The 5 Cs of Credit

Having worked in the financial industry for just over 20 years (yikes — apparently this now qualifies me as the “mother hen” of first home buyers), I’ve had the privilege of helping a lot of people navigate their way into their first home.

One thing that consistently surprises buyers is how similar banks actually are when it comes to lending decisions. Regardless of branding, advertising, or which bank has the friendliest app, they all apply the same basic framework: the 5 C’s of Credit.

For anyone early in the home-buying journey, here’s a plain-English breakdown:

1. Character
This is about trust and behaviour. Do you pay your bills on time? Any missed payments, defaults, or “that one phone bill from 2018” still floating around? Banks are essentially asking: can we trust you to repay us for the next 30 years?

2. Capacity
Your ability to service the loan. Income vs expenses. This is where budgeting matters more than people expect — yes, even the “small” subscriptions add up (the bank sees them all, sorry).

3. Capital
Your contribution. Deposit, savings history, KiwiSaver, gifts — it all sits here. The more skin in the game, the happier the bank tends to be.

4. Collateral
The property itself. Location, type, condition, and risk. Not all houses are created equal in the eyes of a lender, even if they look fine to us mere mortals.

5. Conditions
The wider environment. Interest rates, economic conditions, lending policy, and sometimes timing. This one is largely out of your control, which is both comforting and frustrating.

None of this is meant to scare anyone off — everyone starts somewhere, and most first home buyers didn’t wake up financially “perfect.” The key is understanding what banks look at so you can work with the system rather than feel blindsided by it.

Happy to answer general questions or hear other people’s experiences — bonus points if you also learned about the 5 C’s the hard way.

Need personalised advice - Mortgage Ladies and Co would be delighted to help you navigate your journey- www.mortgageladies.co.nz

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.