Consumer Financing Credit Card

consumer Credit CARDs are basic to Your FINANCIAL LIFE

Your financial situation is different from anyone else. You should take the time to review this consumer financing credit card debt options guide to find the best solution for your needs and goals.

What Is A Consumer Credit Card?

Probably the most revolutionary consumer financing service has been the advent of the consumer credit card. A consumer credit card is a card that allows you to borrow money against a revolving line of credit, known as the card’s credit limit.

Credit cards offer convenience, consumer protections and a quick way to build your credit history. Depending upon how you use them will affect your credit and your ability to borrow money in the future.

A Consumer Credit Card Is

A Credit Card Is

A consumer credit card is a card that allows you to borrow money against a line of credit, known as the card’s credit limit.

  • A convenient way to pay If you need to make a purchase, whether large or small, you don’t need to carry much cash with you.  However, not all businesses accept credit cards, so cash should always be in your pocket.
  • A convenient means to build your credit history – Depending upon how responsible your use of credit cards will determine whether it is positive for your credit history.
  • Generally a secure payment method – For purchases and payments, the credit card issuers provide you a variety of fraud and warranty protection.  This is particularly important for electronic payments, where cash is not an alternative payment option.

A Consumer Credit Card Is Not

A Credit Card Is Not

A consumer credit card is not a substitute for cash, nor is it free money.  When you use a credit card, you now have a debt with the card issuer that you need to pay back.

  • A bank debit card – When you use a bank debit card to make a purchase, the funds are immediately taken out of your bank account.  However, with a credit card,  you are borrowing money from the card issuer, that needs to be repaid later.
  • An ATM card – You use your bank debit card to access an ATM to review and withdraw funds from your account.  You can also use a credit card at an ATM to get cash, but you pay additional costs, known as cash advance fees.
  • A conventional loan – Your card issuer does not transfer a fixed amount of money to you in advance.  When you make purchases using the card is when you then owe the issuer money.
  • Money Without Limits – Your credit card comes with a credit limit, the maximum amount balance you can carry on your card.

Types Of Consumer Credit Cards

Standard credit card

These consumer credit cards are the most common and are available from most banks and financial groups. They are unsecured, which means you do not have to put down a security deposit to prove the money can be repaid. The annual percentage rate (APR) for these cards varies.

  • Low Interest Rate – Low interest credit cards offer a single low fixed-rate APR or a low introductory APR that jumps to a higher rate after a certain period.
  • Balance Transfer – Balance transfer credit cards allow you to transfer a high interest credit card balance onto a low interest rate card.
rewards Credit Card

Reward credit cards allow you  to earn incentives when you make purchases with your credit card.  Points accumulate for each dollar charged on the card, and cardholders can redeem these points for various rewards.  These types of consumer credit cards normally require better-than-average credit for approval.

  • Cash Back – This type of credit card allows you to earn cash rewards for making purchases.  Most cash back cards will earn you around 1 percent of your total purchases.
  • Reward Points –  When you make purchases you accumulate points toward a reward structure based on how much the card is used over time.  These cards allow you to cash points in for: gift cards, electronics, hotel stays, plane tickets, etc.
credit repair card

This type of consumer credit card is designed for those who do not qualify for a standard credit card due to bad credit and for those that are trying to repair or establish their credit.

  • Secured – A secured credit card requires collateral for approval. A security deposit of a predetermined amount is needed in order to secure (guarantee) payment of the credit card.  The security deposit generally needs to be of equal or greater value than the credit limit.
  • Prepaid – This type of card provides the cardholder the flexibility of acceptance and use like a conventional credit card.  A  prepaid card does not have any finance charges and, similar to a bank debt card, they help you avoid debt since all purchases are paid in advance.  The credit line is determined by transferring the amount of money you would like to have available to spend to the card.
specialty credit card

Specialty credit cards are for consumers with unique needs for their credit use, such as business professionals and students. These credit card programs are designed specifically to meet the needs of those individuals.

