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What does a higher Credit Score mean?Lower the borrowers credit riskWhat is considered a good credit score and what is the average credit score?-Above 700 -Between 600 and 750Besides the past, what do lenders also consider to determine credit risk?IncomeWhen measuring income what is the Fixed Payments Approach?To examine the amount of monthy income vs the amount of monthly mixed paymentsWhat is included as a Fixed Payment?Rent (Mortgages), Debt Payments (Student Loans), Car Payments, and Credit paymentsWhat is the percentage of fixed payments a consumer should have in comparison to their net income?50% of net income or 35% of gross monthly incomeWhen measuring income what is the Debt-to-income Approach?Total monthly debt burden, excluding mortgage payments, divided by net monthly incomeWhat should the debt to income ratio be?No more than 20When relating to Businesses what are the 5 ways lenders attempt to minimize credit risk?1.) Specialized Lending 2.) Understanding Cash Flows 3.) Secondary sources of repayment 4.) Close Monitoring 5.) Geographical DiversificationWhat is Specialized Lending?Gathing information on specific industries to learn and be able to detect future problemsWhat is the downside to industry- specific lending?Can lead to the bank holding relatively undiversified loan portfolios -What is one of the main reasons that businesses fail and how do you prevent that?Lack of cash flow, lenders have to understand the threats to their borrowers cash flowsWhat do cash flows come from?Operations, investments, and financingWhat are the 3 types of secondary source of repayment?1.) Collateral 2.) Compensating Balance 3.) Personal QuaranteesWhat is interest rate risk?The risk that changes in interest rates will negatively affect the standing of the commercial bank