you despite poor affordability.

A sensible lender would conduct a thorough examination to ensure that you do not fall behind on payments, or else it will not just affect your credit rating and finances but also add to the hassle of your lender – increased cost in the collection of defaulted debt and worse writing it off in case of bankruptcy.

What are the 5 Cs and how can you improve them?

When you apply for a loan, a lender will go through your credit profile, and it does not just include your credit file and income statement. The overall picture includes five Cs – credit history, capacity, collateral, capital and conditions.

Credit history (character)

A lender would like to know your credit history to know your record for repaying debts. This will demonstrate details about your defaults, bankruptcy, foreclosure, etc. You will be considered a reputed borrower if you have paid off all of your debts on time, making it easier for you to avail of lower interest rates.

Most of the lenders will ask you to meet a minimum credit score requirement even if your credit rating is poor. You are good to go if you meet that condition. In such as case, you can be eligible to apply for loan for bad credit on instant approval.

How to improve your credit history

  • Make sure the given information is correct. Any discrepancies can lead to several problems.
  • Use credit builder loans to build credit history from scratch.
  • Pay all of your bills on time.


Capacity is another important factor that helps a lender to decide whether they should loan you. It means a lender will carefully detect your repaying capacity. Even if your credit score is good, you cannot be eligible to borrow money if your debt-to-income ratio is too high.

A lender would like to see whether you can pay off the debt without compromising with payments of your monthly expenses, not to mention other debts. Under no circumstances should the debt-to-income ratio be over 30%. 25% is even better.

How to improve your repaying capacity

  • Try to have one debt at a time so it does not seem to put a lot of burden on your pocket.
  • Make sure you clear your credit card balance before applying for the loan.
  • Do not close unused accounts because they may increase the credit utilization ratio, which leads to an increased debt-to-income ratio.
  • Try to increase your salary. The higher the income, the stronger the financial condition will be.
  • Try to show another supplemental income.
  • If you have lots of debt, consolidate them for a lower interest rate. Refinancing is also an option available.


The upfront amount that you pay toward the debt can increase your chances of getting approval for a loan at affordable interest rates. Car loans and mortgages require you to make a down payment. The higher the deposit, the lower the loan size, and the lower the risk involved in loaning you. As a result, a lender will be more likely to give you the nod despite a less-than-perfect credit file.

The size of a down payment can also affect interest rates, repayment length, and associated terms.

How to improve your capital

  • You will have to be a bit patient to build the desired deposit.
  • Whittle down your non-essential expenses.
  • Create a budget and stick to it.
  • Keep tabs on your spending. If possible, use a budgeting app.
  • Consistency is the key.


Collateral is an asset used to secure a loan. It mitigates the risk involved in lending money. Therefore, chances are high to get approval at lower interest rates. A lender has the right to liquidate your asset in case you make a default. For instance, auto loans are secured by your car and a mortgage is secured by your house.

Collateral-backed loans are called secured loans and are considered less risky for a lender to approve. However, the worth of collateral against the loan also matters.

How to improve collateral

  • Your car or house will be considered collateral for a car loan or a mortgage. As you pay down the deposit, the loan-to-value automatically goes down so that no lender will ask for additional security.
  • When you want to borrow a large sum of money for other reasons, you will have to put down external security. It’s worth will be way higher than the borrowing amount, significantly if it is depreciating in nature. In some cases, your property will be considered collateral.


While checking your affordability, a lender would carefully examine other prospects like the length of time you have spent in your current job, how long you stayed in one company before changing your job, how your industry is performing, and how likely you are able to pay it off if you encounter financial problems down the line.

Conditions may include your intention to use the loan. For instance, equipment finance will allow you to use money only to buy an asset, not anything else. Loans for home renovation cannot be used for Christmas celebrations.

How to improve conditions

Most of the conditions are less likely to be controllable. If a lender has put restrictions on the use of your loan, you will have to abide by them. But there is one thing you can improve. For instance, you can improve your stability in your job.

If you frequently switch between jobs, you will likely have trouble getting approval for a loan.

The final comment

5 Cs of credit are essential to understand before applying for a loan. Once understood, you will be able to avail yourself of competitive interest rates.

Leave a comment

Your email address will not be published. Required fields are marked *

Apply Now