WHAT IS CREDIT Credit is the trust which allows one party to provide resources to another party where that

second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date. The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[1] Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower. ELEMENTS OF CREDIT There's fivePayment history Amounts owed - utilization - more important for credit cards than installment loans Length of credit history New credit Types of credit used Bases of credit Bases of Credit The word "credit" has been derived from a Latin word creditum. It means trust. Credit refers to the ability to acquire something of value like goods, services, money, or securities at the present time in return for a promise to pay at a certain future time. It involves risks. The possibility that the borrower can not fulfill his promise due to circumstances beyond his control always exists. In granting credit to borrowers, there are bases in evaluating their ability to pay and willingness to pay: Character. This refers to the personal integrity of the borrower. His determination to pay can be evaluated by his past business record. Character also includes personal habits, attitudes, or vices of the borrower.Capacity. This has something to do with the managerial ability of the borrower. Could he use wisely and efficiently his loan? Factors like responsibility, maturity and business competence of the borrower determine his capacity to pay.Capital. This refers to the resources owned by the borrower such as priorities. With such properties, the ability of the borrower to obtain credit has become greater.Collateral. Usually, the title of the land is required as a security of the loan. This is a safety measure for the payment of the loan. Buildings, machines and other valuable properties are used as collaterals.

Condition. Conditions in the community, industry, or the whole economy affect the ability of borrowers to pay their loans. For example; peace and order, inflation, profitability of a project, etc. Purpose of credit The purpose of the credit transaction can affect the rate. For instance, a first mortgage loan will have a lower rate of interest than a second mortgage loan. The rate of interest is usually lower when you finance the purchase of a new car than if you purchase a used car. Credit card and small loan interest is usually high. Classification of credit investment credit- capital are on credit first; more on buying properties (lots). agricultural credit- for farm improvement (usu. farmers only); loan for acquisition of farm utilities.export credit- 4 parties: exporter, local bank, importer and local bank of the importer; need capitalization; payment is only bank to bank.real estate credit- same with investment but limited to house and lots. industrial credit- for purposes of mining, fishing, factories (usu. businessmen); excludes farmers. Distinction between a draft and check Any business can create a bank draft. A bank draft, is also called a demand draft, or check draft. It is a legal copy of the check that is created by the merchant, and authorized by the account holder, but not created by the account holder. Examples of bank drafts are anything that does not have the original signature. An insurance draft is signed by a machine, not the actual treasurer, a money order has a pre-printed signature and is also a draft. A cashier's check is often considered a draft because it is signed by the cashier, and not the bank president - so it is created on behalf of the ture signer on the account. Tax refund checks are drafts, and so are rebate checks when you buy products and get money back. A regular check is created by the account holder, and signed (authorized) by the account holder. A regular check is then given to the merchant and is considered an original item. Checks have certain requirements as to how they are printed, what ink is used, and require the signature of the authorized signer on the checking account. A bank draft is created by the merchant, and the signature is not required. The account holder must authorize the merchant to create a bank draft, and this can be done by phone, fax, by contract, implication, or online.