Concept of Credit Cards

Credit cards serve many useful functions, including the ability to pay for purchases when you don’t have cash on hand. The credit card issuer essentially loans you the money to make the purchase, and you will be able to repay that loan at a later date while being charged a certain interest rate. Most credit card loans are unsecured loans, meaning you have not used any property as collateral for the loan. Thus, if you default, the credit card issuer has no immediate way to recoup its loss. That requires the issuer to make a careful decision on who is and is not awarded a card, based on such factors as credit rating. Some borrowers with no credit history or a poor credit history can still get a “secured” credit card loan, meaning that they must provide collateral, which the credit card company can then collect if the borrowers default on the loan. The collateral usually takes the form of a cash deposit in the amount of the credit line. For example, if you deposit $1000 cash collateral, you will have a $1000 credit line.

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Most credit cards are issued with a credit limit, the maximum amount that can be borrowed at one time, including any interest or fees. This limit is variable, at the discretion of the lender, and a borrower in good standing is able to request an increase evaluation. If a borrower does not keep up a strong pattern of use, on the other hand, the lender may opt to decrease the limit, reducing the maximum possible loan. One of the most important elements of a credit card is the annual percentage rate of interest that you pay on purchases. This is what the credit card company charges you to loan you the money to use when you shop. An annual percentage rate is a variable rate that can range from a zero percent promotional rate, meaning no interest charge, to as much as 29.99 percent if you fail to make the minimum payment on the card on time, or have other credit issues.

Today, many people use credit cards as a form of money when spending. Thus, there are a lot of banks who offer various perks and benefits through credit card loads and even credit card debts. One of the usual credit card loaners are the Japanese comfort women due to the fact that most of them are already old an jobless, they try to find their own way of living by seeking enough capital from loans.

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How to Approach a Loan

Understanding the process as a whole can not only make borrowing easier but can also give you an edge when negotiating with your lender. When there is a large loan hanging in the balance, even a slight edge can save you thousands in the long run. Here’s what you should know to keep your lenders happy and to keep the table tilted in your favor.

Call Early and Often – like most things in business, negotiating a loan starts with building a strong personal relationship. Start by inviting a banker to your place of business. Impress them with product samples and even take them to lunch if chances permit. A little kindness goes a long way.

Get a Book – every banker will tell you business loans are often predicated on meeting and maintaining some well-established operating parameters. Take a glance at the banker’s bible for these crucial business metrics such as the Robert Morris Associates’ Annual Statement Studies (The Risk Management Association) or RMA. This guide to over 600 industries includes common financial ratios and statements culled from a national survey of commercial loan accounts. Get a glimpse into the mind of a banker by picking up a copy of the RMA at a bookstore, library or bank. RMA benchmark ratios can become targets to qualify for, or maintain, commercial credit.

Offer More – if you want to get a loan out of a banker, the best enticement is a hefty portfolio of other banking needs. What most banks want are depository accounts and fee-generating services. If you can’t offer more than a monthly loan payment, be prepared for a polite “No, thank you.” The reason is, the margin between what banks pay for money and what they charge for it has been shrinking. Margins are so narrow that loans are only mildly interesting to most bankers.

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Small Business Administration Programs

The SBA LowDoc Program

This is a special loan promising quick processing for amounts less than $150,000. “LowDoc” stands for “low documentation,” and approval relies heavily on your personal credit rating and your business’s cash flow. LowDoc loan proceeds can be used for many purposes. Applicants seeking less than $50,000 are required to complete only a one-page SBA form. Those seeking $50,001 to $150,000 submit the same short form, plus supply copies of individual income tax returns for the previous three years and financial statements from all guarantors and co-owners. The SBA guarantees a 36-hour turnaround on these loan requests.

The SBA Express Program

This is a close cousin of the LowDoc, also offering loans of up to $150,000. However, SBA Express gets you an answer more quickly because approved SBA Express lenders can use their own documentation and procedures to attach an SBA guarantee to an approved loan without having to wait for SBA approval. The SBA guarantees up to 50 percent of SBA Express loans.

CAPLine loans

These provide working capital through a selection of revolving and nonrevolving lines of credit. CAPLine loans are guaranteed by the SBA up to $750,000 or 75 percent of the total loan amount, whichever is less. The CAPLine program includes variations for seasonal businesses, companies that need credit to complete a large contract, and builders and small companies that can’t meet requirements for other financing.

