Buckberger Baerg & Partners: Top Accounting Firm in Saskatoon

While every lender is different; with different standards, interest rates, services, etc, they also have a lot in common. They have similar priorities, red flags, and services. Lenders also have the same reliance on the four C’s of Credit: capital, capacity, collateral, and credit. This article explores all four and how to make them work for you.

 C #1, CAPITAL

It’s the first consideration lenders have when providing financial services saskatoon. They need to know how much cash you have readily available and what your income is. Additionally, the lender will investigate your investments, savings, and assets such as a home in your name.

There are other sources of capital that most business owners or homeowners don’t consider when applying for a loan, they include:

- Down payment or closing costs assistance programs

- Sweat equity

- Grants or programs that match funds

- Gifts from family members

Keep in mind though, when applying for a home mortgage, a lender is likely to ask about the source of any large deposits in your bank account. They essentially want to make sure that you acquired the money legally, and that it wasn’t a loan to inflate the appearance of capital.

C #2, CAPACITY

Capacity has to do with your ability to pay the lender back. For this, they consider some of the factors discussed in the above, first C, such as your income and your assets. If you’re new to your job the accounting firms Saskatoon may require a letter from your employer and information regarding your previous employer.

However, they’re mostly concerned with your history of paying off previous loans. Were you late on a credit card payment? Have you ever defaulted on a mortgage? What about your utility bills, car payments, student loans, personal loans, child or spousal support?

Lenders will look at your history of loan payments to determine if you’re worth the risk. The more loans you’ve had that have been paid back on time, the better.

C #3, COLATERAL

When lenders see you have capital, they place a value on it. For example, if your home is paid off, and you’re taking out a mortgage on commercial space for your new business, a lender will assign (for example) a $400,000 price tag to your home. That way, if you aren’t able to continue paying your mortgage, the lender sees you will still have something of value for them, minimizing their risk.

C #4, CREDIT

All of these factors come together to create your credit score and your credit history. It’s likely that the lender will use this information, not just to assess your risk factor, but to determine your interest rate. If you have a high credit score then lenders will want to work with you and offer a desirable rate.

In Canada there are two organizations that you can check your credit score with:

1. TransUnion

2. Equifax

If your credit score is too low though, some lenders may decide to not do business with you outright, others may decide you would be worth the risk if they were making more money from you. While this could be very helpful to someone with an unsavory credit history, it could also be detrimental. Let’s compare purchasing a $500,000 house on good credit, against purchasing the same home on bad credit. NOTE: These calculations are done with 5% down, amortized over 25 years.

Seeing realistic numbers such as these can be quite motivating to improve your credit. The difference between good credit and bad credit from our example is $2,231/month. That means if you have good credit, you get the same house for a much smaller monthly payment.

Hopefully, diving into the four C’s of credit like this can help you get on and stay on the path to high credit ratings. The chartered accountants saskatoon at Buckberger Baerg & Partners has helped businesses and homeowners throughout Saskatoon maintain their cash flow and improve revenue. To learn more about our tax planning and compliance, accounting, or valuation and litigation services, reach out, we’re always happy to help.