BASIC BUSINESS FINANCE - MIDTERM

Credit is a relationship between a borrower and a lender. The lender borrows money from the borrower.

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Most people still think of credit as an agreement to buy something or get a service with the promise to pay for it right away.

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The five-C's-of-credit method of evaluating a borrower incorporates both qualitative and quantitative measures.

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Borrows may need to show a borrower's credit reports, credit scores, income statements, and other documents relevant to the borrower's financial situation to its creditors.

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Minimum credit score requirements generally vary from lender to lender and from one loan product to the next.

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The general rule is the lesser a borrower's credit score, the higher the likelihood of being approved.

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Although it's called character, the first C more specifically refers to credit history, which is a borrower's reputation or track record for repaying debts.

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Character 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.

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Character 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.

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Lenders calculate debt-to-income (DTI) ratio, by adding a borrower's total monthly debt payments and dividing that by the borrower's gross monthly income.

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