Borrowing Money From Your Bank: Why the 5 C’s of Credit Matter

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Do you need to borrow money from your bank? In GOBankingRates’ Best Banks 2023 survey polling 1,000 Americans, 33% expect their banks or credit unions to be able to offer small personal loans.

Other popular borrowing options Americans expect from their financial institutions include mortgages (33%) and auto loans (32%).

However, before you can borrow money from your bank, you need to assess your financial situation and understand what lenders are looking for when it comes time to review your application. According to Wells Fargo, the key factors that determine whether you can borrow money are known as the five C’s of credit: credit history, capacity, collateral, capital and conditions. 

Here’s why the five C’s of credit matter when borrowing money from a bank. 

Also see five great ways to build credit.

Credit History

If you want to borrow money from a bank, you’ll need to show lenders how you have managed your credit. This information is part of your credit history. It details your repayment history over the last seven to 10 years and shows the credit accounts you’ve opened or closed. 

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Your credit score is also an important aspect of your credit history. A credit score impacts your interest rate, term and credit limit. Those with high credit scores — 760 and above are considered good or excellent — typically qualify for the best interest rates when borrowing money. However, the lower your credit score is, the more likely you’ll lack eligibility to borrow or for a low interest rate.

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If you are borrowing money, the lender will want to make sure you have the ability to repay what you owe. Capacity, according to Wells Fargo, is an indicator you’ll be able to consistently make payments on a new credit account. 

To determine whether you are able to make consistent payments, your monthly income will be compared to your outstanding financial obligations. This is what is known as a debt-to-income (DTI) ratio. If you have a low DTI ratio — i.e., you have enough monthly income to put toward expenses and make payments on money you’re borrowing with some money left over — your debt might be considered to be at a manageable level. This would better position you as a favorable candidate for borrowing money from a bank.

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Collateral is a personal asset you own. Common collateral includes a house or car. If you want to borrow money from a bank, it is possible to use your assets to secure the loan. That could help you get a lower interest rate or better terms. 

However, you should be very careful about making this decision. If you do not pay the money back, lenders may seize the asset. Consider meeting with a financial advisor to determine whether using assets as collateral is in your best interest.


If you need to borrow large amounts of money, such as for a mortgage or auto loan, lenders will review your existing capital. 

Capital encompasses your savings, investments and retirement accounts. If something happened and you lost your job, these assets could be used to repay the borrowed money. The more capital you have, the more confident a lender will be about lending you money because it means you have financial security. 

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How do you plan to use the money you’re borrowing? If you are applying for a mortgage, is the property you’re purchasing in a wildfire-prone area? 

These are factors known as conditions. Lenders may inquire more about conditions before allowing you to borrow money as they impact your ability to repay the money you borrow from a bank.

What Else To Know About Borrowing Money

Jacqui Kearns, chief wellbeing officer at Affinity Federal Credit Union, said to look at the terms of the loan or line of credit. Remember: You will owe not only the money borrowed but the interest accrued. 

Additionally, Kearns recommends working with a trusted financial advisor if you have any questions or concerns.

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