  • Business – These cards are designed for business owners and executives and are similar to standard and reward credit cards.   These cards come with business specific benefits such as expense reporting, rewards programs, higher credit limits, etc.
  • Student – Since most college students have little or no credit history, it is difficult to get approval for a standard credit card. Student credit cards are specifically designed for students enrolled in accredited four-year colleges and universities to help start building a credit history.

Billing Cycle | Billing Statement

Billing CYCLE | Statement

The billing cycle for a consumer credit card is the period of time between billings. A billing cycle may start on the 1st day and end on the 30th day of the month. Or, it may go from the 15th of one month to the 15th of the next. Credit card billing cycles are varying lengths, usually ranging from 27 to 31 days..

Your billing statement will include the balance at the beginning of the billing cycle (carried over from the previous month). It will detail credit card charges and payments as well as credits and fees made to your account during the billing cycle.  Fees and charges are added to the current balance, while payments and credits are subtracted to come up with your current balance.

Credit Card Interest Rates

Interest Rates

Consumer credit card Interest is money you pay to your card issuer as a fee for borrowing money or delaying payment on your purchases.

If your credit card has an annual percentage rate (APR) of 18%, this does not mean that you are charged 18% interest once a year. Instead, your interest is calculated on a daily basis of the card balance. And interest is only charged if you carry debt from one billing cycle grace period to the next.

Some credit cards have a single APR for all customers.  Others have a range, for example, 13% to 23% based on your creditworthiness. The better your credit, the lower your APR.

You have control over some of the factors that determine your credit card’s interest rate:

  • Pay your card balance in full every month to avoid interest.
  • Make more than the minimum payment if you can’t pay your bill in full.
  • Make more than one payment per month to reduce your average daily balance.

Credit Card Fees


Consumer credit card issuers charge cardholders a variety of fees as part of their credit card business model. You should pay close attention to these fees that are documented in your card agreement. Many of these fees you can avoid, as long as you know what they are and when they are applied.

  • Annual Fee –  Is a yearly fee charged for the convenience of having a credit card. Some credit card issuers waive the annual fee for the first year.
  • Balance Transfer Fee – A fee charged for balance transfer transactions, where you move a balance from one credit card to another.
  • Cash Advance Fee – Is charged whenever you make a cash advance or an equivalent transaction.
  • Expedited Payment Fee – A fee charged when you need to make a last-minute credit card payment by phone to avoid being late.
  • Finance Charges – The monthly interest charge added to your account for the convenience of carrying a credit card balance beyond the grace period.
  • Foreign Transactions Fees  – Are charged when you make a purchase in a foreign currency.
  • Late Fee – A fee charged any month that your minimum credit card payment isn’t made by the due date.
  • Returned Check Fee – A fee is charged when your bank returns your credit card payment check due to insufficient funds.

Credit Card Revolving Credit

Revolving Credit

A revolving line of credit, in credit card terms, refers to the card issuer offering a certain amount of always available credit to the cardholder for an open-ended period of time. The cardholder repays a portion or all the debt (credit card spending) monthly and can be borrowed again once it is repaid.

If you do not pay off the entire amount borrowed at the end of the month, you revolve a balance, and the card issuer will charge you for the privilege of borrowing their money. The amount of the charge for revolving a balance will depend on the size of the balance and the interest rate of the card. When the balance is paid off, you are no longer revolving the debt.

Card Network Versus Card Issuer

The electronic processing of consumer credit card transactions requires an extensive world-wide network infrastructure. The purpose of credit card networks is to control where consumer credit cards can be accepted (merchants) and to facilitate transactions with the credit card issuers.

There are four major credit card networks:

  • VISA
  • Mastercard
  • American Express
  • Discover

A credit card network sets the interchange or “swipe” fees that merchants are charged to accept a credit card transaction. Merchants receive their credit card payments from their acquiring banks. The acquiring banks send the purchase transactions via the credit card network to the issuer banks. The issuer banks charge interchange fees for processing the credit card purchase. The credit card networks receive a portion of the interchange fees, the remainder then goes to the acquiring banks. Ultimate the merchant is charged a commission for processing the credit card purchase.

