10 Credit Card Industry Facts that You Probably Don’t Know

It all happened one evening in 1949 because a man forgot his wallet. Frank McNamara was embarrassed because his wife had to “rescue him” during a business dinner. That embarrassing moment gave him the idea to develop a card to “pay” for meals. A year later, McNamara and business partner Ralph Schneider used the first charge card at the same restaurant. They called this new card a Diners Club card.

The following are 10 other things you may not know about the credit card industry.

1. Credit card issuing banks are more profitable. According to the Federal Deposit Insurance Corp. (FDIC), banks that offer credit cards are historically more profitable than banks that do not. It is no surprise then that the 12 largest credit card issuers control more than 90 percent of all the credit card debt in the U.S.

2. Credit cards are often used to pay for college. A study conducted by Sallie Mae found that an average of 30 percent of all college students put tuition on their credit cards. Nearly all colleges in the U.S. accept some type of credit card payment.

3. Low debt and high available credit equals stellar score. Consumers who have a low debt-to-credit ratio and make their payments on time tend to have higher than average credit scores. By paying off debt, consumers can raise their FICO scores and get better interest rates.

4. Credit cards protect consumer purchases. Using a credit card when purchasing goods and services offers consumers extra protection under the Fair Credit Billing Act . Consumers can dispute charges to their credit card and have them removed. Often the credit card companies themselves offer additional special warranty services on purchases made with their cards.

5. Credit card customers often fail to ask key questions. A study by the Federal Reserve System board identified a number of questions that consumers failed to ask when applying for a credit card. These included:

• What might trigger an annual percentage rate (APR) default?
• What fees are associated with credit card products?
• When does the introductory rate expire?
• What is the cost of convenience checks?

6. Credit cards help build credit. According to the Fair Isaac Corp., creator of FICO scores, a consumer’s payment history is about 35 percent of the total FICO score, and how much they owe is about 30 percent. The remaining three parts to your score is length of credit history (15 percent), new credit you’ve applied for (10 percent) and other minor factors (10 percent).

7. There are several reasons that credit limits can be reduced. These include:

• Lowered or raised FICO scores
• Making payments on time or late
• Change in debt-to-income ratio.

8. Credit cards use binding arbitration. Binding arbitration is when both parties cannot reach a settlement on their own, so a neutral third party hears their dispute and renders a legal and binding decision. According to the Consumers Union, 84 percent of credit cards issuers include binding arbitration agreements within their credit card contracts.

9. Credit cards can be used around the world. Travelers simply have to let their credit card companies know that they will be using their cards outside of the U.S. The credit card company will then handle all currency conversions for any transactions the consumer makes.

10. Credit cards are diverse. According to Consumers Union, 84 percent of African Americans carry a credit card balance, 75 percent of Hispanic people and 51 percent of whites.

Anastasia Zoldak