Category Archives: revolving credit

What are the Differences Between MasterCard, VISA and American Express

Posted on May 2, 2012 by admin

MasterCard, Visa and American Express are three popular credit card providers and it isn’t uncommon for consumers to carry one of each in their wallets. As a consumer you might not understand (or care) how credit cards work — as long as the transaction processes when you swipe the card’s magnetic strip. You might also assume that each credit card company works the same. However, different companies manage different credit cards, and interestingly, there are significant differences between MasterCard, Visa and American Express. MasterCard and Visa If you look for differences between MasterCard and Visa, you probably won’t find any. These two credit cards are very similar — and other than the fact that they’re managed by different networks — they are practically the same credit card. MasterCard and Visa are both intermediary companies between banks, financial institutions and merchants. These credit card companies create networks and allow banks and merchants to participate in these networks. MasterCard and Visa do not issue cards. In fact, you’ll never see credit cards with only the words MasterCard or Visa printed on them. Banks who join either network issue MasterCard and Visa credit cards to eligible applicants, as well as determine the interest rate and credit card terms. An example of banks that issue either card include CitiFinancial, Chase and Bank of America. It’s a multiple step process that begins when a cardholder makes a purchase with his Visa or MasterCard. The merchant that accept the credit card submits the payment request to his bank. The merchant’s bank then obtains funds from the bank that issued the credit card. Visa and MasterCard are unique because unlike other types of credit cards, both credit cards are widely accepted at locations worldwide, including 170 countries. American Express American Express is a credit card provider that functions differently from MasterCard and Visa. While banks are the primary issuers of MasterCard and Visa, American Express can issue its own credit cards. You can acquire an American Express credit card through a bank, but at the same time, you can request a card directly from the company. Examples of this include the American Express Green Card , the American Express Gold Card and the American Express Platinum Card . Another key difference between Visa/MasterCard and American Express involves the payment requirements. Visa and MasterCard are revolving credit accounts and banks that issue these cards allow cardholders to pay off their account balances over time. This isn’t true with the majority of American Express credit cards. While American Express does issue a revolving credit card, a large number of their cards are non-revolving and cardholders must pay their balances in full each month. Some consumers prefer MasterCard and Visa because many merchants do not accept American Express. For every transaction, merchants and banks pay a fee to Visa and MasterCard. This fee is relatively low, with Visa and MasterCard charging around 1.65% for their credit card purchases. Because American Express charges approximately 2.25% for each of their credit card purchase, some merchants opt out of joining their network and do not accept their cards. Continue reading →

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Consumer Credit Surges to Largest Level in Ten Years

Posted on January 12, 2012 by admin

On Monday, the Federal Reserve Board’s Consumer Credit Report revealed a 9.9 percent increase in the number of people using credit cards to finance purchases, in November 2011. Outstanding credit rose by $20.37 billion.  This figure represents the largest increase in any month during the last ten years.  It also raises the total outstanding consumer debt to $2.478 trillion. The numbers tie in to the start of the Christmas shopping season – historically the best time of the year for retail sales.  Over 72 percent of the increase or 14.8 percent consist of non-revolving credit, which points to the strength of car sales for the month of November.  Resolving credit includes credit cards used by consumers. In October , consumer credit increased $7.6 billion. September’s number climbed to $6.9 billion.  Again, strong vehicle sales accounted for most non-revolving credit gains of $7.3 billion and $6.5 billion, respectively, for October and September. Understanding the Consumer Credit Report The Consumer Credit Report is a monthly release by the Federal Reserve Board, which provides an estimation of the changes in the dollar amount of consumer loans.  Consumers use these funds mostly to buy automobiles. The figures do not include loans made to individuals for real estate such as home equity line of credit transactions. The report has two components: revolving and non-revolving credit. Revolving credit, which consists mainly of credit cards, allows consumers to spend up to a predetermined limit and does not require the vendor to call the creditor for approval.  Non-revolving credit has fixed terms.  It consists primarily of automobile loans. The report furthered segregates the numbers according to commercial banks, finance companies, credit unions and savings institutions.  Other categories include securitized asset pools, federal government/ Sallie Mae and non-financial businesses. Other data contained in the report include the average interest rate for different consumer loan products, including vehicle loans, credit cards and bank loans.  It also has information about collective credit quality of consumers and areas of high growth. The Feds gather data by conducting a survey of banks, credit unions, finance companies and retail establishments.  Each monthly report contains data from three previous months. It also contains revisions for any recent periods. The Consumer Credit Report serves as an indicator for future spending in the economy.  Changes in the Fed Funds Rate or Prime Rate may take up to 180 days before consumers realize the effects.  Analysts and investors pay particular attention to consumer debt, credit card delinquencies and growth/decline rate. The Consumer Credit Report release does not drive the market because of some other reports released ahead.  It works like a “lagging indicator,” which provides useful information when used along with interest rates and personal wage growth indicators. Conclusion Most market watchers and economists look at rising credit as emblematic of consumers who have increased confidence in the economy.  It can also mean people rely more on credit to purchase basic items, such as food or gasoline.  Consumer credit has gone up 13 out of the last 14 months during a time when personal income has stagnated.  Credit cards usage has fueled a portion of the sizable increase in consumption. Continue reading →

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Revolving Credit: Americans Borrow More in October

Posted on December 9, 2011 by admin

A recent release by the US Federal Reserve indicated an increased use of consumer credit.  According to the release, consumer credit increased at an annual rate of 3.75 percent in October, revolving credit increased at an annual rate of 0.5 percent and non-revolving credit increased at an annual rate of 5.25 percent. These changes could be an important indication as to the state of the economy. Revolving credit is the amount that consumers use for credit cards and similar financial tools.  According to the Financial Times , an increase of use in revolving credit can be a positive indication of consumer confidence.  After a series of several months that demonstrated a decrease in consumer credit, this recent increase could indicate that consumers are more willing and more comfortable accruing debt.  In particular, Black Friday and Cyber Monday saw record high sales this year as compared to previous years.  While consumers may or may not have accrued specific debts by purchasing holiday gifts, it is still a forecast of public spending and consumer credit. On the other hand, an increase in credit use can also be a negative indication of the economy if consumers are accumulating too much debt to offset declining incomes. Considering the increase profits of retailers this holiday season, the increase in revolving credit could also be a reflection of consumers charging holiday purchases, in which case a future decline in credit use will be likely within the next two months. Non-revolving credit refers to credit for long-term investments, such as vehicle loans or student loans. According to Bloomberg , the economy is stimulated during times when consumers borrow to buy cars and other large purchases.  Bloomberg also holds that the increased use of credit can also be an indication of future spending patterns.  Non-revolving credit increases are more indicative of spending patterns since they are not as volatile as credit card use. Continue reading →

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