The “issuer” is the bank or credit union where you receive your consumer credit card and financially backs the card. Example of issuer banks would be Chase, Capital One, Citi, and Bank of America.

Visa and Mastercard are part of the credit card network and do not issue credit cards to consumers.

The issuing bank of a credit card is in charge of:

  • Approving or denying credit card applications.
  • Setting the terms and most of the benefits on the account.
  • Paying for transactions on behalf of the cardholder.
  • Collecting payments from the cardholder.
  • Providing customer service.

Although consumer credit card networks and credit card issuers serve entirely different purposes, there is no rule that prevents a company from both processing and issuing credit cards. As an example, both American Express and Discover are both credit card networks and credit card issuers.

Credit Scores & Credit Cards Are Related

credit SCOREs

A credit score is a statistical summary of the information contained in a consumer’s credit report usually graded on a scale ranging from 300 to 850. Your credit score represents your financial reputation. It is used by lenders, landlords, employers and others to determine your level of credit risk, responsibility, and overall character.

Credit scores are calculated using information in your credit reports, including your payment history, the amount of debt you have, and the length of your credit history. Higher scores mean you have demonstrated responsible credit behavior in the past, which may make potential lenders and creditors more confident when evaluating a request for credit, like a loan or a credit card.

Here is a general look at credit score ranges:

  • Excellent – 800-850
  • Very good – 740-799
  • Good – 670-739
  • Fair – 580-669
  • Poor – 300-579

Credit scores may vary according to the scoring model used and which credit bureau furnishes the credit report used for the data. That is because not all creditors report to all three three nationwide credit bureaus (Equifax, Experian and TransUnion). Some may report to only two, one or none at all. Also, lenders may also use a blended credit score from the three major credit bureaus.

Credit CARD

Each time you use your credit card to make a merchant purchase, when you make a payment or apply for a new credit card, your credit reports are updated.  How you use your credit card will be reflected in your credit reports and ultimately affects your credit score.

Your credit score is calculated only from the information in your credit reports. However, lenders may look at many things when making a credit decision, such as your income, length of employment, and the kind of credit you are requesting.

If you have good marks in each of the following categories, your credit score should be good.

Payment History (WEIGHT 35%) – Payment history is the most important part of any credit score. Any lender wants to know whether you have paid past credit accounts on time.

Amounts Owed (WEIGHT 30%) – Having credit accounts and owing money on them is an indicator of your spending habits and if you are likely to face serious future financial problems.

Length of Credit History (WEIGHT 15%) – In general, a longer credit history will increase your credit score.

Credit Mix (WEIGHT 10%) – This category measures your mix of credit accounts (credit cards, retail accounts, auto and mortgage loans) and how recently you have used them.

New Credit (WEIGHT 10%) – This category emphasizes your recent financial performance.  It is one of the best predictors of your future financial activities.

Should You Get A Consumer Credit Card?


Like other financial tools and services, consumer credit cards come with many advantages and disadvantages.  Let’s look at the advantages:

  • Convenience –  Credit cards reduce the need to carry cash. Most retailers accept credit cards and are required for online electronic payments.
  • Purchasing Power –  Credit cards enable users to make expensive purchases they might not otherwise be able to afford.
  • Rewards –  Many cards offer rewards programs that will accrue points, discounts, or other benefits like frequent flyer miles.
  • Emergency Use – When you have an unexpected expense, credit cards can be the fast and easy solution you need.
  • Credit History –  Responsible use of a credit card over time improves your credit history and expands your financial options.
  • Track Purchases – The electronic record keeping of credit cards make it easy to track spending and identify fraud.

