A credit card is a plastic card with a magnetic strip at the back of the card. It is used by customers who buy at select outlets that accept credit cards. The customer buys on credit and the credit card issuer pays the vendor. The customer then pays the credit card issuer. The customer has to pay a late fee for the late payment of his credit card dues. And, he is also charged very high interest rates for outstanding dues.
The interest rates can also be revised by credit card issuers. The other fees include over limit fees.
Although credit has been prevalent for thousands of years, credit cards have come into being for less than a century. In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants in New York. But it was only until the establishment of standards for the magnetic strip in 1970 that the credit card became part of the information age.
Today, with online transactions growing the credit card is becoming a very integral part of modern society. Credit cards during the 60’s usually had an annual fee.
However, today most credit cards for customers with good credit rating do not have an annual fee. However, the credit card industry is filled with unusual and exorbitant fees and interest rates. There are several states that do not have a cap on the usury limit. In 1970, the then president Jimmy Carter repelled the usury law allowing banks to charge exorbitant interest rates.
The Universal default allows creditors to review a customer’s credit report on a regular basis, and if there is any change that has negatively impacted their credit score or risk profile, a new, higher interest rate can be applied.
Many credit card issuers have taken advantage of these laws to add to their bottom line without regard for its customers. According to frontline: In 2004 there were approximately 641 million credit cards in circulation and accounted for an estimated $1. 5 trillion of consumer spending. Millions of American families use their credit cards to make ends meet; credit cards have been a discreet lifeline for families in financial distress. Today, the average family owes roughly $8,000 on their credit cards.
This debt has helped generate record profits for the credit card industry – last year, more than $30 billion before taxes. The biggest profit maker for the credit card industry is the revolver – the revolver is the customer who carries credit card debt. The least profitable is the deadbeat – he is the customer who pays off his debt every month and therefore credit card companies do not earn any income in terms of interest or late payments. The 3 major companies that provide credit reporting services are Experian, Equifax and Transunion. A consumer’s creditworthiness is judged by his FICO score.
FICO, a method developed by the Fair Isaac corporation is a score used by most lenders to determine the credit worthiness of a consumer. The higher the FICO score, the more creditworthy is the consumer. 35 percent of the FICO score is based on the consumer’s payment history, 30 percent of the score is based on outstanding debt, 15 percent of the score is based on the length of time the consumer has had credit, 10 percent of the score is based on new credit and 10 percent of the score is based on the types of credit the consumer currently has.
Credit scores range between 300 and 850. As of March 2008, Experian gave a national average credit score of 692. Scores of 720 and above are considered good. References Obringer, Ann, Lee, How Credit Scores Work? FRONTLINE, introduction, November 2004 Clark, Josh. What is the average credit score and why?
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