Credit Flashcards
Credit
The provision of money, goods or services with the expectation of future payments
“Credit Worthiness” depends on:
-Performing due diligence to know the client and to understand the purpose of the loan
- analyzing repayment ability
- clients willingness to pay
- structuring and documentation of loan terms and conditions
- monitoring and servicing throughout life of loan
Consumer clients
Individuals who buy a products and services for personal use , not for re sale of business purposes
Institution
Have excess funds to invest
Types of credit - Revolving credit
Line of credit in which client is able to borrow, as needs arise, against an approved credit limit
— example: credit card
Term Loans
Granted for specific amount with a specified repayment schedule. Used to finance long-term assets, and amount borrowed is fixed
—matures in 1-30 years
— proceeds provided to borrower in full, at the start of the loan
Term Loans - Secured Debt
Debt that is backed or secured by collateral
Example: Mortgage
Term loan - Unsecured debt
-Debt is credit that extends without collateral as Security
- usually offered with higher interest rates than secured products
Example: Credit Cards
Letters of Credit
Add value to our clients who buy or sell products outside their home country
Substituting credit risk for client so they can buy/sell internationally more confidentially
Credit process for people
- Collect application data and review credit
- pull credit reports to review clients current and past credit history - Underwriting- this can be done automatically or manually
- underwriting: process of analyzing, structuring, and committing to a proposed transaction (for extension credit) - Approve/Decline the document
- record Credit decision in Banking system
- client notified of decision
— if approved:
—— we close the loan (provide final credit terms to client)
—— we fund the loan (funds or credit given to the client)
—— we service the loan (taking payments and handling clients questions and issues
Home Equity Loan
Type of mortgage product in which homeowner borrows a determined amount of money for a specific term that is secure by the equity of their home
- loan matures at 10-15 years
Loan Matures
Date borrowers final loan payment is due
Credit card
Unsecured, revolving credit in which borrower is given a certain credit limit they can borrow against
HELOC
-Revolving credit product in which borrower opens a line of credit (similar to credit card) secured by equity in home
- homeowner may draw and repay on this line anytime during the specified draw period
- balance on the loan maybe converted into a loan with a repayment schedule
Difference between HELOC and home equity loan?
Funds from HELOC are accessible at homeowner discretion
Analyzing credit risk - the 5 C’s
-Character: clients willingness to repay the loan
-Capacity: income client has vs extent of money paid
-Capital: evaluate clients reserves, savings (if emergency happens are funds available)
- Collateral: property pledged to secure debt
- Conditions: internal and external factors like economy and government regulations
FICO Scores Factors
- payment history
- amount owed
- new credit
- length of credit history
- types of credit used
Credit Score Ranges
650 and below - high risk (high revolving debt, utilization, delinquency)
650-700 - Gray Area - analyst must consider a variety of factors
700 and above - above - average score indicating less risk
Closing
Borrower signs the necessary documents including the note and security agreement. These are legal documents: contract between bank and borrower
Booking and Funding
Happens almost simultaneously. Once bank receives signed documents the loan is electronically placed in the system (booked) and funds are released in a term loan or available line of credit
Pre-Funding
Funds are sent to an escrow account until the documents are signed. Once documents are signed, funds are released for the transaction
Global wealth and investment management (GWIM)
Provides liquidity solutions for Merrill lynch and private bank clients
Merrill lynch
Serves clients with over $250,000 of investible assists
Private bank
Serves clients with over $3 million in investible assets
Marketable Securities
Investable and liquid assets such as well performing stocks or mutual funds
Liquid Assets:
assets easily exchanged for cash
— liquidity: ease with which an asset, or security, can be converted into ready cash without affecting its market price
Companies: Types of Lending: Cash flow
Cash flow lending: proven cash flow is the principal source of repayment
Asset - Based Lending:
Considers liquidation value of company’s assets. Loans are based on certain percentage (less than 100%) of the value of these assets and do not rely as heavily on cash flow
Revolvers
Clients who generally carry a balance month-to-month on their credit cards, often paying either the minimum payment or specific amount. These types of clients are often paying very high interest charges throughout each statement cycle
Transactor
Clients who generally pay their credit cards off in full each month. Because they will almost never pay interest charges, maximizing their return on spending becomes very important to them
Revolver Conversations
“Another way I help my clients save money is by ensuring they are well prepared for any potential future financial needs”
“I noticed that your paying around $100 in interest each month on your CC. Are there any other credit cards you are currently being charged interest on?
Transactor Conversations
“Another way I help my clients save money is by taking a look at the way they do their spending with BOA.”
“One of the things I take pride in as a relationship banker is ensuring my clients are maximizing their returns on our rewards programs. What do you use for daily spending with us?”
Credit Builder Transitions
“Another way I help my clients save money is by ensuring they are well prepared for any potential future financial needs.”
“The long-term financial security of my clients is very important to me. Do you have dreams of one day buying your own?”
Position your role
“Mr Client, my name is Ryan welsh and I am the relationship banker here at the Belmont financial center. In my role, I have the opportunity to help clients identify what’s important to them and leverage my expertise to build a plan to help them achieve those Life Priorities”
Transition Statements
“In order to understand your most basic banking needs and to get to know you a little better, tell me about your everyday spending.”
“What do you spend most of your money on?”
“I notice you have a debit card, is this what you use to make every day purchases?”
“Do you have any credit cards?”
Questions to ask all clients
Find out other payment methods and what you are competing with
“What do you typically use to make purchases?”
“What sort of benefits do you receive for using those cards”
Transactor or Revolver - What are they trying to accomplish
“What primary features and benefits do you like about your card?”
“Do you carry a balance or pay if off every week?”
How well do they know their card? Benefits and limitations
“Tell me about the limitations, restrictions and fees you have with this card”
Credit application for students
BofA provides different underwriting for students but allows them to apply for the same CC as everyone else
This allows time for students to establish a new deposit relationship before making a credit decision