Let’s look at the disadvantages of consumer credit cards:

  • Overspending –  With a credit card, you are spending money you do not necessarily have yet. This can quickly lead to unexpected debt.
  • Interest | Fees –  When you use your credit card you are borrowing from the card issuer and assuming debt.  And this borrowing comes with a price (interest and fees) if not paid back completely and on-time.
  • Fraud –  Credit cards can be stolen, their numbers can be copied, and they can be used to steal your money and identity.
  • Indebtedness – If you cannot consistently pay off your credit card balance, you are living beyond your means.  Your outstanding credit card balance will progressively increase due to interests and fees, resulting in further debt.

Consumer Credit Card Terminology

The Annual Percentage Rate (APR) is a yearly representation of the costs involved in borrowing money. The APR includes both the interest and any additional fees related to the money you are borrowing.

You will find APRs with your auto loan, home mortgage, personal loan and your credit card. However, since credit cards are revolving unsecured loans, their APRs are somewhat different than the former.

A credit card can have several types of APRs based on how you use it. You should review your credit card user agreement to understand the annual costs.

Purchase APR – Is the interest rate charged on purchases when you do not pay off the card balance full and on time.

Penalty APR – Is the interest rate when you make a late payment or exceed your card’s credit limit.

Introductory APR – Is a special temporary interest rate offered as a promotional incentive for signing up.

Balance Transfer APR – Is the interest rate charged on balances moved from one card to another.

Credit cards have either a fixed or variable interest rate. The difference between the two is, under what curcumstances the card issuer is permitted to make an interest rate change, and whether you need to be notified in advance of the change.

A fixed interest rate generally remains the same the entire time you have your credit card. However the card issuer can change the fixed interest rate when:

  • You are more than 60 days late on your card payment.
  • Your card’s promotional rate period has ended.
  • You have completed a Debt Management Program.

The card issuer is required to provide you a 45-day advance notice before the change becomes effective. You have the option to opt-out of the interest rate increase, paying off your outstanding card balance at the lower rate.

A variable interest rate changes based on the movement of the market prime index rate. The variable interest rate is “pegged” certain percentage points higher (known as the “margin”) than the prime index rate. The credit card issuer does not need to inform you in advance of a change in the variable interest rate unless the margin portion changes.

A balance transfer is when you pay off the balances on existing credit cards or loans by transferring them to another credit card account. This is normally done at a lower promotional interest rate and is a traditional form of debt consolidation.

You can only transfer an amount up to your credit limit on the new card. The card issuer directly coordinates the payments to your current credit accounts based on your instructions when you sign up for the card. Normally you will be charge a balance transfer fee, fixed or a percentage of the balance amount.

The potential benefits of a balance transfer include:

  • The low APR balance transfer can help you catch up on your existing debt since your interest cost is lower.
  • A low APR balance transfer allows more of your card payments to your principal balance, cutting the time to reduce your debt.
  • Convenience of a single balance transfer payment after consolidating your other credit accounts.

A cash advance allows you to use your credit card to get a short-term cash loan at a bank or ATM. Think of it as using your credit card to “buy” cash rather than goods or services.

While it may be convenient when you are short of cash, it is quite expensive and should be avoided whenever possible.

A credit card cash advance is costly because of various expenses:

  • Cash Advance Fees – Your card issuer will charge a fee per cash advance, either fixed amount or a percentage of the cash advance.
  • ATM Or Bank Fees – These are imposed by the financial institution that handles the transaction.
  • Interest – There are two aspects you need to understand. First, the interest rate on cash advances is much higher than normal purchases. Second, there is no grace period, so interest starts accruing immediately.

  • Cash Advance Fees – Your card issuer will charge a fee per cash advance, either fixed amount or a percentage of the cash advance.
  • ATM Or Bank Fees – These are imposed by the financial institution that handles the transaction.
  • Interest – There are two aspects you need to understand. First, the interest rate on cash advances is much higher than normal purchases. Second, there is no grace period, so interest starts accruing immediately.

