Credit card eZine at CreditCardSpecialist.com
immediate credit card care
Credit Card eZine - News and Articles about Credit Cards

Credit Card eZine - News and Articles about Credit Cards

Get even more information on credit cards? Read our Credit Card eZine. The section is regularly updated by our specialists. Learn all the financial tricks. Know the pitfalls and hidden bonuses. Find out how to transfer balances and accumulate points. We will tell you about the latest offers on the market.Get your credit card education and make the most out of your plastic.

Creditors and Credit Card Deals

2007-05-10

Creditors and Credit Card Deals

Credit card deals are deals made between a consumer and a credit card company. These deals are populated with legal jargon much in the same way that traditional loan agreements are, but the difference is in the fine print.

Historically speaking, credit card deals haven’t been around for a particularly long amount of time. They’ve only been around for about half a century and before that time period the only way to get money up front (in other words, the only way to borrow money at all) was to get a traditional loan from a bank.

Under the agreement of this loan, you took out money and put up something as collateral against the loan. After a certain amount of time (referred to in credit terms as a grace period) passed by, you were required to start paying the loan back and usually with interest. If you were unable to make the loan payments, then the lender took whatever it was you had put up for collateral. It was a simple arrangement and one that served to give both the lender and the debtor something they needed.

The only problem with these types of arrangements is that if a person needed money right away in a specific situation, they were stuck.

Enter the first great credit card deals to be created. These were done primarily by banks looking for additional ways to make money and they did so via a system where they would extend instantaneous credit to certain customers in exchange for customers paying them back with interest of a higher level than they required for traditional loans.

These primitive credit card deals were very satisfactory to the consumer because it allowed them to get money quickly and not have to use collateral and they were also satisfactory to the credit card company (which really at that time was a bank, specific credit card companies did not exist at the time) because it allowed them to make a higher amount of interest.

Since then, new credit card deals have sprouted up all over the place; some of them bad credit card deals, some of them good credit card deals and some of them great credit card deals. Nowadays though, with the existence of the credit reporting agencies and the easy access that a credit card company has to your credit rating, creditors look at customers differently. To understand how creditors work, you need to understand how creditors think.

The only way to do that is to read their literature. At least that is the only way to do that in a specific sense. In a general sense, the rest of this article is devoted to giving you a good introduction as to the thought processes of the typical credit card company.

Creditors Look for Capacity
If you are a credit card company, what are you most interested in doing? The answer is preserving your bottom line and expanding your bottom line. In order to do the latter, credit card company representatives seek out people that are likely to generate a lot of interest over time with high balances and low payments.

In order to do the former, credit card deals are created that reach out to people with a good credit history – these are the people that have in the past and do in the present demonstrate capacity and these are the people that creditors frequently search for.

What is capacity? Well, simply put, it is the ability of a consumer to repay debt that they incur. When creditors judge capacity of a person trying to make new credit card deals, they look at their current employment income as well as other sources of income. They look at how steady their employment (or other source of income) is and they try to gauge how much of that income flow is not already tied up in other expenses.

Creditors Look for Character
If you’re a credit card company, you want people that are likely to pay back their debts. And right here is where credit rating comes in big time. If you have an excellent credit history, then the creditor knows that it is in your character to pay back the money you borrow.

If you have poor credit, then likewise the credit card company might suspect that your character is suspicious. They might suspect that you have no intention of paying back the money that you borrow or even if you do it might make them go back and look at your capacity in more detail.

Whenever people talk about credit scores and credit rating, they are talking about character. While capacity can also be judged from a credit rating, it is more so used to look at character. So much so, that the two at times can almost be considered to be analogous terms to each other.

Creditors Look for Collateral
While this doesn’t apply so much to credit card deals as it does to other forms of credit, it is still worth mentioning. A credit card deal is essentially an agreement between you and a credit card company saying that you are willing to take on a higher interest rate in exchange for not having to put up any collateral on the credit that you draw.

To a credit card company, it’s a little bit like an investment. Lending out money without requiring collateral is a much riskier proposition because of the risk of getting nothing should the debtor default on the loan. In order to make this higher risk worth it for the credit card company, they need a higher reward. That higher reward is a higher interest rate.

Other forms of credit still use collateral though and if you have collateral that you can put up against the loan, you are much more likely to get the loan than someone who does not possess any collateral. Even if you get the loan without collateral, just like with a credit card deal, chances are that the interest rate for that loan is going to be much higher because of the lack of collateral.

This is a very short introduction into the insight of a typical creditor. Credit card deals and especially good credit card deals are hard to come by if you don’t possess capacity and character. More so than capacity and character it is important to have the impression of capacity and character.

That is to say, the credit card company must think that you have enough capacity and enough character before they are willing to do business with you. If they suspect either one, they might try to make you sign one of their bad credit card deals and that could end up being bad for you.

To find out in more detail the thought processes that your specific creditors go through, go and talk to them directly. Different creditors think differently and the only way to know for sure is to ask.

Share Opinion:
del.icio.us   digg   Furl   YahooMyWeb   Propeller   Reddit   Google
Comments not found
 

If you have something to say, please leave your comments below.

Your Name: *
Your Email:
Your Comment: *

Enter Number from Picture: * number

* - Required Fields Add Comment
[05:14:53 AM Thursday, November 06, 2008]
Good news for American borrowers - this Wednesday major U.S. banks began lowering their prime interest rates in tandem with the Fed fund rate reductions. The prime interest rate has dropped to a four-year low 4.0 percent from 4.50 percent. The prime rate is the most common underlying index for most credit cards and other loans. It means that banks and lending companies can lower interest rates to their best customers. JPMorgan Chase and Bank of America were the first to announce lending rate cuts, other banks are likely to follow this trend.
Comments (0)
[04:53:37 AM Thursday, October 16, 2008]
According to the latest survey conducted by Standard and Poor's, American consumers experience difficulties when managing their personal debts. Due to economic hardships such as falling home prices and rising inflation, more and more consumers turn to credit cards. But the problem is, plastics are mostly used as the source of cash, rather than its substitute. About 10% of US consumers make more cash withdrawals to receive cold cash and it leads them to heavy debts. Read more about credit debt and the ways to reduce it!
Comments (0)
[05:55:46 AM Monday, September 29, 2008]
Judging by the results of a new report, the number of contactless card users grows steadily. More and more customers take advantage of so-called wave cards that enable users to swipe their plastics over the reader and thus speed up the process of making new purchases with a card. The great thing about these plastics is that the transaction takes no more than half a second.
The study shows that over 90% of contactless card users find the process fast and easy. In addition to that, customers are satisfied with the acceptance of these plastics at various merchant locations.
Comments (1)
[06:22:57 AM Thursday, September 18, 2008]
Those people who start building their credit history from scratch know how important a FICO score is. Weird as it may sound, but this three-digit number that can range from 300 to 850 seems to play a great role in our financial lives. You could be a good, excellent or a bad cardholder depending on this very score.
Your FICO score is used by a vast majority of lending institutions to estimate your trustworthiness and their risks. And what's more importantly, interest rates and fees on the loans you apply for will be set on strength of your score rating. No wonder why every credit user tries to build a high score rating. By knowing how your card use affects your score rating, you can establish and maintain good credit and get best rates on offer.
Comments (0)