Credit Cards
I. CREDIT OVERVIEW
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.
II. WHAT IS A CREDIT CARD
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
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.
II. WHAT IS A CREDIT CARD
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
References: http://www.pkwy.k12.mo.us/homepage/chertlein1/file/Understanding_Your_Credit_Card_Essentials_info_sheet_7%281%29.4.2.F1%5B1%5D.pdf 2http://www.staff.fcps.net/tbretz/documents/Money%20skills/Understanding_a_Credit_Card_Lesson_Plan_1.4.1.pdf 3 http://www.fdic.gov/regulations/examinations/credit_card/pdf_version/ch2.pdf 4 http://www.360financialliteracy.org/Topics/Credit-and-Debt/Credit-Cards/Advantages-and-Disadvantages-of-Credit-Cards -------------------------------------------- [ 1 ]. http://www.pkwy.k12.mo.us/homepage/chertlein1/file/Understanding_Your_Credit_Card_Essentials_info_sheet_7%281%29.4.2.F1%5B1%5D.pdf [ 2 ]. http://www.staff.fcps.net/tbretz/documents/Money%20skills/Understanding_a_Credit_Card_Lesson_Plan_1.4.1.pdf [ 3 ]. http://www.fdic.gov/regulations/examinations/credit_card/pdf_version/ch2.pdf [ 4 ]. http://www.360financialliteracy.org/Topics/Credit-and-Debt/Credit-Cards/Advantages-and-Disadvantages-of-Credit-Cards