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8/20/2019 Credit cards.pptx
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Credit Cards
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HISTORY:
The concept of using a card for purchases was described in1887 by Edward Bellamy in his utopian novelLooking Backward. Bellamy used the term credit card eleventimes in this novel, although this referred to a card forspending a citien!s dividend rather than borrowing.
"uring 1#1$, a number of oil companies in %nited &tates issued'rst card to their customers for the purpose of gasoline , oil andaccessories at the companies( stations, )estern %nion had begun issuing charge cards to its fre*uentcustomers in 1#+1
n 1#-, the "iners( /lub nc , was the 'rst company to issueall0purpose card.
The ran2lin 3ational Ban2 of 3ew 4or2 was , in 1#-1,the 'rstban2 in %nited &tates to adopt a credit card and later on5merican E6press /ompany , Ban2 of 5merica etc..
http://en.wikipedia.org/wiki/Edward_Bellamyhttp://en.wikipedia.org/wiki/Looking_Backwardhttp://en.wikipedia.org/wiki/Citizen's_dividendhttp://en.wikipedia.org/wiki/Western_Unionhttp://en.wikipedia.org/wiki/Western_Unionhttp://en.wikipedia.org/wiki/Western_Unionhttp://en.wikipedia.org/wiki/Western_Unionhttp://en.wikipedia.org/wiki/Citizen's_dividendhttp://en.wikipedia.org/wiki/Looking_Backwardhttp://en.wikipedia.org/wiki/Edward_Bellamy
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Defnition:
“A small plastic card that allows its holderto buy goods and services on credit andto pay at fxed intervals through the cardissuing agency.”
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)hat is /redit
Credit – 5ny situation in whichgoods, services, or money arereceived in e6change for a promise
to pay a de'nite sum of money ata future date.
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)hy 9eople %se /reditor /onvenience
or Emergencies
or denti'cation
To :a2e ;eservations
To /onsume E6pensive 9roducts &ooner To Enife
To Ta2e 5dvantage of ree /redit
To /onsolidate "ebtsor 9rotection 5gainst ;ip0?@s and
rauds
To ?btain an Education
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:echanism of /redit cardoperation/ustomer applies and gets the credit card5rrangements are completed bAw the ban2er
and seller
The customer ma2es the actual purchases and
signs on the sale vouchers. The seller sends the detailed vouchers to the
ban2.
The ban2 settles the claims of the seller
The customer receives the intimation from theban2 in this regard.
The customer ma2es the payment for thepurchase made by him.
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The /redit 5pproval 9rocess5pplying for /redit
Credit Application – orm or interview thatre*uests information about ability to repay debts.
Credit Investigation C /onducted by the lenderand used to assign a credit rating to the
applicant.Credit Rating C The lender(s evaluation of the
applicant(s creditworthiness.
Credit Report C 5 person(s credit history as
reported by a credit bureau.Credit Bureau C /ompany that gathers credit
behavior information about consumers fromlenders and sells reports on a credit applicant.
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The /redit 5pproval 9rocess The/redit nvestigation Dcontinued
Credit Scoring (or Ris Scoring! – &tatistical measure used to rate applicantson the basis of factors deemed relevant tocreditworthiness and li2elihood of repayment.
◦ Fs Dworst to 8s Dbest
"e# $actors
◦ 9ayment history
◦ 5mounts owed◦ >ength of credit history
◦ Ta2ing on new debt
◦ Types of credit used
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The /redit 5pproval 9rocess The5pplication "ecision
The lender decides whether to acceptthe application and under what terms
Credit Agree%ent (or &ote! C?utlines the rules governing theaccount.
Tiered 'ricing C >enders may o@erlower interest rates to applicants withthe highest credit scores while
charging steeper rates to more0ris2y
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Building a /redit Gistory
Establish both a chec2ing account and asavings account.
Gave your telephone and other utilitiesbilled in your name.
;e*uest, ac*uire, and use an oil0company credit card.
5pply for a ban2 credit card.
5s2 a ban2 for a small short0term cashloan.