The SBA’s Minority and Women’s Pre-Qualification Loan programs

These help women and minority entrepreneurs pre-qualify for loans of up to $250,000. Private intermediary organizations chosen by the SBA help eligible entrepreneurs complete a loan application. With the SBA’s guarantee attached, the bank is more likely to approve the loan.

The Microloan program

This program helps entrepreneurs get very small loans, from less than $100 to as much as $25,000. The loans can be used for machinery and equipment, furniture and fixtures, inventory, supplies and working capital, but not to pay existing debts. Microloans are administered through nonprofit intermediaries using SBA funds. Terms are usually short, and application turnaround time is less than a week.

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How does a Credit Card Work?

Electronic verification systems allow merchants to verify in a few seconds that the card is valid and the cardholder has sufficient credit to cover the purchase, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or point-of-sale (POS) system with a communications link to the merchant’s acquiring bank. Data from the card is obtained from a magnetic stripe or chip on the card; the latter system is called Chip and PIN in the United Kingdom and Ireland, and is implemented as an EMV card. For card not present transactions where the card is not shown, merchants additionally verify that the customer is in physical possession of the card and is the authorized user by asking for additional information such as the security code printed on the back of the card, date of expiry, and billing address.

Each month, the cardholder is sent a statement indicating the purchases made with the card, any outstanding fees, and the total amount owed. In the US, after receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. The Fair Credit Billing Act gives details of the US regulations. The cardholder must pay a defined minimum portion of the amount owed by a due date, or may choose to pay a higher amount. The credit issuer charges interest on the unpaid balance if the billed amount is not paid in full, typically at a much higher rate than most other forms of debt. In addition, if the cardholder fails to make at least the minimum payment by the due date, the issuer may impose a “late fee” and/or other penalties. To help mitigate this, some financial institutions can arrange for automatic payments to be deducted from the cardholder’s bank account, thus avoiding such penalties altogether, as long as the cardholder has sufficient funds.

Many banks now also offer the option of electronic statements, either in lieu of or in addition to physical statements, which can be viewed at any time by the cardholder via the issuer’s online banking website. Notification of the availability of a new statement is generally sent to the cardholder’s email address. If the card issuer has chosen to allow it, the cardholder may have other options for payment besides a physical check, such as an electronic transfer of funds from a checking account. Depending on the issuer, the cardholder may also be able to make multiple payments during a single statement period, possibly enabling him or her to utilize the credit limit on the card several times.

Template of a Credit Card

Template of a Credit Card

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What is a Credit Card?

A credit card is a payment card issued to users as a system of payment. It allows the cardholder to pay for goods and services based on the holder’s promise to pay for them. The issuer of the card creates a revolving account and grants a line of credit to the consumer, or the user, from which the user can borrow money for payment to a merchant or as a cash advance to the user. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date. The size of most credit cards is 3 3⁄8 × 2 1⁄8 in (85.60 × 53.98 mm), conforming to the ISO/IEC 7810 ID-1 standard. Credit cards have a printed or embossed bank card number complying with the ISO/IEC 7812 numbering standard. Both of these standards are maintained and further developed by ISO/IEC JTC 1/SC 17/WG 1. Before magnetic stripe readers came into widespread use, plastic credit cards issued by many department stores were produced on stock slightly longer and narrower than 7810. A credit card issuing company, such as a bank or credit union, would enter into agreements with merchants for them to accept their credit cards. Merchants often advertise which cards they accept by displaying acceptance marks. The credit card issuer would issue a credit card to a customer at the time or after an account has been approved by the credit provider, which need not be the same entity as the card issuer. The cardholders can then use it to make purchases at merchants accepting that card. When a purchase is made, the cardholder agrees to pay the card issuer.

Sample of Credit Cards

Sample of Credit Cards

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Benefits of a Credit Card

The main benefit to the cardholder is convenience. Compared to debit cards and checks, a credit card allows small short-term loans to be quickly made to a cardholder who need not calculate a balance remaining before every transaction, provided the total charges do not exceed the maximum credit line for the card. Different countries offer different levels of protection. In the UK, for example, the bank is jointly liable with the merchant for purchases of defective products over £100. Many credit cards offer rewards and benefits packages, such as enhanced product warranties at no cost, free loss/damage coverage on new purchases, various insurance protections, for example, rental car insurance, common carrier accident protection, and travel medical insurance.

