Credit Cards

Topics: Credit card, MasterCard, Credit history Pages: 8 (2615 words) Published: May 24, 2013
Credit is derived from the Latin word “credo” meaning “I believe.” Credit is when goods, services, or money is received in exchange for a promise to pay a definite sum of money at a future date. The lender “trusts” the borrower to repay the money. A lender is the person or organization who has the resources to provide the individual with a loan. A borrower is the person or organization that is receiving the money from the lender. When the privilege of borrowing has been extended, the borrower is usually expected to pay interest in addition to the amount borrowed. Interest is the price of money. When referring to credit, interest is the charge for borrowing money. Types of Credit: There are two types of installment credit: open-end (revolving) credit and closed-end credit. * Closed-end credit is a loan which the borrower must repay the amount in a specified number of equal payments. Closed-end credit usually has an agreement (contract) which must be signed outlining the repayment terms. Generally, the contract specifies the number of payments, the payment amount, and how much the credit will cost (interest rate or fees). Sometimes, closed-end installment credit requires a down payment. Examples of closed-end installment credit include automobile loans, mortgages, and education loans. * Open-end (revolving) credit is extended as a line of credit established in advance so that the borrower does not have to apply for credit each time new credit is desired. Common examples of open-end credit are credit cards, both general purpose cards (e.g., Visa, MasterCard, Discover and American Express) and retail store credit cards.

A credit card is pre-approved credit which can be used for the purchase of goods and services now and payment of them later. In the case of credit cards, individuals may continue to borrow as long as they do not exceed the credit limit, which is the maximum dollar amount that can be charged on the card. The amount of the credit limit varies based upon an individual’s perceived creditworthiness; their ability and willingness to pay the money back. A unique feature of revolving credit is that the loan balance can be repaid in one single payment or a series of equal or unequal payments, usually monthly. The borrower chooses how much to pay each month. However, the lender usually requires that a borrower pay at least a specified minimum amount each month. When a cardholder decides to make a monthly payment less than the total balance on the card, then the remaining unpaid balance is “revolved” to the next month.

As In physical form, a credit card traditionally is a thin, rectangular plastic card. The front of the card contains a series of numbers that are representative of various items such as the applicable network, bank, and account. These numbers are generally referred to in aggregate as the account number or card number. A magnetic stripe, often called a magstripe, runs across the back of the card and contains some of the account’s information electronically. The back of the card also contains a cardholder signature box.

The credit card lending business experiences rapid change, but not just in the technology environment. New competitors continue to emerge from not only the banking industry, but from phone companies, retailers and others. The credit card industry’s focus has shifted from prestige to merchant acceptance to pricing and perks. Intense competition, market saturation, and changing consumer postures have forced issuers to be innovative with the credit card products offered and to develop sophisticated customer selection and management methods. Processes have evolved to risk ranking applicants and pricing each account accordingly. Risk-based pricing has allowed banks to issue cards to less-qualified applicants in exchange for a higher interest rate or other fees and to essentially offer customized card...

[ 1 ].
[ 2 ].
[ 3 ].
[ 4 ].
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Credit Cards Essay
  • Credit Card Companies Essay
  • Essay about Plutonium: Credit Card and Chris
  • Credit Card and Petrol Station Essay
  • Citibank: Launching the Credit Card Essay
  • Essay on Disadvantages of Credit Cards
  • Debt and Credit Card Debts Essay
  • Credit Card Debt Analysis Essay

Become a StudyMode Member

Sign Up - It's Free