CLP Credit and Financial Analysis 2 — Questions and Answers
Question 1: A prospective resident's debt-to-income (DTI) ratio is 42%. Most CLP-standard underwriting guidelines consider this applicant:
- Automatically approved if credit score exceeds 700
- A marginal risk requiring additional scrutiny or a co-signer (Correct answer)
- Immediately disqualified under federal law
- Eligible only for month-to-month tenancy
Correct answer: A marginal risk requiring additional scrutiny or a co-signer
A DTI above 40% is generally considered elevated; most properties flag it for additional review rather than automatic denial.
Question 2: Which component of a credit report reflects the proportion of revolving credit balances to credit limits?
- Payment history
- Length of credit history
- Credit utilization ratio (Correct answer)
- Credit mix
Correct answer: Credit utilization ratio
Credit utilization ratio compares current revolving balances to total available revolving credit limits.
Question 3: When verifying employment income for a self-employed applicant, the most reliable documents to request are:
- A letter from the applicant stating annual earnings
- Two years of signed federal tax returns and a current bank statement (Correct answer)
- A single pay stub from the most recent month
- An employer verification form from a co-worker
Correct answer: Two years of signed federal tax returns and a current bank statement
Self-employed income is best verified through IRS-filed tax returns (showing net income) and recent bank statements for cash-flow confirmation.
Question 4: A charge-off on a credit report indicates that:
- The debt was paid in full and closed voluntarily
- The creditor wrote the debt off as a loss after prolonged non-payment (Correct answer)
- The account was transferred to another creditor in good standing
- The consumer successfully disputed and removed the account
Correct answer: The creditor wrote the debt off as a loss after prolonged non-payment
A charge-off means the original creditor declared the debt uncollectible after typically 180 days of delinquency.
Question 5: Under the Fair Credit Reporting Act (FCRA), most negative credit information can remain on a consumer credit report for up to:
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
The FCRA limits most adverse items—including late payments, collections, and charge-offs—to seven years on a credit report.
Question 6: An applicant submits bank statements showing consistent monthly deposits of $4,000, but their stated income on the application is $6,500 per month. A leasing professional should:
- Accept the application since stated income is self-reported and not verifiable
- Approve immediately because bank deposits show adequate funds
- Request additional income documentation to reconcile the discrepancy (Correct answer)
- Deny the application based solely on the bank statement average
Correct answer: Request additional income documentation to reconcile the discrepancy
Discrepancies between stated income and verifiable deposits require additional documentation before a credit decision is made.
Question 7: Which of the following best describes 'net effective rent' in the context of lease financial analysis?
- The rent amount after deducting landlord-paid utilities
- The average monthly rent after spreading concessions over the lease term (Correct answer)
- The rent amount after applying the resident's renter's insurance credit
- The sum of all monthly payments including fees
Correct answer: The average monthly rent after spreading concessions over the lease term
Net effective rent is calculated by amortizing any concessions (e.g., free months) across the full lease term to yield the true average monthly cost.
CLP Credit and Financial Analysis 2
A prospective resident's debt-to-income (DTI) ratio is 42%.
Most CLP-standard underwriting guidelines consider this applicant: