top of page
  • Writer's pictureTeam Pinto

How the 4 Cs of Credit Impact Your Mortgage Loan Approval

Often when people write about, or read about, what it takes to get a mortgage loan approved they focus on credit scores.

This is not a bad thing, credit scores are important when applying for a mortgage, but they are not the only consideration.

When applying for a mortgage, lenders will consider a variety of factors to determine whether or not you are eligible for a loan. One important set of criteria that lenders use to evaluate mortgage applicants is the "Four Cs of Credit."

These are the four key factors that lenders consider when assessing a borrower's creditworthiness. Understanding these Four Cs can help you prepare for the mortgage application process and improve your chances of being approved for a loan.

Credit History

The first C of Credit is Credit History, which refers to your track record of managing credit accounts and making payments on time. Lenders will look at your credit score, which is a numerical representation of your creditworthiness, based on your credit history. The higher your credit score, the more likely you are to be approved for a mortgage and receive favorable terms.

To improve your credit score, it's important to make all of your payments on time, keep your credit utilization ratio low, and avoid opening too many new credit accounts at once. You can also request a free copy of your credit report each year from each of the major credit reporting agencies to review your credit history and ensure that all information is accurate.


The second C of Credit is Capacity, which refers to your ability to repay the loan.

Lenders evaluate a borrower's capacity by looking at several factors, including income, employment history, and other financial obligations. Let's take a closer look at each of these factors:

Income: Lenders will look at a borrower's income to determine whether they can afford to make the mortgage payments. Lenders will typically require borrowers to provide proof of income, such as pay stubs or tax returns. Lenders may also consider other sources of income, such as rental income or alimony.

Employment history: Lenders will also look at a borrower's employment history to determine their stability and likelihood of continued income. Borrowers with a stable employment history and a steady income are generally seen as less risky borrowers.

Debt-to-income ratio: Lenders will look at a borrower's debt-to-income ratio (DTI) to determine whether they can afford to make the mortgage payments. The DTI is calculated by dividing the borrower's monthly debt payments by their monthly gross income. Lenders typically prefer borrowers with a DTI below 43%.

Other financial obligations: Lenders will also look at a borrower's other financial obligations, such as credit card debt or car payments, to determine their capacity to repay the loan. Borrowers with a high level of debt may be seen as a riskier borrower.

How to Improve Capacity

Improving capacity can help borrowers increase their chances of being approved for a loan and receiving favorable terms. Here are some strategies that borrowers can use to improve their capacity:

Increase Income: One way to improve capacity is to increase your income. Borrowers can ask for a raise or take on additional work to increase their income. Borrowers can also consider starting a side business or earning passive income from investments.

Reduce Debt: Borrowers can also improve their capacity by reducing their debt load. This can be done by paying off credit card balances or consolidating debt. Borrowers can also consider working with a credit counselor to create a debt repayment plan.


The third C of Credit is Collateral, which refers to the property being used to secure the loan, the Waterloo Region home you intend to buy. The value and condition of the property will be assessed to ensure that it is sufficient to cover the loan amount in case of default. Lenders will also consider factors such as the location of the property and the type of property being purchased.


The fourth C of Credit is Capital, which refers to the amount of money you have available for a down payment and other expenses related to the mortgage. Having a significant amount of capital available can improve your chances of being approved for a loan and receiving favorable terms.

To improve your capital position, you can save for a larger down payment or seek assistance from programs that provide down payment assistance or closing cost assistance. You can also reduce your debt load and increase your savings in other areas to demonstrate your overall financial stability.

Is It Harder for Self Employed Canadians to Meet '4 C's' Requirements?

For a self-employed Canadian homebuyer, proving their ability to pay a mortgage can be a bit more complicated than for a salaried employee. However, there are several steps that self-employed individuals can take to demonstrate their financial stability and improve their chances of being approved for a mortgage:

Keep thorough records: Lenders will typically require self-employed borrowers to provide at least two years of financial records, such as tax returns, financial statements, and business licenses. It's important for self-employed individuals to keep thorough and accurate records of their income and expenses to provide to the lender.

Increase the down payment: Putting a larger down payment on the property can help demonstrate to the lender that the borrower is financially stable and less of a risk.

Maintain a good credit score: A good credit score is important for any mortgage applicant, but it can be especially important for self-employed individuals. Keeping up with bills, avoiding excessive debt, and maintaining a good credit score can help demonstrate financial stability.

Work with a mortgage broker: A mortgage broker can help self-employed individuals find lenders that are more open to working with self-employed borrowers, and can help them navigate the application process to improve the chances of being approved.

Provide additional documentation: Self-employed individuals may need to provide additional documentation to demonstrate their income and financial stability, such as bank statements, proof of income from clients, or a letter from an accountant or financial advisor.

Looking to buy a home in the Waterloo Region? Team Pinto is here to help you navigate the complex and often overwhelming process of buying a home. With our expert knowledge of the local market, we can help you find the perfect home that fits your unique needs and budget.

From conducting thorough property searches to negotiating offers and closing deals, Team Pinto is here to guide you every step of the way. Let us take the stress out of your homebuying journey and help you find your dream home in the Waterloo Region. Contact us today to get started!



bottom of page