FIN 012: CREDIT AND COLLECTION

STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

Lesson title: The Meaning of Credit, The 5 C’s of credit and The Materials:
Various Types and Sources of Credit SAS, Pen, & Phone
References:
Lesson Objectives: https://bizfluent.com/info-8195853-defi
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1. Interpret credit and collection
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credit and apply it to different situations
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Productivity Tip: SET YOURSELF TO DEADLINES

Now that you’ve already broken down your study into individual tasks, it will help to set yourself a competitive
deadline. You may have determined that your first activity will take three hours and should aim to finish that
section of the project at least a week before it is due.

This strategy will help to avoid leaving your study to the last minute, normalise deadlines and maximise
student productivity. Just like effective time management, juggling deadlines is a common requirement for
many senior jobs.

From: https://collegeforadultlearning.edu.au/tips-to-increase-your-productivity/

A. LESSON PREVIEW/REVIEW
Introduction (2 mins)
Hello! Welcome to another session for credit and collection, I hope you are all doing well. Always
remember to have your sanitizers or alcohols within your reach. During our first meeting, we talked
about our class rules and we had an overview of our subject of why we borrow money and how we use
the borrowed money.

Today, we are to define what is credit including its 5 C’s and we will also discuss the different sources of
credit.

B.MAIN LESSON

Activity 1: Content Notes (13 mins)

LO 1: INTERPRET THE MEANING OF CREDIT AND COLLECTION

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 FIN 012: CREDIT AND COLLECTION
STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

What is Credit?

It’s rooted in trust in an individual. As to its use or function; it is the ability of a person to obtain goods or
services under a promise of future payment.

Credit is defined as the process of providing a loan, in which one party transfers wealth to another with the
expectation that it will be paid back in full plus interest. The definition of collections is connected to the term
credit. Collections generally refer to the current period’s sales and the credit sales of the last period combined

Credit collection refers to the general debt recovery process of reimbursing unpaid and past-due credit loans
from the consumer in debt, on behalf of the lender. Debt collection is directly connected to the definition of
“credit” and “credit loan”

The word credit has been derived from the Latin word credo which means I believe or I trust, which signifies a
trust or confidence reposed in another person. The term credit means, reposing trust or confidence in
somebody.

In economics, it is interpreted to mean, in the same sense, trusting in the solvency of a person or making a
payment to a person to receive it back after some time or lending of money and receiving deposits. In other
words, the meaning of credit can be explained as a contractual agreement in which a borrower receives
something of value now and agrees to repay the lender at some later date.

The borrowing capacity provided to an individual by the banking system, in the form of credit or a loan. The
total bank credit the individual has is the sum of the borrowing capacity each lender bank provides to the
individual.

A credit contract is a legal agreement whereby one party loans funds to another. The terms of the contract
specify the amount lent, the payback date, and the interest rate on the loan while collection is the receipt of a
check, draft, or other negotiable instruments to reestablish a loan.

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 FIN 012: CREDIT AND COLLECTION
STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

LO 2: CLASSIFY THE 5 C’S OF CREDIT AND IDENTIFY THE VARIOUS SOURCES OF CREDIT

The five Cs of credit is a system used by lenders to gauge the creditworthiness of potential borrowers. The
system weighs five characteristics of the borrower and conditions of the loan, attempting to estimate the
chance of default and, consequently, the risk of a financial loss for the lender. The five Cs of credit are the
following:

● The first C is character—reflected by the applicant's credit history.

● The second C is capacity—the applicant's debt-to-income ratio.
● The third C is capital—the amount of money an applicant has.
● The fourth C is collateral—an asset that can back or act as security for the loan
● The fifth C is conditions—the purpose of the loan, the amount involved, and prevailing interest rates.

THE VARIOUS SOURCES OF CREDIT

You can borrow from a variety of people or institutions, but not always with the same advantages. Here’s proof.

FRIENDS AND FAMILY

At first glance, the advantages can seem appealing: you can negotiate the
interest rate and payment terms with them directly. But a word of caution: if you have
trouble repaying them, your relationship could be damaged forever
.

