LECTURE 9-Applying for CreditWhat Creditors look for: 5 Cs1. Character- do you pay bills on time?2. Capacity- can you repay the loan?3. Capital- what are your assets and net worth?4. Collateral- what property do you have that the lender can repossess if you default on the loan? (Ex: loan for vehicle, collateral=vehicle)5. Conditions- what economic conditions could affect your ability to repay the loan?-Credit Report/ScoreCredit Report3 Credit Bureaus collect and compile information: Experian, Trans Union and EquifaxGet copies of your credit report to review for accuracy1 copy per year for free from each of the 3 bureausDoes not include credit scoresCredit ScoreNumerical summary of your credit riskHow much money you owe, how long you have owed it, how many accounts you have, how often you miss or are late with payments, what types of credit accounts you haveEach of the 3 Credit Bureaus have a score, FICO Scores, and Vantage ScoresFICO is the most widely used score in credit decisionsScore ranges from 300-850FICO does not actually gather data about individuals, rather, the FICO mathematical formulas are applied against the data from the 3 credit reporting agencies to calculate a score.Protection Under Consumer Credit LawsTruth in LendingRequires that cost/fee/interest rate disclosureEqual Credit Opportunity ActProhibits discrimination in accessing creditFair Credit Billing ActProcedures for when billing errors occurLays out that you have protectionsFair Credit Reporting ActCredit companies and credit bureaus must correct inaccurate or incomplete informationOnly authorized persons have access to your reportConsumer Credit Reporting Reform ActRight to stop pre-screened offersHDFS 357 1st Edition Lecture 9Outline of Last LectureI. What is consumer credit?II. Advantages of CreditIII. Disadvantages of CreditIV. Closed/Open CreditV. Credit CardsOutline of Current Lecture I. Applying for CreditII. Credit Report/ScoreCurrent Lecture LECTURE 9  -Applying for Credit- What Creditors look for: 5 Cso 1. Character- do you pay bills on time?o 2. Capacity- can you repay the loan?o 3. Capital- what are your assets and net worth?o 4. Collateral- what property do you have that the lender can repossess if youdefault on the loan? (Ex: loan for vehicle, collateral=vehicle)o 5. Conditions- what economic conditions could affect your ability to repay the loan? -Credit Report/Score- Credit Reporto 3 Credit Bureaus collect and compile information: Experian, Trans Union andEquifaxo Get copies of your credit report to review for accuracy 1 copy per year for free from each of the 3 bureaus Does not include credit scores- Credit Scoreo Numerical summary of your credit risko How much money you owe, how long you have owed it, how many accountsyou have, how often you miss or are late with payments, what types of credit accounts you haveo Each of the 3 Credit Bureaus have a score, FICO Scores, and Vantage Scores- FICO is the most widely used score in credit decisionso Score ranges from 300-850o FICO does not actually gather data about individuals, rather, the FICO mathematical formulas are applied against the data from the 3 credit reporting agencies to calculate a score. - Protection Under Consumer Credit Lawso Truth in Lending Requires that cost/fee/interest rate disclosureo Equal Credit Opportunity Act Prohibits discrimination in accessing credito Fair Credit Billing Act Procedures for when billing errors occur Lays out that you have protectionso Fair Credit Reporting Act Credit companies and credit bureaus must correct inaccurate or incomplete information Only authorized persons have access to your reporto Consumer Credit Reporting Reform Act Right to stop pre-screened