Mastering Consumer Credit

Credit Types

• A home mortgage is an example of closed-end credit, where the borrower receives a lump sum and repays it with interest over a fixed period.
• A credit card is an example of open-end credit, where the borrower can repay and reuse the credit as long as the account is active.

Key Differences

• The main difference between open-end credit and closed-end credit is that open-end credit allows borrowers to reuse the credit, whereas closed-end credit does not.
• Revolving credit is a type of open-end credit that allows borrowers to reuse the credit, and an example of this is a credit card.

Credit Cards vs. Debit Cards

• The main difference between credit cards and debit cards is that credit cards use borrowed money, while debit cards use the cardholder's own money.

Schumer Box

• A Schumer Box is a disclosure box on credit card applications that summarizes the terms and conditions of the credit card, including the Annual Percentage Rate (APR), fees, and interest rates.

Best Practices for Using a Credit Card

• Make timely payments to avoid late fees and interest charges.
• Keep credit utilization below 30% to avoid negatively impacting credit scores.
• Monitor credit card statements regularly to detect and report any fraudulent activity.
• Avoid using credit cards for cash advances or buying expensive items that may not be necessary.
• Consider paying the full balance in full each month to avoid interest charges.