Credit Scoring and Scorecard Lending Agribusiness Finance LESE 306 Fall 2008.

Slides:

Advertisements

Similar presentations

Your Name – Your Business Helping People Improve & Protect Their Credit Credit Concepts I.

Advertisements

Credit is the promise to repay borrowed money (principle) with interest over a certain period of time. Credit cards, mortgages, car loans, student loans,

Lesson 9 Fixing Your Credit.

Introduction to Business & marketing

What you need to Know! What does this mean? What about interest?

Credit Records and Laws

1 CREDIT THE TRUE STORY SMART MONEY. 2 What is Credit? An arrangement to receive cash, goods, or services now, and pay for them in the future. A claim.

Unit 4 - Good Debt, Bad Debt: Using Credit Wisely PG 73.

 A record of your credit history that includes information about: ◦ Your identity ◦ Your existing credit ◦ Your public record ◦ Inquiries about you.

GOOD CREDIT IS THE TICKET DO YOU KNOW HOW TO ACHIEVE IT?

S ECTION 10.2 H OW TO Q UALIFY FOR C REDIT Goals: Explain how lenders judge your creditworthiness. Describe factors that determine your credit rating.

PART 2: MANAGING YOUR MONEY Chapter 6 Using Credit Cards: The Role of Open Credit.

Credit Scoring and Scorecard Lending LESE 306 Fall 2008.

Credit Scores and Scorecard Lending AGEC 489/690 Spring 2009 Slide Show #12.

Lending Team Analysis AGEC Spring Factors to Consider Credit scores assessing the borrower’s existing credit history. Business plan and.

Credit Intro to Credit & Establishing Good Credit.

A Good CREDIT Welcome to MoneyWI$E A CONSUMER ACTION AND CAPITAL ONE PARTNERSHIP Build it and keep it © 2011.

You and Your Credit Score FICO. The Score The most widely used credit score is the FICO Score, the credit score created by Fair Isaac Corporation. Lenders.

Applying for Credit Unit 3.  Most lenders build their lending polices around the “five C’s of credit”  Character – Will you repay the loan?  Capacity.

BANKING SERVICES Ch. 7.3 Granting & Analyzing Credit.

Good Debt, Bad Debt: Using Credit Wisely Learner Objectives

1. 2 Welcome  3 rd of 16 Sessions No cost to participate.  Financial Support: FINRA Foundation & United Way Worldwide  Solid Finances Webpage: 

Key Terms Section 10.1 & 10.2  Why should you be careful not to take on more debt than you can easily repay? *Credit *Equity *Creditworthiness *Character.

CREDIT – Part 2 Business Issues. Credit Cards Paid over a variable amount of time Finance charge (interest) is called annual percentage rate (APR) expressed.

© 2006 Consumer Jungle Credit Scores & Reports. Are you Creditworthy? Have you ever borrowed money? Did you pay it back? Did you pay it back quickly?

CREDIT REPORTS How important is your credit score? What do we already know? What do we want to know? When would a credit report get pulled?

Unit 7: Credit- You’re in Charge?

Granting Loans.

 the ability to borrow money in return for the promise of REPAYMENT  Before using credit you should ask your self:  Is it a want or a need?  Do you.

Credit Reports Take Notes. Cost of CarInterest Rate# of PaymentsMonthly Payment $ 25, %60($438.19) $ 25, %60($460.41) $ 25, %60($483.32)

Do Now10/30 & 10/31 Chapter 17 SLID E 1 Respond to the following in your notebook: As a teenager, you would like to get started in establishing a good.

 What are advantages of credit  What are disadvantages of credit.

Chapter 4.  What is Credit? ◦ Principal + Interest  Installment Debt ◦ Equal Payments ◦ Durable Goods ◦ Longer Term = Lower Payment BUT ◦ More Interest.

Credit Reports. What is a Credit Report? Credit Report: A record of past borrowing and repayment of debts.

2 What Does it Mean? Determine how much money you can borrow, and how much interest you’ll pay. Each score is specific for each bureau Scores range from…

© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America,

Personal Finance. The three Cs of Credit 1. Capacity  Do you have a steady job?  What is your salary?  How reliable is your income?  Do you have other.

CONTEMPORARY ECONOMICS© Thomson South-Western 20.2Using Credit Responsibly  Understand whether to use cash or credit to pay for purchases.  Name the.

1.4.2.G1 Credit Reports and Credit Scores Take Charge of Your Finances.

FIXING Your Credit Objectives: Understanding how credit scores are determined. Understanding how consumers actions impact their credit scores.

2.6.1.G1 Credit Reports and Scores Take Charge G1 © Take Charge Today – August 2013– Credit Reports and Scores– Slide 2 Funded by a grant from.

Credit Cards. When thinking of getting a Credit Card follow the Three C’s: Character: Will you repay the debt? How you used credit before? Do you pay.

The Three C’s of Credit Objectives: – Students will be able to describe the “Three C’s of Credit (Capacity, character, and collateral) and factors used.

Jeopardy Begins with c Loans Poor credit Consumer Credit consumer Finance Q $100 Q $200 Q $300 Q $400 Q $500 Q $100 Q $200 Q $300 Q $400 Q $500 Final.

What’s a Credit Report? From age 18 on, agencies collect data about your spending habits. Monitor your ability to handle risks (i.e. loans I installment.

10 Points Question- What is the definition of Character?

Establishing Credit Presented By:. Credit is more than a plastic card you use to buy things --- it is your financial trustworthiness. What is credit?

