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Credit Application Process. Ch. 18-3 PoB 2011. Credit Application Process. To obtain a loan or credit card, you must prove that you are a good credit risk Not everyone who wants credit will receive it Lenders need certain information in order to make a decision about granting credit

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credit application process1
Credit Application Process
  • To obtain a loan or credit card, you must prove that you are a good credit risk
  • Not everyone who wants credit will receive it
  • Lenders need certain information in order to make a decision about granting credit
  • Lenders want to be assured of two things:
    • Ability to repay a debt
    • Your willingness to do so
the three c s of credit
The Three C’s of Credit
  • Character – refers to your honesty and willingness to pay a debt when it is due
  • Capacity – refers to a person’s ability to pay a debt when it is due
  • Capital – is the value of the borrower’s possessions
    • Includes money and property you own
credit application
Credit Application
  • Credit Application – is a form on which you provide information needed by the lender to make a decision about granting credit
    • One of the most important parts of a credit application is your credit references which are businesses or individuals who are able and willing to provide information about your creditworthiness
    • Your signature on the application indicates the following:
      • Gives lender permission to contact your credit references
      • Indicates you understand the type of credit and information you provide is true
documenting credit data
Documenting Credit Data

Information provided must be verified to assure accuracy

May list personal references if you do not have sufficient business credit references

actions to establish credit
Actions to Establish Credit
  • Trust and reliability are important matters of credit
  • Have a good record of grades and attendance
    • School behavior patterns tend to carry on through life
  • Start a checking and saving account
    • Make regular deposits to your savings account
  • Charge small purchases
    • Make payments according to agreement or pay off within 30 day time span each month
  • Keep a steady part-time or full-time job
    • Changing jobs does not look good
credit bureau
Credit Bureau
  • Credit Bureau – is a company that gathers information on credit users
    • Sells information to businesses offering credit
    • Keep debt records of consumers
    • Can record information that is officially reported to them
    • National and local credit bureaus cooperate with each other and share information
credit report
Credit Report
  • Credit Reports shows:
    • Debts you owe
    • How often you use credit
    • Whether you pay your debts on time
    • Other credit data
credit report1
Credit Report
  • Formats used by credit bureaus varies, but contain six, similar, areas of information:
    • Personal information – information that helps identify or locate the consumer
    • Public records – information from public records that might be viewed negatively by creditors
    • Accounts in good standing – information from public records that might be viewed negatively by creditors
    • Adverse accounts – information about accounts that have a positive status
    • Credit history requests - information about creditors who have requested credit history information
    • Personal statement- optional statement provided by the consumer
credit contracts
Credit Contracts
  • KWYS – Know what you’re signing
  • Before signing a credit contract, consider the following questions:
    • How much are the finance charges? Are they clearly shown on the contract?
    • Does the contract include the cost of services you may need?
    • 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?
    • Will you be given a copy of the contract?
    • Under what conditions can the seller repossess the merchandise if you do not pay on time?
statement of accounts
Statement of Accounts
  • Statement of Accounts – is a record of the transactions completed during the billing period
  • Most statements report the following information:
    • The balance that was due when the last statement was mailed
    • The amounts charged during the month
    • The amounts credited to your account for payments or for returned items
    • The current balance
    • The minimum amount of your payment and when it is due
avoiding fraud
Avoiding Fraud
  • Federal Trade Commission reports that credit card fraud is a major problem
    • To avoid loss due to fraud, check your credit card statements very carefully
    • If you discover an error, contact the business and credit card company
    • Credit card company may contact you if fraud is suspected
    • To help prevent internet fraud, online transactions require extra information and data transfer is encrypted
review
Review

What are the three C’s of credit?

What is the main purpose of a credit bureau?

What are the main items reported on a statement of accounts?