Credit evaluation means a review of a prospective customer by obtaining the information to judge the customers willingness and ability to pay his debt. In judging the credit worthiness of an applicant the three basic factors which should be considered are, character, capacity and collateral. The character refers to the willingness of the customer to honour his obligations. The capacity ‘ refers to the ability of a customers to pay on time and the collateral represents the security offered by him in the form of mortgages. A firm can use different ways to judge the creditworthiness of an applicant. Some of the ways are as follows:
– Analysis of financial statements
– obtaining of bank certificate
– Analysis of past experience
– Numerical credit scoring.
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