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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.