By: Kelsea,Carmin, and Carlos 5 C’s of Credit By: Kelsea,Carmin, and Carlos

5 C’s Credit Character- Is the obligation that a borrower feels to repay the loan. Since there is not an accurate way to judge character, the lender will decide subjectively whether or not you are sufficiently trustworthy to repay the loan Capacity- Capacity refers to your ability to meet the loan payments. Prospective lender will want to know exactly how you intend to repay the loan Capital- Is the money invested in the business and is an indicator of how much is at risk should the business fail. Lenders will generally consider the company's debt-to-equity ratio to understand how much money the lender is being asked to lend (debt) in relation to how much the owners have invested (equity) Collateral- Is a form of security for the lender. Banks usually require collateral as a type of insurance in case you cannot repay the loan Conditions- Refer to the intended purpose of the loan, for example working capital, additional equipment, or new offices Character- The lender will investigate your payment history, review a credit bureau report, and consider your educational background and experience in business. The quality of your references and the background and experience of your employees will also be considered. Capacity-The lender will consider the cash flow from the business, the timing of repayment, and the probability of successful repayment of the loan. Lenders will also consider payment history as an indicator of future payment potential. For example, if you have a history of not paying back loans then it becomes more difficult to obtain additional loans. Capital- high debt-to-equity ratio also indicates that the company already has a high level of loans and could be a higher financial risk. Mix of accounts( installment which is mortgages and loans vsw credit cards) Makeup 10% of overall credit scores *Installment shows you can make steady payments these are a more long term payment vs credit cards which have a minimum payment each month so you can continue to spend Credit cards show restraint for spending meaning you aren't overspending just because you have a high limit of what you can spend. Shows you can responsibly use Collateral-If you default on the loan, then the lender takes possession of the collateral in place of the debt. The loan agreement should carefully specify all items serving as collateral. Equipment, buildings, accounts receivable, and inventory are all potential forms of collateral. A lender will normally want the term of the loan to match the useful life of the asset used as collateral. For example, if equipment with a five-year expected life span is used as collateral, then the term of the loan will generally be five years or less. In some cases, the lender may ask for a third-party guarantee where someone else signs a document promising to repay the loan if you cannot. Conditions-The size of loan in relation to the specific use will help the lender evaluate your loan request. Conditions also include the national, industry level, and local economic situation. A volatile or unstable economic situation can negatively impact the evaluation. However, positive expectations can increase the likelihood of obtaining the loan. Denied credit If not, work on your credit for a few months, then apply again later. Apply again with caution. ... Read your adverse action letter. ... Request your free credit report. ... Review your free credit score. ... Repair your credit. ... Apply for a retail store card. ... Get a secured credit card.

Credit Scores Lenders, such as banks and credit card companies, use credit scores to determine the potential risk of lending money to a customer and the losses for the company due to the customers bad debt The most widely used score, from a company called FICO, ranges from 300 to 850 On the FICO scale, the higher the number, the better. In general, anything over 740 is considered excellent and will qualify you for the best rates: if your score is below 650, you’ll pay very high rates on loans and credit cards, if you qualify for them at all. Even 20 or so points can make a big difference in what you’ll pay for credit. Someone with a score of 659 could get a 30- year mortgage at 5.3% at today’s rates; if his score was 680 he’d qualify for a loan at just 4.7%. That’s about $950 a year less in interest, or about $28,000 over the life of the loan.

What Affects Your Score? Pay off history Bankruptcy Collections Amount owed vs. available Closed Accounts The types of credit used Inquires Bankruptcy- Many people considering bankruptcy are worried about the effect that bankruptcy will have on their credit score. Creditors don’t like to see a bankruptcy on your credit report. The damage it will do to your credit score depends on how good your credit was before you filed. If your debt-to-asset ratio is high (meaning you have lots of debts and few assets), your credit is already in the tank. If you file for bankruptcy, your score will take a modest dip, but it won’t take a huge plunge. If, on the other hand, your credit is good before you file for bankruptcy, then your score will take a much bigger hit post-filing. Amount- Using a high percentage of your available credit means you're close to maxing out your credit cards, which can have a negative impact on your FICO Scores. when a high percentage of a person's available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. Closed Accounts- May increase your credit card utilization rate. Many scoring models consider your utilization rate highly important, as it's a quick and easy way to gauge how you're managing your credit and whether you'll be able to pay off your debts in the future.

Managing and Improving Your Credit score Apply For loans and credit- Paying loans and monthly credit fees on time will greatly increase a credit score Things needed to apply for credit or a loan Your name, address, and phone number Your Social Security number Bank account information (i.e., whether you have a checking account, savings account, or both) Your employment and income details Bankruptcy- All though will hurt your credit at first it eliminates all previously owned debt but significantly reduces your credit score may save your credit in the long run

Denied credit?

ECOA FOR YOUR ECOR The Equal credit opportunity protects all consumers from discrimination based on sex, race, ethnicity, etc.

Credit Bureaus What is the Purpose of a credit bureau? Credit bureaus rate someones credit to determine how much of a risk an individual can be.

Credit Bureaus Who do they provide information to? Credit bureaus provide information to Credit Card companies and financial institutions.

Credit Bureaus What are 3 main credit Bureaus? The largest credit bureaus in the United States are Equifax, Experian, and TransUnion.

Credit Bureaus Where do credit Bureaus get their information about you? Credit bureaus get information from your creditors, such as a bank, credit card issuer, or auto finance company. They also get information about you from public records, such as property or court records.

Cites https://www.creditkarma.com/article/closing-accounts-credit-effects http://www.myfico.com/crediteducation/amounts-owed.aspx http://www.creditcards.com/credit-card-news/closed-accounts-credit-score-1586.php http://www.nolo.com/legal-encyclopedia/bankruptcy-credit-faq.html http://www.myfico.com/credit-education/articles/credit-reporting-agency-contacts/ http://www.myfico.com/credit-education/improve-your-credit-score/