fis200_week5_reading1ch7

You may also want to work with a nonprofit debt

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in this book and following the advice that is given. You may also want to work with a nonprofit debt- counseling organization. You prefer the convenience of paying for your day-to- day purchases with a credit card and you make a habit of paying your card balances in full each month. • You are traveling and a merchant refuses to accept your out-of-town check. You need a rental car or want to reserve a hotel room. You want to purchase an item online. You want to be able to take advantage of the legal pro- tections that the federal Fair Credit Billing Act pro- vides when you pay for goods or services with a credit card. I discuss those protections in Chapter 7. Credit Comes in Different Flavors It’s important to be aware of the different types of credit so that can be sure that you match the right type of credit 138
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Using Credit Responsibly to your needs. Otherwise, the purchase that you finance with credit could end up costing you much more than it should. There are four basic types of credit: 1. Open-end, unsecured revolving credit. With this kind of credit, you have a fixed credit limit and you are re- sponsible for paying at least the minimum due on your outstanding account balance each month. The minimum will be a percentage of your card’s total balance. The interest rates associated with open-end credit can be quite high, especially if you have a poor credit history or you don’t shop around for the best deal. Examples of this type of credit include bankcards like MasterCard and Visa and many retail store charge cards. 2. Open-end secured revolving credit. The main difference between this kind of credit and the previous type is that you will have to secure your credit card pur- chases by keeping a certain amount of money in a sav- ing account or by buying a certificate of deposit for a certain amount. Then, if you do not pay your account on time or if you go over your credit limit, the credit card company can tap those funds. Often, people with poor credit histories or no credit history at all must use a secured MasterCard or Visa card until they can qualify for one that is unsecured. Chapter 6 pro- vides more information about how secured cards work and how to select one. 3. Open-end 30-day credit. Although this type of credit usually comes with a high credit limit, you must pay 139
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Credit Hell your outstanding account balance in full each month when you use this type of credit. The American Ex- press card is the most common example of open-end, 30-day credit, although the company’s Optima card is considered to be open-end revolving credit. 4. Closed-end credit. When you are approved for a mort- gage, finance the purchase of a car, or obtain a stu- dent loan, or some similar purchase, you are using closed-end credit, also referred to as installment credit. Regardless of what you call it, when you use this kind of credit, you borrow a certain amount of money and you are responsible for repaying it over a fixed period of time (the term of the loan) by making a series of regular payments of a certain amount. In- stallment credit may be secured or unsecured. You
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