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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. 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

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  1. T008-04.01 T008-04.0 Credit 8.04 Discuss the factors on which credit is granted and the cost of credit. G42

  2. T008-04.02 Process of Obtaining Credit • Credit Application • Documentation • Processing • Underwriting • Closing • Funding G43

  3. 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

  4. 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

  5. T008-04.05 Processing • Building of loan file. • Evaluating credit worthiness. G46

  6. 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

  7. 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

  8. 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

  9. T008-04.09 Closing • Representative explains terms of credit. • Debtor signs appropriate forms. G50

  10. T008-04.10 Funding • Creditor will issue credit/funds to the debtor. G51

  11. 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

  12. 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

  13. 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

  14. T008-04.14 Simple Interest Formula I=PRT I=Interest P=Principal R=Rate T=Time G55

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