Topic 6: - Coggle Diagram
People use credit cards in both face-to-face transactions and at a distance.
They are offered by a range of providers including banks, building societies and finance companies. The main brands are Visa and MasterCard.
Four parties are involved:
- The cardholder
- The merchant
- The merchant's bank (acquirer)
- The cardholder's bank (issuer)
The card verification value (CVV) are the last three digits on the signature panel on the back of the card to identify the person as holding a genuine card.
Low APR cards:
Credit cards that offer a long-term low APR such as 7% and are only available for people at a certain level or income or with a good credit history.
0% introductory APR and handling fee on balance transfers:
Cardholders who have a large balance can transfer the amount they owe from one credit card to another one, usually with a different provider.
The new card issuer pays the cardholder's debt with the old card issuer.
These cards give the cardholder back a percentage of all transaction made on the card as cash. That percentage varies from card to card and may be subject to certain rules, for example 2% on all purchases or 5% on purchases at certain merchants.
Some credit cards offer reward schemes such as points that cardholders can use to get discounts off their shopping or on gift vouchers.
Charity donation cards:
People can use charity credit cards to donate to a particular charity when used.
First credit cards:
People who have never had a credit card before are likely to be offered a higher APR and lower credit limit than people with a history of repaying debt on time as the issuer does not know how the new credit cardholders will manage their borrowing.
Cards with low costs for foreign transactions:
When people use credit cards abroad, some issuers charge a foreign transaction fee.
Black credit cards:
These premium credit cards are offered to people on higher incomes and have high credit limits. They also offer travel insurance and entry to exclusive airport lounges.
Enables people to borrow from their current account provider by withdrawing more money from the account than they have paid in. They only apply to current accounts.
It is sometimes known as 'going into the red' as balances are written as negative. Having a positive balance is known as 'being in the black' because it's written in black ink
Costs of an authorized overdraft can vary from zero to 40% APR up to the agreed limit.
The interest rate offered to account holders for agreed overdrafts varies 'subject to status', or in other words, depending on the personal circumstances and credit history of the borrower.
Ways for account holders to avoid the costs of an overdraft's high interest rate:
- They could sign up for an alert service from their bank that sends a text message when the account balance is below a set amount or a large transaction has been received for payment
- They could regularly check their account balance
- They could choose a basic bank account as their current account without an overdraft facility
The cost of borrowing:
The interest rate and the fees that providers charge borrowers, where they must quote the cost of the Annual Percentage rate (APR) for credit card borrowing and personal loans.
Standard measure that includes the interest rate and certain charges to show the true cost of borrowing.
Comparing APRs enables borrowers to work out which product is the cheapest option.
People take out personal loans to be able to pay for expensive items now and spread the cost of repayment over the years.
Typical items to buy with personal loans are cars, home improvements, audiovisual equipment (TVs for example) and large electrical goods such as ovens.
When people apply to borrow money, provider check their credit history which is the record of borrowing and repaying money. The agencies that record it are: