CHAPTER#4

Credit, its uses,

Classifications
and Risk
CREDIT?

2
WHY DO
WE NEED
CREDIT?
3
DO INDIVIDUALS
HAVE THE SAME
CAPABILITY TO
OBTAIN CREDIT?

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IS CREDIT AN
IMPORTANT
PART OF OUR
LIVES?

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1.
FUNCTIONS OF
CREDIT
1.) Credit Facilitates the
production and consumption of
goods and usually result in the
growth of the economy.
2.) Credit has the tendency to
elevate the moral standards of
the people since everyone
intending to have credit has to
prove themselves worthy of
trust

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3.) Credit enables business men
and corporations to gather large
amounts of capital to undertake
large-scale productions.
4.) Credit allows wealth to be fully
utilized
5.) Credits helps in the expansion
and contraction of the money
supply

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2.
CHARACTERISTICS
OF CREDIT
1.) CREDIT AS A BIPARTITE
CONTRACT
2.) CREDIT AS A PECUNIARY
CONTRACT
3.) CREDIT AS A FIDUCIARY
CONTRACT
4.) CREDIT RISK
5.) CREDIT ALWAYS INVOLVES
FUTURITY
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3.
SIGNIFICANCE OF
CREDIT
4.
CREDIT AND THE
BUSINESS CYCLE
A. PERSONAL CREDIT
1.) SERVICE CREDIT
- Those obtained from doctor’s
lawyer’s, professionals
2.) RETAIL CREDIT
- Regular Charge Account
- Revolving Charge
- Installment Plan
3.) PERSONAL LOAN CREDIT
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5.
CRITERIA FOR
GRANTING
PERSONAL CREDIT
1.) EMPLOYMENT AND
PERSONAL RESOURCES
2.) WEALTH AND
ACCUMULATED
RESOURCES
3.) OCCUPATION

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6.
LENDING ACT
B. COMMERCIAL OR
MERCANTILE CREDIT
● Credits extended by one
business man to another
business man.
.

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C. BANK CREDIT OR
BANK LOANS
● Credits granted by banks to
business man to finance their
short -term credit needs.

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D. EXPORT AND
IMPORT CREDIT
● Credits obtained to finance the
selling of goods outside the
country.

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E. INVESTMENT
CREDIT
● Long term borrowing is one of
the most common forms of
financing used by business
enterprises.

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F. AGRICULTURAL
CREDIT
● Credits given to farmers for the
development, improvement and
cultivation of their lands.

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G. INDUSTRIAL CREDIT
● Loans granted to industries to
finance the acquisition of
equipment etc.

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H. REAL ESTATE
CREDIT
● Loans to Finance The purchase
and improvement of real
properties like a house or a
building.

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I. GOVERNMENT OR
PUBLIC CREDIT
● Credits obtained from any of the
government institutions or
instrumentalities.

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J. SECURED AND
UNSECURED CREDITS
● SECURED
● UNSECURED

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K. SHORT-TERM,
MEDIUM-TERM AND
LONG -TERM LOANS
● Short-term Loans
● Medium-term loans
● Long-term Loans

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I. DIRECT LOANS,
DISCOUNT LOANS,
AND CREDIT LINES

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SOURCES OF CREDIT
BANKS
● COMMERCIAL BANKS
● THRIFT BANKS
● RURAL BANKS

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OTHER SOURCES OF
CREDIT
● RETAIL STORES
● CREDIT UNIONS
● INDIVIDUAL MONEY LENDERS
● INSURANCE COMPANIES
● SALES FINANCE COMPANIES

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C’s OF CREDIT

● CHARACTER
● CAPACITY
● CAPITAL
● COLLATERAL
● CONDITION

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HAZARDS IN THE USE
OF CREDIT

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CREDIT
INFORMATION

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SOURCES OF CREDIT
INFORMATIONS

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1.) APPLICATION FORM
2.) PERSONAL INTERVIEW
- The Cheapest and the easiest
source of credit information.
3.) THE GENERAL MERCANTILE
AGENCY
- The principal service rendered by
the general mercantile agency is
to provide the credit information
is has assembled from all parts
of the business field of operation.
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3.1 DUN AND BRADSTREET
The most frequently used general
mercantile agency is Dun and
Bradstreet.

4.) SPECIAL MERCANTILE

AGENCIES
Distinguished from general
mercantile agencies.

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5.) PERSONAL INVESTIGATIONS
Another form of gathering
information for credit files.
6.) PUBLIC AND PUBLISHED
RECORDS
7.) CREDIT BUREAUS
Associations of Businessmen
providing information gathered from
each other to other members of the
organization

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7.1.) RETAIL CREDIT BUREAU
May be mutual or cooperative
associations.
7.2) CREDIT INTERCHANGE
BUREAU
Exchanging info among local credit
bureau
8.) BANK CREDIT DEPARTMENT
Banks credit department is one of
the best source of credit information

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TYPES OF INFO YOU
OBTAIN FROM A BANK
● How long did the bank have
the account?
● What is the average account
balance
● Is a customer a borrowing or
non-borrowing customer?

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9.) BANK CREDIT DEPARTMENT
Reference indicated in the
information sheets and obtained
from the interview could give light on
the prospective customer’s credit
worthiness.

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COMPILATION OF
THE CREDIT REPORT

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Thanks!
Any questions?
PREPARED BY:
● Bustarde, Jaira May
● Mauricio, Kathleen Ann
● Pascioles, MarbiClair

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