Secured Credit Card

A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between 100% and 200% of the total amount of credit desired. Thus if the cardholder puts down $1,000, they will be given credit in the range of $500–1,000. In some cases, credit card issuers will offer incentives even on their secured card portfolios. In these cases, the deposit required may be significantly less than the required credit limit, and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account. Credit card issuers offer this because they have noticed that delinquencies were notably reduced when the customer perceives something to lose if the balance is not repaid. The cardholder of a secured credit card is still expected to make regular payments, as with a regular credit card, but should they default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows building a positive credit history.

Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt. Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened. Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one’s credit. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards.

Securing Life through the use of Credit Card

Securing Life through the use of Credit Card

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Additional Information about the FICO Scoring

FICO score range:

There are several types of FICO credit score: classic or generic, bankcard, personal finance, mortgage, installment loan, auto loan, and NextGen score. The generic or classic FICO score is between 300 and 850, and 37.2% of people had between 750 and 850 in 2012. According to FICO, the median FICO score in 2006 was 723, and 711 in 2011.The FICO bankcard score and FICO auto-enhanced score are between 250 and 900. The FICO mortgage score is between 300 and 850. Higher scores indicate lower credit risk. Each individual actually has 49 credit scores for the FICO scoring model because each of three national credit bureaus, Equifax, Experian and TransUnion, has its own database. Data about an individual consumer can vary from bureau to bureau.

FICO scores have different names at each of the different credit reporting agencies: Equifax (BEACON), TransUnion (FICO Risk Score, Classic) and Experian (Experian/FICO Risk Model). There are three active generations of FICO scores: 1998, 2004, and 2008 (FICO 8 score). Consumers can get their classic FICO score (version of 2008) for Equifax, TransUnion, and Experian from the FICO website (myFICO), and also their classic FICO score for Equifax named Score Power in the website of this credit bureau. Other types of FICO scores cannot be obtained by consumers. Some credit cards offer a free FICO score several times per year to their cardholders.

FICO NextGen Risk Score:

The NextGen Score is a scoring model designed by the FICO company for assessing consumer credit risk. This score was introduced in 2001, in 2003 the second generation of NextGen was released.[citation needed] In 2004, FICO research showed a 4.4% increase in the number of accounts above cutoff while simultaneously showing a decrease in the number of bad, charge-off and Bankrupt accounts when compared to FICO traditional.FICO NextGen score is between 150 and 950. Each of the major credit agencies market this score generated with their data differently:

Experian: FICO Advanced Risk Score
Equifax: Pinnacle
TransUnion: FICO Risk Score NextGen ( formerly Precision )
Prior to the introduction of NextGen, their FICO scores were marketed under different names:

Experian: FICO Risk Model
Equifax: BEACON
TransUnion: FICO Risk Score, Classic (formerly EMPIRICA)

VantageScore:

In 2006, to try to win business from FICO, the three major credit-reporting agencies introduced VantageScore. According to court documents filed in the FICO v. VantageScore federal lawsuit the VantageScore market share was less than 6% in 2006. The VantageScore score methodology initially produced a score range from 501–990, but VantageScore 3.0 adopted the score range of 300-850 in 2013. Consumers can get their VantageScores for Experian and TransUnion from their respective websites, and their VantageScore for Equifax from Quizzle.

 

The FICO score

The FICO score

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Credit Score for the United States of America

In the United States, a credit score is a number based on a statistical analysis of a person’s credit files, that in theory represents the creditworthiness of that person, which is the likelihood that people will pay their bills. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax. Income is not considered by the major credit bureaus when calculating a credit score. There are different methods of calculating credit scores. FICO score, the most widely known type of credit score, is a credit score developed by FICO, previously known as Fair Isaac Corporation. It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender. All credit scores must be subject to availability. The credit bureaus all have their own credit scores: Equifax’s ScorePower, Equifax Credit Score, Experian’s PLUS score, and TransUnion’s credit score, and each also sells the VantageScore credit score. In addition, many large lenders, including the major credit card issuers, have developed their own proprietary scoring models.

