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10-4 Credit CH 10]

With credit cards, credit is extended to consumers prior to their buying goods and services.
For the consumer applying for credit, their credit rating is checked and approved by the
merchant or bank. The credit rating is based on prior credit arrangements, the amounts
borrowed, were payments met, the number and timing of delinquent payments and defaults on
payment. The credit card is issued and generally has a set limit for purchases which initially are
between $500 and $1,500. This amount can be increased with payments being met and
purchasing habits that demonstrates the trust worthiness of the card holder.
Merchants typically issue credit cards that are accepted only in their business or by their
agents. Retail merchants often work with banks, such as Citi, Chase, Wells Fargo and Bank of
America in issuing their credit cards. Some merchants establish their own finance department to
handle their credit transactions. Merchant examples include Lowe's, JC Penney, Home Depot,
Amazon, Macy's, Southwest Airlines, and American Airlines.
The two most popular bank credit cards are VISA and MasterCard. These enable consumers
to buy goods and services from thousands of businesses and to borrow money from specific
banking companies located all over the world.
The balance shown on a credit-card statement should be paid in full within a specific
number of days after the billing date to avoid finance charges and late fees. The number of days
for paying the account without causing such fees is commonly 25 or 30 days from the billing
date. The due date may be shown on the statement form. If the balance is smaller than a specific
amount, often $20, it is to be paid in full. For larger balances a minimum payment (perhaps 5%
of the balance rounded up to the next $5 or a minimum of $20, whichever is larger) is to be paid
by the due date.
Understand that using credit cards is a business act and those engaged in business make a
profit from your credit card activity, which is why a great deal of advertising is spent on
consumers using credit cards. Lender profit is derived from late fees, finance charges of card
holders and discounts paid by merchants on their credit sales. Managing your credit is important
to you for your credit standing and managing your personal funds. Some debt can be tolerated
such as for the purchase of real estate or equipment to improve business activity. Still too often
frivolous spending occurs that only gives satisfaction to the card holder. Too much debt becomes
a burden.
If you overextend yourself with credit debt it becomes difficult to pay. Solomon reminds us in
Proverbs 22:7,
“The rich rules over the poor, and the borrower is the slave of the lender.”
When Solomon wrote this, poor debt management wasn’t as prevalent as it is today. As for
borrowing, the borrower is the slave of the lender, so is it worth being enslaved by debt over a
The Ashley certain number of years, regardless of what it is you did buy? It is not that the lender is a bad
Advantage™ Credit fellow, rather it is the borrower who places himself in a difficult position by failing to properly
Card. For new manage and limit their borrowing and spending. The borrower tends to forget that credit
accounts: Purchase purchasing is not free money.
APR is 29.99%;
Minimum Interest Finance Charges are on the Previous Balance. The finance charge is the cost of money.
Charge is $2. The Finance amount charged is billed against the previous months balance for the account and
Existing cardholders
should see their is calculated on the billing date of the preceding billing period. The finance charge on credit card
credit card balances can vary from 0% per month to 2.5% per month. A monthly rate of 1% is equal to an
agreement for their annual rate of 12% (1% x 12 months) whereas, a monthly rate of 1.5% equals 18% per annum. A
applicable terms. monthly rate of 2.5% equals a 30% interest rate annually. The Ashley Advantage™ Credit Card,
Subject to credit
approval. We Ashley Furniture, offers the new customer on a 48 month payment account an interest rate of
reserve the right to 29.99% per annum, which is 2.5% per month, and a minimum interest charge of $2. Currently,
discontinue or alter most monthly rates range from 1.5% to 2%, which are annual rates of 18% to 24%. The following
the terms of this offer example illustrates computing finance charges as a percent of the previous balance.
any time.
Referenced
4//1/2019 at https:// Example: Juliet Twite’s charge account shows a beginning unpaid balance of $425.60. She
www.ashleyfurniture. made monthly payments of $55, $70, and $85. The finance charge is computed
com/financing/ at 1½% a month on the previous balance, which means that the card carries an
(12 mo/yr x 1½%/mo =) 18% annual interest rate. Show (a) the finance charge
for the third month and (b) the unpaid balance after the third payment.

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