What are the three C's of credit used in the underwriting process?

The three C's of credit that are commonly evaluated during the underwriting process are Capacity, Character, and Capital.

Capacity refers to the borrower’s ability to repay the loan, which is typically assessed through income, employment stability, and existing debts. Underwriters analyze the borrower’s debt-to-income ratio to determine whether they have sufficient income to cover their mortgage payments and other financial obligations.

Character pertains to the borrower's credit history and overall reliability, often judged through their credit report and score. This aspect examines how responsible the borrower has been with their past credit, including their payment history and any defaults.

Capital involves the borrower’s assets and savings, as well as the amount of the down payment they are able to put forth. It shows the financial cushion a borrower has and their ability to withstand potential financial difficulties.

Understanding these three components helps lenders make informed decisions about the risk associated with each loan application. Each component plays a crucial role in determining whether a borrower is seen as a good risk for loan approval. The other options present different combinations of terms that do not align with the standardized understanding of the three C’s in credit evaluation.