Studies have shown scores to be predictive of risk in the underwriting of both credit and insurance. Some studies even suggest that most consumers are the beneficiaries of lower credit costs and insurance premiums due to the use of credit scores. New credit scores have been developed in the last decade by companies such as Scorelogix, PRBC, L2C, Innovis which do not use bureau data to predict creditworthiness. Scorelogix’s JSS Credit Score uses a different set of risk factors, such as the borrower’s job stability, income, income sufficiency, and impact of economy, in predicting credit risk, and the use of such alternative credit scores is on the rise. These new types of credit scores are often combined with FICO or bureau scores to improve the accuracy of predictions. Most lenders today use some combination of bureau scores and alternative credit scores to develop better understanding of a borrower’s ability to pay. It is widely recognized that FICO is a measure of past ability to pay. New credit scores that focus more on future ability to pay are being deployed to enhance credit risk models.

A FICO credit score

A FICO credit score

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Credit Card Debt in the US

Credit card debt is an example of unsecured consumer debt, accessed through credit cards.

Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.

The results of not paying this debt on time are that the company will charge a late payment penalty (generally in the US from $10 to $40) and report the late payment to credit rating agencies. Being late on a payment is sometimes referred to as being in “default”. The late payment penalty itself increases the amount of debt the consumer has.

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When a consumer has been late on a payment, it is possible that other creditors, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying. This practice is called universal default.

Research shows that people with credit card debt are more likely to forgo needed medical care than others, and the likelihood of forgone medical care increases with the magnitude of credit card debt.
Statistics
Quarterly Credit Card Debt in the United States Since 2010 (in billions):
• Q2 2012: $798.5
• Q1 2012: $790.3
• Q4 2011: $834.4
• Q3 2011: $799.5
• Q2 2011: $794.3
• Q1 2011: $786.0
• Q4 2010: $833.1
• Q3 2010: $819.2
• Q2 2010: $830.5
• Q1 2010: $843.1

Declines in credit card debt are often misinterpreted because they fail to include information about charge-offs. The possible causes for a decline in credit card debt are consumers paying down their debt, credit card companies writing charged-off debt off their books, or a combination of the two. Inclusion of charged-off debt can therefore significantly impact debt trends and the characterization of a nation’s financial health.
Consumers also commonly pay down a large portion of their credit card debt in the first fiscal quarter of the year as this tends to be the time when people receive holiday bonuses and tax refunds.

Credit card debt is said to be higher in industrialized countries.

History- Plastic fantastic

Credit cards may seem like a new age invention only in use by the newer generations. It is important to note that the credit card actually dates back to the early 1900s. Although it does not seem like it, the credit card has been around for almost a century. It is a common sight in society today for almost everyone to own a credit card. Not a lot of people fill their pockets and bags with money to obtain materials but instead just carry around the portable and handy credit card. The ability of the credit card to allow consumers to immediately purchase an item and pay it off afterwards has been a helpful tool and a look into its history will show how much has changed.

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Before the advent of companies like Mastercard, American Express, Visa and Discover small businesses have already provided their customers with lines of credit. Oil producers originally used these lines in order to provide their shareholders a chance to extend their credits. Those who are interested to purchase more land in order to expand the business are given this privilege. Groceries and small retail individuals followed the trend, the lines of credit where made available to those who have some form of evidence and proof that they will be able to repay the debts. It is not uncommon during these times that collaterals were taken to guarantee the payment of these debts.

 

The first ever credit card that was issued was in 1946. Created by John Biggins from the Flatbush National Bank in Brookly, New York. It worked almost the same way as our credit cards of today but was still limited to the local area at that time. It was only made available to the bank’s customers and the merchants from whom they made transactions with. It was evident that the expansion of the credit card was inevitable.

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Once numerous United States banks formed organization to interlink their customers the use of credit cards boomed. This allowed more consumers and merchants to make utilize the convenience offered by the credit card. As of today, almost every business no matter how big or how small accepts the credit card. Consumers from different brackets of income have also utilized the credit card. The purpose and the idea behind the credit card remain in tact.

Consumers have to remember to be prudent and careful in their spending and not abuse the convenience of the credit card. The idea of the credit is to defer payment only up to a certain time before charges are made and consumers must always be aware of this.