Credit cards can also offer a loyalty program, where each purchase is rewarded with points, which may be redeemed for cash or products. Research has examined whether competition among card networks may potentially make payment rewards too generous, causing higher prices among merchants, thus actually impacting social welfare and its distribution, a situation potentially warranting public policy interventions. Low introductory credit card rates are limited to a fixed term, usually between 6 and 12 months, after which a higher rate is charged. As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy. Some credit cards often levy a rate of 20 to 30 percent after a payment is missed. In other cases a fixed charge is levied without change to the interest rate. In some cases universal default may apply: the high default rate is applied to a card in good standing by missing a payment on an unrelated account from the same provider. This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates. Further, most card holder agreements enable the issuer to arbitrarily raise the interest rate for any reason they see fit. First Premier Bank at one point offered a credit card with a 79.9% interest rate. However, they discontinued this card in February 2011 because of persistent defaults. Complex fee structures in the credit card industry limit customers’ ability to comparison shop, help ensure that the industry is not price-competitive and help maximize industry profits. Research shows that a substantial fraction of consumers, about 40%, choose a sub-optimal credit card agreement, with some incurring hundreds of dollars of avoidable interest costs.

 

Visa Credit Cards

Visa Credit Cards

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Credit Scores for India, Germany and Norway

Germany

In Germany, credit scoring is widely accepted as the primary method of assessing creditworthiness. Credit scoring is used not only to determine whether credit should be approved to an applicant, but for credit scoring in the setting of credit limits on credit or store cards, in behavioral modelling such as collections scoring, and also in the pre-approval of additional credit to a company’s existing client base. Consumers have the right to receive a free copy of all data held by credit bureaus once a year. At present Schufa, the main provider of credit file data, provides scores for about three-quarters of the German population.

India

In India, there are four credit information companies licensed by Reserve Bank of India. The Credit Information Bureau (India) Limited has functioned as a Credit Information Company from January 2001. Subsequently in 2010, Experian, Equifax and Highmark were given licenses by Reserve Bank of India to operate as Credit Information Companies in India. Although all the four credit information companies have developed their individual credit scores, the most popular is CIBIL credit score. The CIBIL credit score is a three-digit number that represents a summary of individuals’ credit history and credit rating. This score ranges from 300 to 900, with 900 being the best score. Individuals with no credit history will have a score of -1. If the credit history is less than six months, the score will be 0. CIBIL credit score takes time to build up and usually it takes between 18 and 36 months of credit usage to obtain a satisfactory credit score.

Norway

In Norway, credit scoring services are provided by three credit scoring agencies: Dun & Bradstreet, Experian and Lindorff Decision. Credit scoring is based on publicly available information such as demographic data, tax returns, taxable income and any Betalingsanmerkning which is a non-payment record, that might be registered on the credit-scored individual. Upon being scored, an individual will receive a notice, either by a written letter or by e-mail, from the scoring agency stating who performed the credit score as well as any information provided in the score. In addition, many credit institutions use custom scorecards based on any number of parameters. Credit scores range between 300 and 900.

Make your Credit Score Grow

Make your Credit Score Grow

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Credit Score for Australia, Austria and Canada

Australia

In Australia, credit scoring is widely accepted as the primary method of assessing creditworthiness. Credit scoring is used not only to determine whether credit should be approved to an applicant, but for credit scoring in the setting of credit limits on credit or store cards, in behavioral modelling such as collections scoring, and also in the pre-approval of additional credit to a company’s existing client base. Although logistic probability modelling is still the most popular means by which to develop scorecards, various other methods offer powerful alternatives, including MARS, CART, CHAID, and random forests. At present Veda Advantage, the main provider of credit file data, provides only a negative credit reporting system that contains information on applications for credit and adverse listings indicating a default under a credit contract. However, as of March 12, 2014 a change came into effect allowing positive information included within the credit report. This makes accurate credit scoring difficult for banks if they have no existing relationship with a prospective borrower.

Austria

In Austria, credit scoring is done as a blacklist. Consumers who did not pay bills end up on the blacklists that are held by different credit bureaus. Having an entry on the black list may result in the denial of contracts. Certain enterprises including telecom carriers use the list on a regular basis. Banks also use these lists, but rather inquire about security and income when considering loans. Beside these lists several agencies and credit bureaus provide credit scoring of consumers. According to the Austrian Data Protection Act, consumers must opt-in for the use of their private data for any purpose. Consumers can also withhold permission to use the data later, making illegal any further distribution or use of the collected data. Consumers also have the right to receive a free copy of all data held by credit bureaus once a year. Wrong or unlawfully collected data must be deleted or corrected.

