Credit Analysis Exercise

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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:

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