CREDIT HISTORY & SCORES. CREDIT REPORTS  aka: credit history  3 Credit Bureaus receive and maintain information on consumers: Experian, TransUnion,

1 Banking Risks Management Chapter 8 Issues in Bank Management.

2 Table of Contents  Personal Identification Information  Trade Lines or Payment Records  Public Record and Collection Items  Inquiries  Consumer.

CREDIT REPORT HOW TO UNDERSTAND YOUR PERSONAL CREDIT REPORT PREDICTIVEMETRICS.COM.

Credit  When goods, services, and/or money is received in exchange for a promise to pay back a definite sum of money at a futre date.  Lender: the person.

Types of Credit. Loans Borrowing a specific amount for a certain period of time.

Credit Test Review. What card takes money directly from your checking or savings account?  Debit Card.

How To Improve Your Credit Score Federally insured by NCUA Great Rates. Personal Service. chevronfcu.org 

Key Terms Section 10.1 & 10.2  Why should you be careful not to take on more debt than you can easily repay? *Credit *Equity *Creditworthiness *Character.

FICO Your Credit Score FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score.

Credit Scoring and Scorecard Lending

Deciding on a credit card

Credit scores & Creditworthiness

WED. March 29, 2017 TODAY’S AGENDA

Do Now 12/7/16 On a half sheet of paper answer the following:

Credit Scores What is a FICO Score??.

Mr. Rosenstock Economics San Fernando High School

By: Kelsea,Carmin, and Carlos

Chapter 13 – Bank Risk Management & Performance

Build Your CREDIT = Build Your ASSET

Credit Reports and Credit Scores

Workshop Goal Learning Objectives

Presentation transcript:

Credit Scoring and Scorecard Lending Agribusiness Finance LESE 306 Fall 2008

Credit ScoringFundamentals Credit Scoring Fundamentals creditworthiness A credit score is a numerical expression based on a statistical analysis of a borrower’s credit history to represent his/her creditworthiness, which is the likelihood that the borrower will pay his/her debts in a timely manner. A credit score is primarily based on credit report information obtained from credit bureaus and credit reference agencies.

Credit ScoringFundamentals Credit Scoring Fundamentals potential risk who qualifies for a loan, at what interest, and what credit limits Lenders use credit scores to evaluate the potential risk posed by lending money and to mitigate losses due to bad debt. Lenders also use credit scores to determine who qualifies for a loan, at what interest, and what credit limits. potential employers Credit scoring is not limited to lending. Other organizations, such as mobile phone companies, insurance companies, and potential employers are examples of other users of credit scoring.

Fundamentals Credit Scoring A credit score is primarily based on credit report information typically from the three credit bureaus: Experian, TransUnion and Equifax. There are differing approaches to calculating credit scores. The FICO is a credit score developed by Fair Issac & Company. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the lender.

Fundamentals of a Credit Report 1.Personal identifying information – your name, address, social security number, birth date, current and previous employers. 2.Credit history – this includes your bill-paying history with banks, retail stores and others who have granted you credit. Information includes each account you have (when opened, type of account, how much credit it includes and amount used, your monthly payment. It will indicate when loan was paid off and if there were missed or late payments. 3.Public records – information that might indicate your creditworthiness, such as tax liens, court judgments and bankruptcies.

The FICO credit score is used by all three credit bureaus. It is used by over 90% of commercial banks when analyzing mortgage loan applications.

Loan automatically rejected below 500 Loan automatically accepted above 500 Credit Score Lending Practice More information required. Risk Premium applied to interest rate. More information required. Risk Premium applied to interest rate.

4.467 % risk premium % risk premium

4.467 % risk premium % risk premium $930 difference in monthly loan payment!!!!

Scorecard Lending

Credit Standards Lenders use credit scores as a part of its standards when evaluating loan applications. They will also establish standards related to liquidity, solvency and debt repayment capacity (minimum current ratio of 1.50, maximum debt ratio of 0.50, minimum term debt and capital lease coverage ratio of 1.0). Lenders also focus on the “Six C’s” of assessing a borrower’s creditworthiness.

Six C’s to Assessing Creditworthiness

Hypothetical Scorecard 1.Credit score from credit bureau15%________ 2.Current ratio15%________ 3.Debt ratio20%________ 4.Debt coverage ratio30%________ 5.Other factors10%________ a. Continuing customer b. Primary commodity c. External control factors TOTAL SCORE________ WeightMet Standard The lender then decides the minimum score for automatic approval, automatic rejection, and range over which additional conditions must be met (risk premium, additional collateral, compensating balances, etc.

Hypothetical Scorecard 1.Credit score from credit bureau15%__12____ 2.Current ratio15%__13____ 3.Debt ratio20%__17____ 4.Debt coverage ratio30%__25____ 5.Other factors10%___9____ a. Continuing customer b. Primary commodity c. External control factors TOTAL SCORE__76____ WeightMet Standard The lender then decides the minimum score for automatic approval, automatic rejection, and range over which additional conditions must be met (risk premium, additional collateral, compensating balances, etc.

Loan automatically rejected below 500 Loan automatically accepted above 76 Credit Score Lending Sheet More information required. Risk premium applied to interest rate. More information required. Risk premium applied to interest rate. 50

Hypothetical Loan Rates Base cost of funds4.0% Score > 756.0% Score = 71 – 757.0% Score = 66 – 707.5% Score = 61 – 658.0% Score = 56 – 608.5% Score = 51 – 559.0%