Credit and the 5 C’s of Credit. What is credit?. Credit Trust given to another person for future payment of a loan, credit card balance, etc. Creditor A person or company to whom a debt is owed. When to use credit. WHEN TO USE CREDIT
Credit and the 5 C’s of Credit
Trust given to another person for future payment of a loan, credit card balance, etc.
A person or company to whom a debt is owed.
WHEN TO USE CREDIT
Can you describe a situation when it is a good time to use credit and when it is NOT a good time to use credit?
1. Do I need it or do I want it?
2. How much am I actually going to pay for the item? (time payments incur interest)
3. Where am I getting the $$ to pay for it?
4. What reward can I receive by using card? (airline miles, etc. )
C = Capital
C = Collateral
C = Conditions
C = Character
C = Capacity
Banks want to see that you have a financial commitment; that you have put yourself at risk. Have you paid off debts? (ie. Car loans)
How much cash/wealth/ property do you have that could cover debts if you fail to pay?
Most collateral is in the form of real estate, your bank accounts, and parents promise to provide support.
What is your current economic condition? Are you sensitive to economic downturns. The bank wants to know that you are good at managing expenses.
Banks want to put their money with clients who have the best credentials and references. The way you take responsibility, your timeliness in fulfilling obligations - that's character.
What is your borrowing history and track record of repayment. How much debt can you handle? Will you be able to honor the obligation and repay the debt?
COSTS OF CREDIT
How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it.
Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 2