The Importance Of Credit

By:Brianna Greer

How is it helpful too know the regulations and assistance available?

credit regulations and credit assistance available for borrowers

The importance of knowing the uses of the different type of credit documents

What are credit documents used for ?

Credit documents are used to make sure that you are a reliable resource for them to give you money on a credit card and you will pay it back. Also to make sure that you payed your bills on time basically its just evidence if you are a good candidate for them.

Credit Documents

  • Id Proof (Pan card , Passport , Voters Id/ Drivers license)
  • Residence proof(Telephone bill, Passport , Bonafide letter/Original bank statement/Ration card)
  • Last 3 month salary slip attested
  • Original/Attested bank statement(all accounts for 6 months)
  • Closure letter incase loan is over
  • Resume

How Businesses Grant Credit

At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies. This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt.

How to calculate the cost of credit

Discount %/(100-Discount %) x (360/Allowed payment days – Discount days)

Ex: A supplier of Franklin Drilling offers the company 2/15 net 40 payment terms. To translate the shortened description of the payment terms, this means the supplier will allow a 2% discount if paid within 15 days, or a regular payment in 40 days. Franklin's controller uses the following calculation to determine the cost of credit related to these terms:

= 2% /(100%-2%) x (360/(40 – 15))

= 2% / (98%) x (360/25)

= .0204 x 14.4

= 29.4% Cost of credit

Disadvantages Of Businesses Using Credit

  • Charge fees
  • When customers dispute charges , this can cost the business money as well
  • Fraud

Advantages Of Businesses Using Credit

  • Credit cards can increase the sales for businesses
  • Breaks down the geographic barriers of doing business
  • Customers can buy what they want rather having to wait
  • Can improve business cash flow

Main Types Of Credit

The main types of credits are Charge accounts , Credit cards, Consumer loans , and Installment credit