# Credit Analysis Exercise

Topics: Money, Debt, Credit Pages: 30 (1099 words) Published: March 18, 2013
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
more
than
debt
than
he
expected,
so
that's
a
good
sign
(rather
than
being
cavalier
it). Capacity:
Can
you
repay
the
loan?
They
both
make
good
salaries,
so
I'd
say
yes.
But
they
should
pay
off
those
credit
cards
before applying
for
a
home
loan.
Since
they're
not
going
to
be
applying
for
another 2
or
3
years,
they
have
plenty
of
time
to
pay
that
off.
They
should
also
have
a
frugal
wedding like
so
many
people
are
doing
these
days
and
not
get
into
debt
over
that.
Their
combined
debt-­‐to-­‐credit
ratio
isn't
that
If
they
can
come
up
with
a
solid downpayment,
they
should
be
able
to
afford
at
least
\$1200
/
month
for
their
mortgage payment,
since
that's
what
they
pay
in
combined
rent.
Capital:
What
are
your
assets
and
net
worth?
They
make
good
salaries,
have
401k's
(though
they
shouldn't
touch
those
in
order
to
their
house
of
course),
and
Vikki
has
\$10,500
in
her
checking
account
(wha?
Put
that
in
an
interest-­‐bearing
financial
product,
girl!
And
a
\$9000
student
loan
is
not
Again,
they
have