FINANCIAL INSTITUTIONS
Financial institutions are among the best sources of credit, especially when it
comes to personal loans, student loans, mortgages, personal lines of credit, overdraft
protection and credit cards.

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 FIN 012: CREDIT AND COLLECTION
STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

RETAIL STORES
Many stores offer their own credit cards. Some also offer financing plans that
allow you to pay for your purchases over time or even at a later date. Be careful: if you
don’t pay your balance in full on the due date, you’ll be charged much higher interest
rates than a regular credit card.

LOAN COMPANIES
Some companies specialize in giving out loans, often to people are turned down
by other lenders. Since the risk is higher for the lender, the interest rates paid by
borrowers are also higher.

Activity2: Skill-building Activities (with answer key) (18 mins + 2 mins checking)

Situational Analysis:

1. Your Sister asked you if she could borrow your credit card to pay for the shoes and bag that she
wants to buy but she doesn’t have enough cash to pay for it and promised to pay after a week. Would you lend
your credit card? Why or why not?

2. You want to loan for your dream house, but you can only loan a small amount from an institution
authorized in lending money. Would you loan another amount in another authorized lending institution for you
to have your dream house?

3. In your own ways, how can you lessen the use of credit?

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 FIN 012: CREDIT AND COLLECTION
STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

Activity 3: Check for Understanding (5 mins)

Identify what is asked: Write your answers in the space provided before the number.

_________________1. An asset that can back or act as security for the loan.

_________________2. The applicant's debt-to-income ratio.

_________________3. The amount of money an applicant has.

_________________4. The purpose of the loan, the amount involved, and prevailing interest rates.

_________________5. Reflected by the applicant's credit history.

_________________6. The best sources of credit, especially when it comes to personal loans, student loans,
mortgages, personal lines of credit, overdraft protection and credit cards.

_________________7. Some also offer financing plans that allow you to pay for your purchases over time or
even at a later date.

_________________8. You can negotiate the interest rate and payment terms with them directly.

_________________9. Has been derived from the Latin word credo which means I believe or I trust, which
signifies a trust or confidence reposed in another person.

_________________10. It is a system used by lenders to gauge the credit worthiness of potential borrowers.

C. LESSON WRAP-UP
Activity 4: Thinking about Learning (5 mins)
In this part of the module, we will track your progress on how well you are doing in this subject module.
You can highlight the number of modules that you have already finished.

1. How do you feel about the learning today?

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 FIN 012: CREDIT AND COLLECTION
STUDENT ACTIVITY SHEET #2

Name: _________________________________________________________________ Class number: _______

Section: ____________ Schedule: _______________________________________ Date: _______________

2. Are you enlightened on how credit works?

3. Did someone borrow money from you and did not pay it? How did you face this situation?

FAQs:
1. Is it necessary to have credit cards?
- Yes, in the sense that you know when and where you will use it. Actually credit cards have their own
purpose, it's just that sometimes, people tend to use it just because they want something but they do not have
enough cash to pay for it or it is bought online. You can have credit cards but make sure you use them in the
correct way.

2. Is it good that we get items on an installment basis?

- Yes, as long as you can pay for the monthly amortization of the item/s that you get on an installment
basis. Because it is earning interest when you are not consistently paying it. But, better buy the item in cash,
you can even have discounts when you buy the item on a cash basis.

3. In the case of last resort, can we really borrow from a family member?
- Yes, as the last resort. But see to it that when you borrow money from a family member, you can pay
it on time or even pay it as early as possible. Sometimes borrowing from a family member is embarrassing, but
if it is your last resort, then so be it. Besides you belong to one family.

KEY TO CORRECTIONS
Activity 3: Check for Understanding 7. RETAIL STORES
1. COLLATERAL 8. FRIENDS OR FAMILY
2. CAPACITY 9. CREDIT
3. CAPITAL 10. 5C’s
4. CONDITION
5. CHARACTER
6. FINANCIAL INSTITUTION

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