Gulf Coast Bank Presentation Quiz Flashcards
What does a bank do?
Buys and sells money
How does a bank buy money?
Deposits
How does a bank sell money?
Loans
Three types of banks
- National
- Community
- Regional
National Banks
Examples - Chase, Capital One, Bank of America
- Profit driven, not interested in you
Advantages:
- Convenient locations all across the country
- New, innovative products
Disadvantages:
- Centralized, tight underwriting
- No flexibility in credit decisions-score driven
- Difficult to get some things accomplished
- Money is not necessarily kept local
Community Banks
Examples:
- Gulf Coast Bank, Rayne State Bank, Community First Bank
Advantages:
- Reinvests into local area
- Privately held
- Flexible underwriting on credit decisions
- Easier to get an answer when there is a problem
Disadvantages:
- Locations limited to smaller geographic footprint
- Later to the game on technology
Regional Banks
Examples:
- First Horizon, Regions Bank, Hancock Whitney, Home Bank
Advantages:
- Located in contiguous states (national bank like with hometown feel)
- Publicly traded like a national bank
- Guided by profit
Disadvantages:
- Often bound by the same underwriting criteria as national banks
- Often part of mergers and acquisitions with other regionals and national banks
5 C’s of Credit
- Credit History
- Capacity
- Capital
- Collateral
- Character
Credit History
Likeliness/willingness that you’ll pay back the loan
- Credit scoring and reports provide lenders with a record of their past and current repayment history
Capacity
Availability to pay back the loan
- DTI = Debt to Income Ratio has to be less than 50%
- A borrower’s verifiable income needs to be enough to support the proposed debt and all other outstanding obligations
DTI (Debt to Income Ratio)
Total monthly obligations divided by gross monthly income
Capital
Injection into buying something
- Ex. Down payment on a car
- Shows the bank the borrower is invested into the project and has something to risk
Collateral
When a bank takes your car, sells it, and uses the money to pay off some of the loan
- Granting the lender a secured interest in something of value
- Ex. Mortgage on property, car, equipment, real estate
Character
A person of good character will always pay back the loan
- Not necessarily measurable on an application
- Avoids the three B’s (Booze, Bookies, Babes)
The three B’s
Booze - drug, alcohol problems
Bookies - gambling problems
Babes - women problems (divorce is the #1 cause of bankruptcy)
Fair Isaac (FICO)
Company that writes credit reporting software for the three credit bureaus:
- Equifax
- Trans Union
- Experian
What is the range of credit scores?
350-850
Breakdown of Credit Score
- 35% Repayment History
- 30% Debt to Limit Ratios
- 15% Average Age of Credit
- 10% Number o Inquiries
- 10% Number of Open and Active Revolving Accounts
Debt to Limit Ratios
Calculated by taking the total balances on credit cards divided into the limits of those cards
- A lot of the time it’d be better to pay off cards but not cancel them so that the ratio is good
15% - Average Age of Credit
Calculated by taking the start date of all the active credit tradelines
- The older the average age, the higher the score
- Mature experience with credit typically means someone is less likely to default on obligations
10% - Number of Inquiries
Statistics show that credit default happens more frequently with people who seek for credit often
- “Pulling” credit affects a consumer’s score by 3-4 points on average
- Fair credit laws mandate that any credit pulls within 30 days of another pull will only affect the credit score as if one credit pull was done
10% - number of Open and Active Revolving Accounts
The “magic number” of open credit cards is three
- Having 0 or 10 or more open credit cards gives a consumer the least amount of points
Hard Pull vs. Soft Pull
Hard pull would be using credit score to buy a car/house
Soft pull would be like checking insurance
Great credit score (sweet spot):
720
