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Dummy Credit Risks & 5 Cs Analysis

1) Considering that the credit applicant issued a dummy credit application which was later found out by the credit manager, the application should not be approved. Taking into consideration the 5 c’s of credit, the applicant is not qualified based on his character or his credit rating. 2) Financial institutions attempt to mitigate the risk of lending to borrowers by performing a credit analysis on individuals and businesses applying for a new credit account or loan. This process is based on a review of five key factors that predict the probability of a borrower defaulting on his debt. 3) The credit manager should approve the application of loan from Engr. De la Cruz. Considering that Engr. De la Cruz is qualified based on

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661 views2 pages

Dummy Credit Risks & 5 Cs Analysis

1) Considering that the credit applicant issued a dummy credit application which was later found out by the credit manager, the application should not be approved. Taking into consideration the 5 c’s of credit, the applicant is not qualified based on his character or his credit rating. 2) Financial institutions attempt to mitigate the risk of lending to borrowers by performing a credit analysis on individuals and businesses applying for a new credit account or loan. This process is based on a review of five key factors that predict the probability of a borrower defaulting on his debt. 3) The credit manager should approve the application of loan from Engr. De la Cruz. Considering that Engr. De la Cruz is qualified based on

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Apple Cabalse Rimando
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Apple C.

Rimando
BSBA FM 4A
Credit and Collection         

Topic 3 : Dummy Credit Application


Extending credit and collecting debt can be risky business if you aren’t proactive and
following the letter of the law. From getting the necessary customer information on a credit
application to spotting suspicious customer behaviors, you need to be ready to go into collections
mode when necessary. When that happens, you need to be persistent and firm all while making
sure you comply with all applicable state and national consumer protection laws.

Considering that the credit applicant issued a dummy credit application which was later
found out by the credit manager, the application should not be approved. Although the dummy
applicant has a good credit rating, the person behind the application has the opposite.
Expectedly, the person who will pay the loan is the person behind the application which has a
low credit rating. Taking into consideration the 5 c’s of credit, the applicant is not qualified
based on his character or his credit rating. The financial institution may suffer from a non-
payment of obligation or default by the current applicant if the application was permitted.

When granting credits you should be considering the 5 c’s of credit for the benefit of the
lending firms. Granting a dummy application may result in not being a reliable institution.
Dummy accounts may be one of the techniques of estafa that may result in poor transactions. 

Topic 4: The engineer going on his own

Financial institutions attempt to mitigate the risk of lending to borrowers by performing a


credit analysis on individuals and businesses applying for a new credit account or loan. This
process is based on a review of five key factors that predict the probability of a borrower
defaulting on his debt. Called the five Cs of credit, they include capacity, capital, conditions,
character, and collateral. There is no regulatory standard that requires the use of the five Cs of
credit, but the majority of lenders review most of this information prior to allowing a borrower to
take on debt. Each financial institution has its own method for analyzing a borrower's
creditworthiness, but the use of the five Cs of credit is common for both individual and business
credit applications. Of the quintet, capacity—basically, the borrower's ability to generate cash
flow to service the interest and principal on the loan—generally ranks as the most important. But
applicants who have high marks in each category are more apt to receive bigger loans, a lower
interest rate, and more favorable repayment terms.

The credit manager should approve the application of loan from Engr. De la Cruz.
Considering that Engr. De la Cruz is qualified based on the 5 c’s of credit application, the
approval of loan would not be put into waste. On the other hand, the Sales manager seems to be
doubtful if the firm can get their return from Engr. De la Cruz loan application. The division
manager should advise the sales manager to reconsider the application considering that the
higher the risk of lending a loan, the higher the return. However, further assessment and
investigation should be done before approval of application to ensure safety in relation to
prepayments. 

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