When you apply for a loan, lenders assess your credit risk based on a number of factors, including your credit/payment history, income, and overall financial situation. Here is some additional information to help explain these factors, also known as the "5 Cs," to help you better understand what lenders look for:
Through the Union Plus® Mortgage program, with financing provided by Wells Fargo Home Mortgage, union members, their parents and children have access to a wide range of home loan options to meet a variety of needs, plus access to special benefits designed for union families.
When you apply for a loan, lenders assess your credit risk based on a number of factors, including your credit/payment history, income, and overall financial situation. Here is some additional information to help explain these factors, also known as the “5 Cs,” to help you better understand what lenders look for:
- Credit history: Qualifying for the different types of credit hinges largely on your credit history – the track record you’ve established while managing credit and making payments over time. Your credit report is primarily a detailed list of your credit history, consisting of information provided by lenders that have extended credit to you. While information may vary from one credit reporting agency to another, the credit reports include the same types of information, such as the names of lenders that have extended credit to you, types of credit you have, your payment history, and more.
In addition to the credit report, lenders may also use a credit score that is a numeric value – usually between 300 and 850 – based on the information contained in your credit report. The credit score serves as a risk indicator for the lender based on your credit history. Generally, the higher the score, the lower the risk. Credit bureau scores are often called “FICO® scores” because many credit bureau scores used in the U.S. are produced from software developed by Fair Isaac Corporation (FICO). While many lenders use credit scores to help them make their lending decisions, each lender has its own criteria, depending on the level of risk it finds acceptable for a given credit product.
- Capacity: Lenders need to determine whether you can comfortably afford your payments. Your income and employment history are good indicators of your ability to repay outstanding debt. Income amount, stability, and type of income may all be considered. The ratio of your current and any new debt as compared to your before-tax income, known as debt-to-income ratio (DTI), may be evaluated.
- Collateral (when applying for secured loans): Loans, lines of credit, or credit cards you apply for may be secured or unsecured. With a secured product, such as an auto or home equity loan, you pledge something you own as collateral.
The value of your collateral will be evaluated, and any existing debt secured by that collateral will be subtracted from the value. The remaining equity will play a factor in the lending decision.
- Capital: While your household income is expected to be the primary source of repayment, capital represents the savings, investments, and other assets that can help repay the loan. This can be helpful if you lose your job or experience other setbacks.
- Conditions: Lenders may want to know how you plan to use the money and will consider the loan’s purpose, such as whether the loan will be used to purchase a vehicle or other property. Other factors, such as environmental and economic conditions, may also be considered.
The 5 C’s of Credit is a common term in banking. Now that you know them, you can better prepare for the questions you may be asked the next time you apply for credit.
And remember, after closing on a loan through the Union Plus Mortgage program, you’ll be eligible for special benefits that include receiving a My Mortgage GiftSM award from Wells Fargo - $500 for buying a home or $300 for refinancing your home – for use at participating retailers, and access to mortgage assistance through Union Plus in times of hardship such as layoff, disability or strike.1 Keep in mind that parents and children of union members are also eligible for certain benefits.
1Eligible individuals can receive the Wells Fargo My Mortgage GiftSMaward approximately 6 weeks after closing on a new purchase or refinance loan secured by an eligible first mortgage or deed of trust with Wells Fargo Home Mortgage (“New Loan”), subject to qualification, approval and closing, when identifying themselves as eligible. The My Mortgage GiftSM award is not available with any Wells Fargo Three-Step Refinance SYSTEM® program, The Relocation Mortgage Program® or to any Wells Fargo team member. Only one My Mortgage Gift award is permitted per eligible (“New Loan”). This award cannot be combined with any other award, discount or rebate, except for yourFirstMortgageSM. This award is void where prohibited, transferable, and subject to change or cancellation with no prior notice. Awards may constitute taxable income. Federal, state and local taxes, and any use of the award not otherwise specified in the Terms and Conditions (also provided at receipt of award) are the sole responsibility of the My Mortgage GiftSM recipient.
Wells Fargo Home Mortgage has a services agreement with Union Privilege in which Union Privilege receives a financial benefit for providing agreed upon services. You are encouraged to shop around to ensure you are receiving the services and loan terms that fit your home financing needs.
Information is accurate as of date of distribution. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2018 Wells Fargo Bank, N.A. All rights reserved. NMLSR ID 399801