9ay o@ student loans.
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/redit /ard 5ccounts
ini%u% 'a#%ent C must be madeeach month to cover interest and asmall payment on the amount owed,if the borrower revolves a balance.
'rincipal C the amount owed.
De)ault C the borrower has failed to
ma2e a payment of principal orinterest when due or has not metanother 2ey re*uirement of a creditagreement.
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Ban2 /redit /ards
Ban Credit Card Account – anopen0ended account at a 'nancialinstitution that allows the holder to
ma2e purchases almost anywhere.Cas* Advance C a cash loan from
a ban2 credit card account.
Convenience C*ecs Ccustomers can use these chec2s ascash advances to ma2e payments
to others.
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Ban2 /redit /ards D/ontinued
Balance Trans)er – a payment isused to ma2e a payment on anothercredit card.
'restige Card C o@er enhancementsand re*uire that the user possesshigher credit *uali'cations.
A+nit# Cards C standard ban2 cardswith the logo of a sponsoringorganiation imprinted on the face ofthe card.
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&ecured /redit /ards
Secured Credit Card Dor/ollateralied /redit /ard C Bac2edby collateral in the form of a savings
account opened at the 'nancialinstitution that issues the card.
Example:
Deposit $1,000 with creditor toborrow $1,000
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Travel and Entertainment/ardsTravel and ,ntertain%ent(T-,! Cards C 5llow holders toma2e purchases at numerous
businesses, but the entirebalance charged must be repaidwithin F days.
•
American Express• Diner’s Club
• Carte Blanche
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/redit /ard &tatements
Billing Date0 D&ometimes called the/losing "ate or &tatement "ate is thelast date of the month for which anytransactions are reportedH this is
generally the same date each monthDue Date. "ate, speci'ed by credit
card company, of when they shouldreceive payment
◦ The period between the billing date anddue date is usually about +0+- days
◦ )atch the 'ne printI DE6ample ti%e of
payment
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/redit &tatementsD/ontinued
Transaction and 'osting Dates0 "ate onwhich the credit card holder ma2es apurchase or receives a credit
/race 'eriod C Time period between theposting date of a transaction and the duedate, within which any new credit cardpurchases made during the billing cycle will
avoid 'nance charges.ini%u% 'a#%ents0 To meet hisAher
obligations, a cardholder must ma2e aminimum payment each monthH 'nance
charges are assessed thereafter
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5dvantages of credit card
Bene'ts to the ban2Bene'ts to the
customerDcardholder
Bene'ts to the retailer
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Bene'ts to the ban2
?pportunity to attract customersBetter pro't for the ban2s out of
commission earned from trade
turnover5dditional customer
services,enhancing customer
satisfaction3ational business growth and
ban2ing habits
9opularity of the ban2
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/ontinued..
Gigh customers into ban2 byintroducing various types li2e=old card,E6ecutive card.
/reates brand name and popularimage of ban2
ncrease interest income for ban2
by availing loan through cards;educes credit ris2 C'nancially
screened
ncrease ban2ing relationship
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Bene'ts to cardholder
9urchase goods and services at a largenumber of outlets without cash or che*ue .
;educe handling charges of ban2.
ree credit bAw F0- days of purchase
%sed as identi'cation
E6tending credit .
9roof of spending.
&ingle paymentree insurance ,discount on purchase.
&tatus symbol
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Bene'ts to retailers
Gigh status weightage to outlets.ncrease in sale
3o botheration of bad debts
Timely payments
&ystematic accounting
>ess customer problems
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9ro'tability
Jalue of the average transaction;ate of merchant discount
/ost of ban2 money
/ost of processing;ate of cardholder service charge
5verage pattern of repayment
>oss from bad debts and fraud.
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"isadvantages
?nly few outlets accept credit cards&ome transactions ta2e longer time.
/ustomer tend to overspend
"iscounts and rebates are rare/ardholder is responsible for loss or
theft of card
"enial of discounts Cpayment through
card
>ead to e6travagant spending habitsand end up in big debts.