Credit Applications and Documents

1. Credit Applications and Documents 18-3

2. 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

3. 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.

4. 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.

5. 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.

6. 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

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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?

13. 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?

14. 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

15. Accuracy of Records • Keeping accurate records will help you avoid credit record problems. • It is a good personal business practice

16. 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.