Unit 5 Credit Project

By Yessenia Torres

Section 1 : The Basics of Credit

Credit is money you borrow to pay for things.

Forms of Credit include Student Loans, Credit Cards and Personal Loans.

A Lender is usually a bank that determines your Creditworthiness using a Credit Report from a Credit Bureau which provides a Credit Score. This determines if someone gets credit and how much they get.

Banks will charge Interest (Annual Percentage Rate or APR). The APR provides a more complete picture of the total cost involved in taking out a loan or credit card debt.

Costs include Interest and Fees for the Loan.

Benefits include getting money when you need it.

Section 2: Credit Cards: What you Need to Know

A credit card is an instrument through which you can make purchases and pay for them later. Materially, it is a plastic card, whose shape and dimensions have acquired a certain uniformity, although some brands have begun to change sizes and formats.

Annual Fees is what they charge you per year to use the card.

The Minimum Payment is what you have to pay every month. The bank calculates each month regarding your debt and determines the minimum amount you should pay. If you just pay the minimum, you will be charged interest on your purchases and delay paying off your balance. If you don't pay the minimum payment, they could cancel your credit.

You can use credit cards to pay for goods and services at convenience stores, department stores, pharmacies, hospitals, etc. You can also make purchases via the Internet or by phone, make hotel reservations, arrange cash at ATMs, pay services automatically for your cell phone, cable services, and other.

Credit card companies will set credit limits which means you will have a maximum balance that you can go up to for purchases. Credit limits are based on your approval from an application that includes your income and monthly expenses. Credit card companies may set the limit higher than what you can afford.

The benefits of using Credit Cards can be used to purchase goods and services that you need at this time but cannot afford at the time, like short-term emergencies. It may be more convenient than cash in certain situations, such as car rental, hotel booking, travel tickets, etc.

Some creditors provide you benefits such as insurance when renting a car, miles, discounts, etc. that are granted when you use your credit card.

Using a credit card is the most convenient method of payment either physically, by Internet or telephone.

The cost of using credit cards are fixed fees that you are charged if you don't pay the minimum payment, send in a late payment, or go over your credit limit or maximum balance. You can reduce or avoid fees with good use of your card.

Remember that the interest paid for the debts of credit cards are the highest of all funding (rather than bank loans). The over-the-limit fee may apply if the outstanding balance exceeds your credit limit.

Section 3: Shopping for Credit

Capital One Visa vs. Discover Card

Capital One Visa

Capital One is a branch bank founded in 1933 and headquartered in Mclean, VA. It operates 840 branches in 9 states.

Higher Fees than competitors

Higher Checking & Savings Account rates than other banks

More Branches per state than most national institutions

Fewer ATMs per state than comparable institutions

Based on its fees, size, and account interest rates, this bank receives a Smart Rating of 96 out of 100, which is better than the average of 94 for a national bank.

Discover Card

Discover is an online bank founded in 1911 and headquartered in Greenwood, DE. It offers its products and services exclusively online or over the phone. This bank is a good choice for those who prefer paper-free banking and no face-to-face interaction.

Based on its fees, size, and account interest rates this bank receives a Smart Rating of 96 out of 100, which is about equal to the average for an online bank.

Fees are lower than competitors

Savings Account has higher rates than other banks

Nationwide reach as an online institution

Section 4: Smart Consumers: Don't Fall into the Credit Card Trap

You should avoid using credit cards for every day expenses. You should only use credit cards in an emergency. if you charge too much, you will have to pay extra money in fees and interest. You may also get into credit card debt and have trouble getting out of it.

You could also get a bad credit rating because of overcharging so then when you go to buy a car or house, you will have to pay a higher interest rate for a loan or lose out all together in getting what you want.

Credit cards can be helpful when you need the money but can you hurt you if you are not careful with your money.