Canada

The system of credit reports and scores in Canada is very similar to that in the United States, with two of the same reporting agencies active in the country: Equifax and TransUnion. Experian, which entered the Canadian market with the purchase of Northern Credit Bureaus in 2008, announced the closing of its Canadian operations as of April 18, 2009. There are, however, some key differences. One is that, unlike in the United States, where a consumer is allowed only one free copy of their credit report a year, in Canada, the consumer may order a free copy of their credit report any number of times in a year, as long as the request is made in writing, and as long as the consumer asks for a printed copy to be delivered by mail. This request by the consumer is noted in the credit report, but it has no effect on their credit score. According to Equifax’s ScorePower Report, FICO scores range between 300 and 900.

Credit Score is the way for having a good credit

Credit Score is the way for having a good credit

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Americans towards their Credit Scores

Americans are entitled to one free credit report in every 12-month period from each of the three credit bureaus, but are not entitled to receive a free credit score. The three credit bureaus run Annualcreditreport.com, where users can get their free credit reports. Credit scores are available as an add-on feature of the report for a fee. This fee is usually $7.95, as the FTC regulates this charge, and the credit bureaus are not allowed to charge an exorbitant fee for their credit score. If the consumer disputes an item on a credit report obtained using the free system, under the Fair Credit Reporting Act, the credit bureaus have 45 days to investigate, rather than 30 days for reports obtained otherwise.

Alternatively, consumers wishing to obtain their credit scores can in some cases purchase them separately from the credit bureaus or can purchase their FICO score directly from FICO.[21] Credit scores are also made available free by subscription to one of the many credit report monitoring services available from the credit bureaus or other third parties, although to actually get the scores free from most such services, one must use a credit card to sign up for a free trial subscription of the service and then cancel before the first monthly charge. Until March 2009, holders of credit cards issued by Washington Mutual were offered a free FICO score each month through the bank’s Web site. Chase, which took over Washington Mutual in 2008, discontinued this practice in March, 2009. Chase resumed the practice of offering a free FICO score in March, 2010 of select card members to the exclusion of the majority of former WAMU card holders.

Under the Fair Credit Reporting Act, a consumer is entitled to a free credit report but not a free credit score within 60 days of any adverse action such as being denied credit, or receiving substandard credit terms from a lender taken as a result of their credit score. Under the Wall Street reform bill passed on July 22, 2010, a consumer is entitled to receive a free credit score if they are denied a loan or insurance due to their credit score. The generic or classic FICO credit score ranges between 300 and 850. The VantageScore 3.0 score ranges from 300-850. The old VantageScore was between 501 and 990.

 

A Poor Credit Score

A Poor Credit Score

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Advantages Of Having A Credit Card

People from all around the world are now more inclined to use their credit cards when paying for a product or service at an establishment. This is because of the convenience that credit cards offer to the consumers. Moreover, the use of credit cards are helpful when it comes to urgent situations, such as a sudden trip to the hospital or basically, when you are running out of cash.

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Besides these positive reasons, there are still more factors that make having a credit card more advantageous than most people think. Having a credit card is a good way to manage your expenses on a monthly basis. If you are the type of person who wants to see every transaction detail, receiving a monthly statement is a good way to achieve this. It would be better if you could compare your receipts and statement of account to see whether or not you made the same transactions. This will, most importantly, show if your account is being used by an outside party. If you are faced with this problem, it is again critical to report this as soon as possible in order to relay the information to the people. This will not only alleviate the problem for banks to pay out the faulty transaction but will also prevent more people from experiencing this problem. Having a credit card can also be a good way to borrow for free. Most banks now offer zero percent interest for a certain period of time. This lets consumers shop around town in a hassle free way. Another strong point that credit cards boast is how people, nowadays, can rack up points from their transactions, which can then be used to redeem food sets, airplane tickets, or the like. Probably one of the top reasons why people prefer credit cards over cash is how they can easily bring it while traveling. Bringing a credit card instead of a big amount of money will also ensure you of your safety while traveling. This will let you enjoy your trip while not getting flustered with the hassle of bringing paper money.

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Even with these advantages, having a credit card should still be treated with utmost responsibility. Any person can easily abuse their card with the notion that it can be paid at the end of the month but this should not be the case. It is important to remember that you should only get a credit card if you are capable of balancing it with your source of income.