Introduction to Credit and Collection

Question 1

refers to the ability of an individual or an entity to borrow money, or access goods and services with the promise of fulfilling the obligation of repaying the lender usually with an interest fee associated with the principal amount of the loan or credit after a certain period of time.

Answer 1

Credit

Question 2

Types of Credit

Answer 2

(1) Revolving Credit
(2) Installment Credit
(3) Open Credit

Question 3

Basic Elements of Credit

Answer 3

(1) Character
(2) Capacity
(3) Capital
(4) Conditions
(5) Collateral

Question 4

a type of credit that does not have fixed number of payments.

Answer 4

Revolving Credit

Question 5

type of credit requires regular, fixed payments.

Answer 5

Installment Credit

Question 6

type of credit that has a full balance that must that must be fully paid off, usually by making monthly payments.

Answer 6

Open Credit

Question 7

it refers to the customer’s ability to pay on time as indicated by their payment history.

Before credit is approved, the lender will look at the borrower’s trustworthiness, personality, and credibility by looking at their credit history

Answer 7

Character

Question 8

refers to the borrower’s capacity to pay.

Before the credit is approved, lender will assess the borrower’s income, employment stability, and debt-to-income ratio to determine whether the borrower have the financial means to make regular loan payments.

Answer 8

Capacity

Question 9

the borrower must need to show that he has capital or financial resources and assets.

Lenders will evaluate the borrower’s net worth, savings investments, and other valuable assets.

Answer 9

Capital

Question 10

the borrower pledges assets as security for the loan.

In case the borrower defaults on the loan, the lender can take possession of the collateral to recover their losses.

Answer 10

Collateral

Question 11

refers to the general conditions relating to the loan which may be examined by the lenders such as purpose of the loan, and other general terms and conditions of credit in the contract.

Answer 11

Conditions

Question 12

Classifications of Credit

Answer 12

By duration:
(1) Short-term Credit
(2) Medium Term Credit
(3) Long Term Credit

By purpose:
(1) Commercial Credit
(2) Business Credit
(3) Bank Credit

By security:
(1) Secured Credit
(2) Unsecured Credit

Question 13

loans that are typically due within one year such as credit card debt or payday loans

Answer 13

Short Term Credit

Question 14

loans that usually have terms of one to three years such as car loans and hire purchases.

Answer 14

Medium Term Credit

Question 15

loans that have terms that can range from a few years to several decades such as mortgage loans and student loans.

Answer 15

Long Term Credit

Question 16

credit used by individuals for personal needs such as personal loans, using credit cards and store credit accounts.

Answer 16

Commercial Credit

Question 17

credit used for business purposes, It refers to a company’s track record of a business’s financial responsibility. Used to evaluate the company’s creditworthiness.

Answer 17

Business Credit

Question 17

involves borrowing money from a financial institutions such as bank, credit union, or online lender. The borrower agrees to repay it over time, often with interest.

Answer 17

Bank Credit

Question 18

type of credit that requires collateral, such as a house or car. If the borrower defaults on the loan, the lender can seize the collateral.

Answer 18

Secured Credit

Question 19

credit was given without any collateral requirement, examples are credit cards, medical bills, utility bills, etc.

Answer 19

Unsecured Credit

Question 20

History and Development of Credit

Answer 20

• Precolonial Period
• Spanish Colonial Period (1521-1897)
• American Colonial Period (1898-1946)
• BSP was established (1949)
• Financial Liberalization (1970s - 1990s)
• Expansion od Credit (2000s-2010s)
• Rise of technology and digital payments

Question 21

indigenous societies had their own systems of trade and credit such as the “Barter System” - a common method of exchange of goods and service without the use of money.

Answer 21

Precolonial period

Question 22

spanish authorities established colonial mints which were the earliest coins introduced as a medium of exchange which then became known as the filipino term “barya”

Answer 22

Spanish Colonial Period (1521-1897)

Question 23

modern banking, currency, and credit systems and monetary system were instituted by Americans. They introduced American Style Banking with the establishment of Bank of the Philippine Islands.

Answer 23

American Colonial Period (1898-1946)

Question 24

Central bank of the philippines was established. It focuses on greater monetary control and regulations.

Answer 24

1949 establishment of central bank of Philippines

Question 25

the country encountered some economic challenges and financial institutions faced difficulties. Financial liberalization efforts and various laws were undertaken to modernize and regulate the banking sector.

Answer 25

1970s-1990s

Question 26

expansion of credit continued, driven by growing consumer demand and increased access to financial services.

Answer 26

2000s-2010s

Question 27

enabled the growth of digital payments and online banking, which contributed to easier, convenient access to facilitate credit transactions.

Answer 27

The rise of technology and digital payments