Credit 3 C’s of Credit

Character – Will you repay the Debt?  Have you used credit before?  Do you pay your bills on time?  Do you have a good credit report?  Can you provide character references?  Length of time at your present address?  Length of time at your present job?

Capital – What if you don’t repay the debt  What property do you have?  Do you have any savings?  Do you have investments?  All can be used for “Collateral”

Capacity – Can you repay the debt  Do you have a steady job?  What is your salary?  Current debts and payments?  Current living expenses?  How many dependents do you have?  Do you need a co-signor?

Consumer Credit Buy now – pay later

Single Payment credit  Items and services are paid in a single payment  Within a given time after purchase  Interest is not charged if paid  Ex. Utility companies

Instalment Credit  Two or more regular payment  Payments include interest Ex. Retail, (car, appliances, electronics)

Consumer Loans  Loans for special purposes with regular payments  Ex, homes, cars, property  Loans, mortgages, line of credit  From Banks, Credit unions, consumer finance companies

Revolving Credit  Can purchase many items  Don’t exceed credit limit  Minimum payment required  Interest on outstanding balance  Ex. Store and Bank credit cards  Highest interest of all credit types

Advantages of Consumer Credit  Convenience  Investments or Capital Improvements (borrow to purchase RRSP GIC or make a home improvement)  Emergencies  Finance large expenditures

Disadvantages of Consumer Credit  Cost of credit (interest payments)  Impulse buying  Poor Credit rating  Bankruptcy