Questions & Answers: Techniques for Determining Credit Worthiness

Q1: Meaning of 'creditworthiness'.
Ans: Creditworthiness is a valuation performed by the retailer that determines the possibility of a customer to default based on his or her earlier debt obligations. It considers factors like repayment history and credit score.

Q2: How can customers improve their credit score?
Ans: Individuals should pay on time, pay more than the minimum monthly payment, pay their debt faster and reduce the assessment of late fees to improve their credit score.

Q3: How to check a customer's credit worthiness?
Ans: To keep an eye on the customers and their ability to pay what they owe, the retailers should keep the following in mind:

• Require a credit application: Every customer should be made to fill the credit application.
• Check publicly available information: Every retailer must check the customer's information before issue credit.
• Use credit evaluation tools: A retailer must use credit evaluation tools to calculate the customer credit worthiness.

Q4: Explain the Techniques used for determining credit worthiness of customers?
Or
Which are the five Cs of credit?
Ans:  'The Five Cs of Credit', which are as follows:

• Character: This refers to the customer's integrity and willingness to repay the financial obligation.
• Capacity: This addresses the customer's cash inflow and ability to repay the debt.
• Capital: This is the customers' financial net worth.
• Collateral: This refers to the security against credit.
• Conditions: These refer to the economic, family and personal conditions of customers.