Selecting Your Consumer Credit Card

Your financial history will determine which types of credit cards offers and terms you qualify for. The higher your credit score, the more choices you will have.

If you have good to excellent credit you will qualify for standard and reward progam credit cards with low APRs.

With a fair credit score you credit card selection will be more limited, but they will come with a higher APR.

A poor credit score will require you to consider a credit repair card to rebuild your credit.

Your income is used by a card issuer to ensure that you have the ability to repay your credit debt. It is a major factor in the approval process. The higher your income, the more attractive the range of options of card APRs and features.

You do not necessarily have to be employed for approval of a credit card. The importance is that you have a consistent source of income.

If you are young, with little or no financial history, you will most likely need to start out with a secured or student credit card to establish your credit experience. After six months of use you will have established a credit history to allow for more attractive credit card options.

Otherwise your credit score and income will determine the types of credit cards available to you. Before applying, you should know what are the card issuer’s requirements to save time and avoid unnecessary hard credit checks that reduce your credit score.

If you are young, with little or no financial history, you will most likely need to start out with a secured or student credit card to establish your credit experience. After six months of use you will have established a credit history to allow for more attractive credit card options.

Otherwise your credit score and income will determine the types of credit cards available to you. Before applying, you should know what are the card issuer’s requirements to save time and avoid unnecessary hard credit checks that reduce your credit score.

Credit Repair | Identity Theft

Credit Repair | Identity Theft

Frequently Asked Questions

Financing Credit Card

Convenience – Credit cards are a widely accepted form of payment and relatively safe versus cash or checks.

Leverage – If you are not satisfied with a product purchase using a credit card, you normally have the option of canceling and refusing payment.

Interest free loan – Most credit cards have about a 25 day period where no interest is paid on the balance.

Emergency Spending – Credit cards provide a ready source of credit for unexpected expenses.

Expense Tracking – Your credit card purchase are monthly summarized for your review and budgeting.

A secured credit card means that a security deposit has been set up to guarantee payments using the credit card. The amount of your security deposit is the credit limit for the secured credit card. This type of card is used by those that need to establish a credit history of consistent, on-time account credit payments.

A grace period is the amount of time after a due date of a bill before late fees are applied.

A late bill payment needs to be 30 days old before it will appear on your credit report. However, even if your late payment does not appear on your credit report, you will likely experience late fees and interest charges.

Late payments (30 days or more after due date), collections and foreclosures will remain on your credit report for seven years. Bankruptcy judgements will remain on your credit report for ten years.

APR stands for Annual Percentage Rate, a term normally used with consumer loans. An APR includes the costs associated with obtaining the loan: interest rate, points, origination fee that you will be paying annually. The APR is used a means of comparison with like loan products.

This means that the issuer of the credit card has verified with a credit bureau that you meet its credit criteria and has pre-approved you as a quality candidate for its product.

However you will still need to apply in order to actually receive a new credit card. You may or may not be accepted once you have formally applied.

This simply means that the credit card issuer will make a quick decision about your application. Generally only those with good to excellent credit will receive rapid approval.

In the US, you need to be 18 years old to get a credit card using your credit history. You however can be listed as an authorized user by your parents.

There is a saying: “Everything in life is negotiable.” That also applies to your credit card interest rate.

If you have been consistently making on-time payments on your credit card for a period of time, it is worth a call to your credit card issuer to see if they can reduce the interest rate. It is a competitive market and it might be worth your card issuer to reduce the APR to not lose your business. If not, you might want to take advantage of an offer from another card issuer, since it is a competitive market.

Also you can consider opening a balance transfer credit card, with a lower interest rate, to move your existing credit card balance to the new card. You need to make sure that the balance transfer card, after the customary promotional period, offer you a competitive APR.

Credit cards offer much more protection against theft and fraud for online purchases. In case of a buyer dispute, the funds have already left your bank account. That is not the case if you use a credit card.

Keep your debit card for local purchases, when it is more convenient than carrying lots of cash. Use your credit card for online electronic payments.

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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