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Credit Applications and Documents . 18-3. Credit application process. Trust between borrower and lender is vital if credit is going to be granted. You must prove you are not a credit risk Not everyone who desires credit will receive it The lender wants to know 2 things

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credit application process
Credit application process
  • Trust between borrower and lender is vital if credit is going to be granted.
  • You must prove you are not a credit risk
    • Not everyone who desires credit will receive it
  • The lender wants to know 2 things
    • Your ability to repay a debt
    • Your willingness to do it
the three c s of credit
The Three C’s of Credit
  • The lender will consider these three factors
  • Character
    • Refers to your honesty and ability to pay debt when it is due
    • If you have a reputation for paying bills on time you will meet this important condition.
  • Capacity
    • Refers to a persons ability to pay a debt when it is due.
    • The lender must decide if your income is large enough to pay the debt.
    • In contrast if you have high income but have many other debts you may not qualify.
three c s cont
Three C’s Cont.
  • Capital
    • Is the value of the borrowers possessions
    • Capital includes money and property that you own.
    • It might include a car that is paid for or a house that is mostly paid for.
    • Checking and savings accounts add to your capital
    • It gives the creditor some assurance you will meet your obligations.
credit application
Credit Application
  • When applying for a credit or a loan the lender will ask you to fill out an application.
    • See Page 465
  • One of the most important parts of a credit application is your credit references.
    • Individuals or businesses who are able and willing to provide information about your creditworthiness
    • Your signatures gives them permission to contact the references and that you understand that everything you put down is true.
documenting credit data
Documenting Credit Data
  • Information provided on the credit application must be verified to assure its accuracy.
  • Present and former employers can report dates and salary figures.
  • Banks can report the accuracy of accounts listed.
  • Landlords can indicate how long tenants have been renting and if they pay ontime
documenting credit data1
Documenting Credit Data
  • You may list a personal reference because you do not have sufficient business credit references.
  • The person can talk about how responsible and trustworthy you are.
  • All of this gives the credit manager a picture of how risky you are.
actions to establish credit
Actions to Establish Credit
  • You begin while in school by being trust worthy and honest.
    • Both employers and lenders know that school behavior patterns carry over in life.
  • Start a savings and checking account
    • If you keep a balance lenders see you can handle money.
    • Make regular deposits.
actions to establish credit cont
Actions to Establish Credit cont.
  • Some people establish credit records by charging small purchases.
    • Make sure to pay it off each month
  • Having good part-time or full-time employment record.
    • Changing jobs often does not look good.
    • Being on a job for 2 or more years looks good.
credit bureau
Credit Bureau
  • A lender will also check with a credit bureau
  • This is an agency that gathers information on credit users.
  • They keep debt records.
  • They can only report information that is officially reported to them.
  • Shoes if payments are up to date or over due.
credit report
Credit Report
  • A credit bureau uses your record to grade you as a credit risk.
  • Your credit report shows
    • The debts you owe
    • How often you use credit
    • Whether you pay your debts on time.
  • It is confidential to you and those who have a legitimate reason to see it.
  • The top half lists background info
  • The bottom half lists information about the individuals accounts.
credit documents
Credit Documents
  • You should maintain good credit recordkeeping.
    • Keep sales slips, credit card receipts and other documents.
  • Credit contracts
    • Always know what you are signing (KWYS)
  • Before signing consider the following
    • How much are the financial Charges? Are they clearly shown on the contract?
credit documents cont
Credit documents cont.
  • Does the contract include the costs of services you may need, such as repairs to a television or a washing machine?
  • Does the contract have an add-on feature so that you can later buy other items?
  • If you pay the contract in full before the ending date, will the finance charge be reduced?
  • Is the contract completely filled in before you sign? Be sure to draw a line through any blank space before signing.
  • Will you be given a copy of the contract?
credit documents cont1
Credit documents cont.
  • Statement of Account
    • Given to credit card or charge card customers
    • Is a record of all transactions completed in a billing period.
  • Most statements report the following:
    • The balance that was due when the statement was mailed.
    • The amounts charged during the month
    • The amounts credited to your account for payments or for retuned items
    • The current balances which is old balance +Finance charges+Purchases-payments.
    • The minimum amount of your next payment and when it is due
accuracy of records
Accuracy of Records
  • Keeping accurate records will help you avoid credit record problems.
    • It is a good personal business practice
avoiding fraud
Avoiding Fraud
  • Credit card fraud is a large problem
  • Check your credit card statement every month.
    • Compare purchase to sales slips.
    • Notify business if you find an error.