Credit Analysis Exercise
Assignment #2 Personal Finance p. 183 Combined Yearly Combined Income Estimate
Category
Vicki
Tim
Assets Checking Account Car 401K Income Gross Annual Salary After-‐Tax Monthly Salary (Monthly Take Home Pay) Liabilities Student Loan Credit Card Balance Monthly Expenses Rent Food Student Loan Credit card payments Entertainment Wedding Expenses Gas / Repairs Retirement Savings 401k
10500 2500 25000
400 15000 8000
50000 2917
48000 2800
98000 5717
9000 10000
750 250
450 350 300
1200 250 300 500 350
500 plus 50% match on 7% 10% gross salary
400 plus 50% on 8%
1. Classify Vikki and Tim's credit as open-‐end or closed-‐end: The credit-‐card debt is open-‐ended and the student loan is closed-‐ended. 2. Analyze the debt payments-‐to-‐income ratios for Vikki and for Tim. Page 1
Debt Payments to Income Ratio Vikki's Debt Payment-‐to Income Ratio = Monthly Debt Payment / Montly Take Home Pay = 250 / 2917 = 0.08570449 Tim's Debt Payment-‐to-‐Income Ratio = 300 / 2800 = 0.10714286 3. Analyze the 5 C's of Credit for Vikki and Tim. Character: Will they repay the loan? So far as we know, neither has any evidence of late payments, so yes, they probably will. Also, Tim became nervous when he realized he had more than debt than he expected, so that's a good sign (rather than being cavalier about it). Capacity:
Category
Vicki
Tim
Assets Checking Account Car 401K Income Gross Annual Salary After-‐Tax Monthly Salary (Monthly Take Home Pay) Liabilities Student Loan Credit Card Balance Monthly Expenses Rent Food Student Loan Credit card payments Entertainment Wedding Expenses Gas / Repairs Retirement Savings 401k
10500 2500 25000
400 15000 8000
50000 2917
48000 2800
98000 5717
9000 10000
750 250
450 350 300
1200 250 300 500 350
500 plus 50% match on 7% 10% gross salary
400 plus 50% on 8%
1. Classify Vikki and Tim's credit as open-‐end or closed-‐end: The credit-‐card debt is open-‐ended and the student loan is closed-‐ended. 2. Analyze the debt payments-‐to-‐income ratios for Vikki and for Tim. Page 1
Debt Payments to Income Ratio Vikki's Debt Payment-‐to Income Ratio = Monthly Debt Payment / Montly Take Home Pay = 250 / 2917 = 0.08570449 Tim's Debt Payment-‐to-‐Income Ratio = 300 / 2800 = 0.10714286 3. Analyze the 5 C's of Credit for Vikki and Tim. Character: Will they repay the loan? So far as we know, neither has any evidence of late payments, so yes, they probably will. Also, Tim became nervous when he realized he had more than debt than he expected, so that's a good sign (rather than being cavalier about it). Capacity: