The lecture begins with an exercise where students are asked to think about lending some credit to a friend, and lending credit to a borrower on behalf of a bank or lending company (Weir). I found this exercise quite informative, especially since the responses of the students brought to light the various issues that people and financial institutions consider when making decisions on credit issuance. Some of the key lessons that I learned from the lecture are the three Cs through which financial institutions analyze the creditworthiness of a borrower. While I was aware of the term creditworthiness, I did not have a clear understanding of all the things that determine the creditworthiness of an individual.
I learned that financial institutions assess the character of a borrower to determine whether they are creditworthy. This is done through an assessment of whether a borrower has taken a loan before, whether they pay their bills on time, through their credit reports, how long they have been working, and whether they have a credit card. They also assess the borrower’s capacity to repay credit. This is assessed by looking at whether a borrower has a job, their current income and debts, and the stability of their income stream (Weir). Finally, the collateral that a borrower has is assessed to determine what the borrower owns that can be used to recover the borrowed credit.
An eye-opening moment for me was the discussion on how financial institutions use credit reports to determine the creditworthiness of an individual. This information is important to keep track of when an individual wants to develop a good credit score for purposes of borrowing. I will use this information to ensure that I have a good credit score at all times, monitoring my debts and bills and ensuring that I sort my debts on time. I learned that enquiring about my credit score is not wrong and does not affect my credit score. I also plan to get a secured credit card to build my credit score. If I had an opportunity to ask a question, I would ask how having different lines of credit ensures a good credit score. To sum up the lecture, one must maintain a good credit score to ensure that they remain creditworthy and do not end up being unable to pay their debt.
