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T008-04.01. T008-04.0. Credit. 8.04 Discuss the factors on which credit is granted and the cost of credit. G42. T008-04.02. Process of Obtaining Credit. Credit Application Documentation Processing Underwriting Closing Funding. G43. T008-04.03. Credit Application.

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credit

T008-04.01

T008-04.0

Credit

8.04

Discuss the factors on which credit is granted and the cost of credit.

G42

process of obtaining credit

T008-04.02

Process of Obtaining Credit
  • Credit Application
  • Documentation
  • Processing
  • Underwriting
  • Closing
  • Funding

G43

credit application

T008-04.03

Credit Application
  • Form on which you provide information needed by a lender to make a decision about granting credit or approving a loan.
  • Provide the following information:
    • Salary, Employer, Outstanding Credit (Debt), Assets, Credit References, Checking and Savings Accounts, Stock Portfolio, etc.

G44

documentation

T008-04.04

Documentation
  • Creditor will collect and verify necessary documentation for the extension of credit.
    • Examples: Bank statements, credit card statements, past W-2’s, etc.

G45

processing

T008-04.05

Processing
  • Building of loan file.
  • Evaluating credit worthiness.

G46

credit worthiness terms processing

T008-04.06

Credit Worthiness Terms (Processing)

The C’s of Credit Worthiness

  • Capacity
    • Your ability to pay (income)
  • Character
    • Earned by paying bills on time and being a trustworthy, reliable, stable person.
    • References – people you have borrowed from in the past.
  • Collateral
    • Security to help guarantee that the creditor will be repaid.

G47

credit worthiness terms processing continued

T008-04.07

Credit Worthiness Terms (Processing) continued
  • Credit History
    • Indicates the amount of debt you have and your payment history.
  • Capital
    • How much you have beyond what you owe.
  • Credit Limit
    • Maximum amount you can borrow.
  • Cosigner
    • Responsible for a loan if you, the original debtor, do not pay.

G48

underwriting

T008-04.08

Underwriting
  • Reviewing loan for soundness.
  • Consumer Reporting Agencies
    • Company that compiles and keeps records on consumer payment habits.
    • Used to evaluate creditworthiness.
      • Examples: Equifax, Experian, and TransUnion.

G49

closing

T008-04.09

Closing
  • Representative explains terms of credit.
  • Debtor signs appropriate forms.

G50

funding

T008-04.10

Funding
  • Creditor will issue credit/funds to the debtor.

G51

denial of credit

T008-04.11

Denial of Credit
  • Fair Credit Opportunity Act requires that credit denial cannot be based on sex, family, religion, etc.
  • Must be based on ability to pay back loan.

G52

cost of credit

T008-04.12

Cost of Credit
  • Interest Rates
    • Percentage that is applied to debt.
  • Principal
    • Amount of money borrowed.
  • Time Factor
    • Length of time for which interest will be charged.
  • Maturity Date
    • Date on which a loan must be repaid.

G53

cost of credit continued

T008-04.13

Cost of Credit continued
  • Finance Charge or Fees
    • Cost of credit stated in a dollar figure
  • Annual Percentage Rate (APR)
    • Indicates how much credit costs on a yearly basis.
  • Grace Period
    • Time period during which no finance charges will be added to an account.
  • Cash Advance
    • Borrow money on a credit card.

G54

simple interest formula

T008-04.14

Simple Interest Formula

I=PRT

I=Interest

P=Principal

R=Rate

T=Time

G55