1. Discuss the factors on which credit is granted and the cost of credit. G42

2. Process of Obtaining Credit 1.Credit Application 2.Documentation 3.Processing 4.Underwriting 5.Closing 6.Funding G43

3. 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. 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. Processing Building of loan file. Evaluating credit worthiness. G46

6. 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. 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. 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. Closing Representative explains terms of credit. Debtor signs appropriate forms. G50

10. Funding Creditor will issue credit/funds to the debtor. G51

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. 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. 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. Cost of Credit continued G54

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