CMCP-CREDIT APPLICATION, INTERVIEW, AND INVESTIGATION TEST QUESTIONS AND CORRECT ANSWERS

Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company. Five C's of Credit a system used by lenders to gauge the creditworthiness of potential borrowers. The system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the chance of default and, consequently, the risk of a financial loss for the lender Character It refers to credit history: a borrower's reputation or track record for repaying debts. This information appears on the borrower's credit reports. Credit reports contain detailed information about how much an applicant has borrowed in the past and whether they have repaid loans on time. These reports also contain information on collection accounts and bankruptcies, and they retain most information for seven to 10 years Capacity Capacity measures the borrower's ability to repay a loan by comparing income against recurring debts and assessing the borrower's debt-to-income (DTI) ratio. Lenders calculate DTI by adding together a borrower's total monthly debt payments and dividing that by the borrower's gross monthly income. The lower an applicant's DTI, the better the chance of qualifying for a new loan Capital is the money personally invested by the debtor in a business and is an indication of how much risk it has as well as the chance that the business will fail. Collateral can help a borrower secure loan. It gives the lender the assurance that if the borrower defaults on the loan, the lender can get something back by repossessing the collateral. Conditions Can refer to how a borrower intends to use the money. Consider a borrower who applies for a car loan or a home improvement loan. A lender may be more likely to approve those loans because of their specific purpose, rather than a signature loan, which could be used for anything. Credit Application The first activity in the Credit Department as it starts the actual operation of its function. Individual/Single Proprietorship a. A certified photocopy of its trade name or style registered with the Bureau of Domestic Trade; b. Mayor's Permit; c. License to engage in business issued by the City or Municipality; d. Income Tax Returns for the preceding year and official receipt of payment; and e. Latest audited/unaudited financial statements Partnership a. A certified photocopy of its trade name or style registered with the Bureau of Domestic Trade; b. Copy of Articles of Partnership, duly registered with the Securities & Exchange Commission (SEC), c. Latest audited/unaudited financial statements of the partnership; d. Income Tax Returns for the preceding year of each member of the partnership; e. License to engage in business issued by the City or Municipality f. Resolution of the partnership authorizing the negotiation of the loan and authorizing the partner to sign for and in behalf of the partnership, g. Curriculum Vitae or personal information.