credit

Examples of credit in the following topics:

• The National Credit Union Administration (NCUA)

  • The National Credit Union Administration (NCUA) is the United States independent federal agency that supervises and charters federal credit unions.
  • The chartering of credit unions in all states is due to the signing of the Federal Credit Union Act by President Franklin D.
  • The federal law sought to make credit available and promote thrift through a national system of nonprofit, cooperative credit unions.
  • At first, the newly created Bureau of Federal Credit Unions was housed at the Farm Credit Administration.
  • As the insurer and regulator of federally chartered credit unions, the NCUA oversees credit union safety and soundness, much like the FDIC.

• Obtaining Credit

  • The credit card company uses the credit report, provided by the credit bureau, to determine if the lender is likely to pay back the loan.
  • Types of credit include: bank credit, consumer credit, public credit, and investment credit.
  • The purest form is the credit default swap market, which is essentially a traded market in credit insurance.
  • The term "credit reputation" can either be used synonymous to credit history or to credit score.
  • In the U.S., when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau.

• Credit Unions

  • Credit unions are democratically operated by members, allowing account holders an equal say in how the credit union is operated, regardless of how much they have invested in the credit union.
  • Credit unions serve members of modest means.
  • Federally insured credit unions are regulated by the National Credit Union Administration and backed by the full faith and credit of the United States government.
  • Here's what one can expect from a credit union:
  • See Credit Union and Bank Rate Data.

• Credit Ratings

  • Credit ratings are determined by credit ratings agencies.
  • A sovereign credit rating is the credit rating of a sovereign entity like a national government.
  • A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax.
  • Income is not considered by the major credit bureaus when calculating a credit score.
  • The credit bureaus all have their own credit scores: Equifax's ScorePower, Experian's PLUS score, and TransUnion's credit score, and each also sells the VantageScore credit score.

• Setting a Credit Policy

  • To establish a credit policy, a company must establish credit standards, credit terms, and a collection policy.
  • There are three steps a company must undergo when developing a credit policy:
  • Management must decide on credit standards, which involves decisions on how much credit risk to assume.
  • Another important factor in determining credit standards involves a company evaluating the credit worthiness, or credit score, of an individual or business.
  • To reduce its risk, the seller may perform a credit check on the buyer or require the buyer to put up collateral against credit extended.

• The Discount Rate

  • The Fed offers three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate.
  • Depository institutions that are not eligible for primary credit may apply for secondary credit to meet short-term liquidity needs or to resolve severe financial difficulties.
  • The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates.
  • (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve, at times, uses the term "discount rate" to mean the primary credit rate. ) The discount rate on secondary credit is above the rate on primary credit.
  • Describe the Fed's primary credit, secondary credit, and seasonal credit lending programs

• Credit Operations

  • Organizations that offer credit to their customers frequently employ a credit manager .
  • A line of credit is any credit source extended to a business or individual by a bank or other financial institution.
  • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
  • Lines of credit can be secured by collateral or may be unsecured.
  • The use of credit is a necessity in business and should be managed wisely.

• Debits and Credits

  • Everything on the left side (debit side) increases with a debit and has a normal debit balance; everything on the right side (credit side) increases with a credit and has a normal credit balance.
  • Revenue is treated like capital, which is an owner's equity account, and owner's equity is increased with a credit, and has a normal credit balance.
  • What is debited and credited is also a matter of transaction type.
  • Real account: Debit what comes in and credit what goes out
  • Define how the terms debit and credit are used in accounting

• Trends in Credit After 2008

  • The availability of credit has changed in various ways in response to the financial crisis of 2008.
  • The events of 2008 led to a credit crunch, also known as a credit squeeze or credit crisis.
  • A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates.
  • In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e., credit rationing occurs).
  • Financial institutions facing losses may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates.

• Credit Cards

  • A credit card is a payment card issued to users as a system of payment.
  • Credit cards are issued by an issuer like a bank or credit union after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.
  • As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy.
  • Merchants are charged several fees for accepting credit cards.
  • Merchants may charge users a "credit card supplement," either a fixed amount or a percentage, for payment by credit card.