Dakota State University BUS 315 Credit and Collection Unit Two: Consumer Credit II Reading Assignment Chapter 6: All Chapter 7: All Chapter 8: All Chapter 9: All Chapter 10: All except pp. 194-195, 206-215 Chapter 11: All Objectives Chapter 6: Real Estate Credit 1. State the typical steps involved in buying a home with credit. 2. State several sources of real estate credit. * 3. Explain what is meant by the secondary mortgage market. 4. Give several examples of institutions in the secondary mortgage market. 5. Describe a conventional mortgage. 6. Describe the following special mortgage programs: a) Federal housing Administration, FHA b) Veterans Administration, VA c) Private mortgage insurance, PMI * 7. Explain and describe what is meant by the following mortgage terms: a) fixed-rate e) balloon clause b) adjustable rate f) assumption clause c) amortize g) prepayment clause d) points 8. State two important mortgage lending standards (ratios) and their components. 9. State a rough rule of thumb for how expensive a home a consumer can afford, in terms of annual gross income. 10. Explain what is meant by “closing costs” and give some e xamples of closing costs. 11. Explain what is meant by a home equity loan. 12. Explain the difference between first mortgages and second mortgages. Chapter 7: Regulation of Consumer Credit 13. State three primary goals of the regulation of consumer credit. 14. State some of the primary federal regulators of consumer credit and some specific responsibilities of each. -2- *15. Describe the main features of each of the following (may require a single sentence): a) Truth in Lending Act b) Credit Card Issuance Act c) Fair Credit Billing Act d) Equal Credit Opportunity Act e) Fair Debt Collections Practices Act f) Depository Institutions Deregulation and Monetary Control Act g) Fair Credit and Charge Card Disclosure Act h) Financial Institutions Reform, Recovery, and Enforcement Act i) Home Mortgage Disclosure Act of 1975 j) Community Reinvestment Act of 1977 Chapter 8: Management and Promotion of Consumer Credit 16. State the steps in the credit management process. 17. State some of the goals of the credit manager. 18. State the three types of consumer credit programs. *19. Explain what is meant by each of the following as part of a credit manager’s activities: a) credit policy ` d) rules of conduct b) investigation policy e) procedures c) collection policy 20. Explain what is meant by the following ways of organizing a credit department: a) functional organization b) customer organization 21. Explain what are meant by control measures in a operating a credit department. 22. State the four P’s or marketing. 23. Explain what is meant by a cost/benefit analysis of offering retail credit. 24. State why a cost/benefit analysis is not relevant for most issuers of cash credit. 25. Explain why service credit providers are often “forced” to offer credit. 26. State several reasons why retailers may offer credit. *27. Discuss the four P’s of marketing as applied to offering credit. Chapter 9: The Consumer Credit Investigation 28. State the purposes of a credit investigation. 29. State some of the information needed to make a thorough credit investigation. 30. Discuss the importance of facts versus opinions in a credit investigation. *31. State and discuss the six C’s of credit investigation. -3- 32. Explain what a credit scoring system is and how it is used in making credit decisions. 33. State some of the information to be investigated in a credit investigation. 34. State several sources of credit information. 35. Discuss the information obtained from the following: a) credit applicant b) direct inquiry c) in-file ledgers Chapter 10: Consumer Credit Reporting Agencies 36. Explain what a consumer credit reporting agency (credit bureau) is. 37. State where credit bureaus get their information on consumers. *38. State the names of the three major nation-wide credit bureaus in the United States. 39. State the names of a few credit bureaus in South Dakota. *40. Give a thorough list of products and services provided by credit bureaus with an explanation of what each item is. 41. State the kinds of information credit bureaus gather on consumers and report on inquiries. 42. State some of the rights that consumers have relative to credit bureaus. 43. Explain what FICO scores are, including where the term comes from. 44. Explain why a consumer can have several credit scores. 45. State some assumed benefits for consumers of credit scores. *46. For FICO state: a) the usual range b) the five areas considered in the calculation of the score and their relative weights c) the score at the 50th percentile d) expected delinquency rates for consumers with FICO scores less than 500 e) expected delinquency rates for consumers with FICO scores greater than 800 f) how FICO scores can impact loan interest rates Chapter 11: Decision Making and Control 47. State what is the most important part of the entire credit activity. 48. State the two types of credit decision mistakes to be avoided . 49. State the impact of each type of mistake on company profits. 50. State some reasons why customers may not be able to make payments even if they fully intended to. 51. State four reasons for making poor credit decisions. -4- 52. Discuss the following reasons for making poor credit decisions: a) insufficient information b) misleading or false information c) improper interpretation of the facts d) failure to establish a credit standard 53. Explain what is meant by the halo effect in interpreting facts in a credit investigation. 54. State some typical questions that must be asked when establishing a credit standard. 55. State the usual impact of high volume, low markup items versus low volume, high markup items on credit standards and explain the impact. *56. Describe the judgmental credit decision making process. 57. State a primary requirement for the judgmental process to work well. 58. State a disadvantage of the judgmental process. *59. Describe a numerical credit decision making process. 60. State some advantages of a numerical credit decision making process. *61. Describe credit grading systems. 62. State some advantages of a credit grading system. 63. State some disadvantages of a credit grading system. *64. Describe credit scoring systems. 65. Give an example of a widely used credit scoring system. 66. State some advantages of credit scoring systems. 67. State some disadvantages of credit scoring systems. 68. Explain how credit scores can be used for automated online credit approval. 69. State some of the functions involved in controlling the credit relationship (managing the credit account). 70. Explain what is meant by information processing in managing the credit account. 71. Explain what is meant by credit lines or credit limits. 72. State some advantages of credit limits. 73. State some disadvantages of credit limits. 74. Explain how credit scores can be used to set credit l imits. 75. State some other factors that may influence the setting of credit limits. 76. Discuss identification and authorization in the use of credit accounts, including three methods of establishing identification. 77. Describe electronic fund transfer systems. 78. State some advantages of electronic fund transfer systems. 79. State some ways in which computers have aided the entire credit activity.
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