Credit and Financial Analysis Flashcards
7 cards from real CLP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Credit and Financial Analysis flashcards as text
A rental applicant has a FICO score of 580. Under a tiered-approval system, this score would most commonly result in:
Answer: Conditional approval, such as an increased security deposit
Many properties use tiered criteria where lower scores trigger conditional approval with additional financial requirements rather than automatic denial.
When calculating income-to-rent ratio, a property requiring 3x the monthly rent means an applicant for a $1,400/month apartment must earn at least:
Answer: $4,200 per month
$1,400 × 3 = $4,200; the applicant must demonstrate monthly gross income of at least this amount.
Which federal law requires landlords to provide adverse action notices when denying an application based on information in a credit report?
Answer: Fair Credit Reporting Act (FCRA)
The FCRA mandates that any adverse action based on a consumer report triggers a written notice informing the applicant of the source and their right to dispute.
A collection account labeled 'medical' on a credit report is significant to a leasing professional primarily because:
Answer: Newer FICO models may exclude or reduce the weight of medical collections
Recent FICO and VantageScore updates have reduced or eliminated the scoring impact of medical collections, making context important when reviewing reports.
An applicant's rental history shows two NSF (non-sufficient funds) returns on rent checks within the past 12 months. This is most relevant to the credit analysis because it indicates:
Answer: The applicant likely has poor cash-flow management relative to rent obligations
NSF returns on rent checks directly signal cash-flow problems and inconsistent ability to meet recurring housing obligations.
Which financial metric best measures a property's ability to cover its debt service from operating income?
Answer: Debt Service Coverage Ratio (DSCR)
DSCR = Net Operating Income ÷ Annual Debt Service; a ratio above 1.0 indicates the property generates enough income to cover its loan payments.
A prospective commercial tenant submits two years of business financials showing a current ratio of 0.8. This most likely indicates:
Answer: The business has more current liabilities than current assets, a liquidity concern
A current ratio below 1.0 means current liabilities exceed current assets, signaling potential difficulty meeting short-term obligations.