Personal Finance And College Funding: Understanding Credit, Taxes, And Financial Aid

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Personal Finance and College Funding: UnderstandingCredit, Taxes, and Financial AidJournal 4 Questions1) In at least one paragraph, explain what the four Cs are that creditors use tojudge your credit worthiness.Answer:Four Cs thatcreditors use for credit worthiness are character, collateral, capacity andcapital.a)Character is theinterestto repay your debts.Collectors will obtain past bill payinghistory, bill paying habit and ability to live within your means. They willalso look forstability in the life, like, how long have you lived at current address or do you own orrent a home?b)Collateral is thepropertythat banks keep with them in case a person default on hiscreditthe banks takes the ownership of the property.c)Capacity is the ability to repay the debt.Creditors will want to know where you work,what is your education qualification, how much money you make, do you have a stablejob.d)Capital is the money in your savings and checking account plus regular income.2) Pretend you have applied for a loan for your first car. How will creditors rate youagainst the four Cs? Explain in at least one full paragraph.Answer:My credit worthiness against four Cs are:a)Character:b)Collateral:c)Capacity:d)Capital:3) List and explain the four steps in establishing good credit.Answer:Four steps to establish credit are:a)Maintain saving and checking account:This will prove how efficiently you manage yourmoney. Canceled checks can be used to prove that you pay your bills regularly.b)Use you bank deposit as collateral for credit card: The maximum borrowing amount willnot exceed the amount of your deposit in the account.c)Get a department store charge card:Store card are used to purchase from a particularretailer which iseasierto obtain and its responsible use helps to establish good credit.d)Have someone with good credit cosign yourcreditapplication:Someone else’s goodcredit can be used to establish your own. Cosigner willpay the debt if you fail to pay.4) In at least one paragraph, explain how credit cards can be a great financial tool ifused correctly as well as how, if used unwisely, they can lead to financial ruin.Answer:Credit card lets you borrow money on ongoing basis to buy goods and services. It canbe used for many things like paying for movie tickets, paying for meal etc.Credit card providesextra punch in purchasing power. But reckless use of credit card can bury you in debt. Since,some portion of credit is paid eachmonth;if the amount is huge then a huge debt is incurredon the owner of the card.A huge debt affects his credit worthiness and he will not be able toget any loan or credit card in future.

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