Essays on The Use and Management of Credit

The Lopez family seeks some credit card information:
Ramon and Maria Lopez are a newly married couple in their mid-20s. Ramon is a senior at a state university and expects to graduate in two years. Maria graduated last spring with a
degree in marketing and recently started working as a sales rep for the Kinetic Systems Corporation. She supports both of them on her monthly salary of $3,500 after taxes. The
Lopez family currently pay all their expenses by cash or check. They would, however, like to use a bank credit card for some of their transactions. Because neither Ramon nor Maria knows how to apply for a credit card, they approach you for help.

1. Discuss whether or not you would advise the Lopez family to apply for a credit
card and provide a rationale for the advice provided.

As Ramon and Maria Lopez are a newly married couple who have a great deal of plans to realize in their life, I think that they should apply for a credit card. The lifestyle of these young people requires certain conveniences. Credit card will allow them to pay for their purchases and various services by borrowing a certain sum of money from one of the credit card companies. They will make regular monthly payments towards the sum of money borrowed from the credit card company. It means that they do not have to pay the whole sum of money in one go. It is very convenient especially for a young couple. Credit card will give them an opportunity to make large purchases whenever and wherever they want. They may go traveling or purchase a car and they can pay only a part of the total expenses. In this case the balance amount will be moved forward with a certain interest to pay. The Lopez family need not take cash if they are going to have a rest somewhere abroad. They will be able to withdraw cash through ATM which can be found in any country. Moreover, credit cards have some more benefits such as additional insurance cover which is given on purchases, discounts on vocations and travelling. (Sarwana, 2009, para.3)
2. Explain the procedure the bank will most likely follow in processing the Lopez family’s credit card application.

The procedure includes filling out a credit application which contains the following information: the full name of the person who is going to obtain a credit card, his/her date of birth, SSN and the telephone number. The age plays an important role because the person who applies for a credit card must be at least 18 years old. It is also required to tell the current and past residential addresses and some employment data which includes the employer’s name, the salary and the office phone number. The salary will show that the person who applies for a credit card has a steady income and will be able to pay. Any credit card company will ask about any other bank accounts. Credit report will show the credit history of the person who wants to obtain a credit card. In other words, it shows how he/she managed his past financial obligations. It is also necessary to put the signature which means that the person gives his consent to approve his credit card request. (Mojica, 2010, para.4))

3. Discuss credit scoring and how the bank will use it as a part of the credit decision.
Credit scoring is a system based on the statistical analysis of the credit files of the person in order to show his or her creditworthiness. Credit score is taken from the credit report information. The bank will use credit score in order to estimate the potential risk the bank will have if it lends money to that person. It is known that banks use credit scoring for the following credit decisions: to choose the type of credit card, its limit, the interest rate. It means that a good credit score allows to pay lower interest rates. If credit score is too low the banks have the right to deny loans because of the high risk. (The Importance of your Credit Rating)

4. Discuss the advice that you would give to the Lopez family regarding making good credit card decisions to maintain a high credit score.
It is very important for the Lopez family to maintain a high credit score because it can influence many aspects of their life. A high credit score guarantees lower interest rates. The Lopez family will be able to understand it if they apply for a mortgage or a loan to buy a car. In this case the young people will be able to save several thousands of dollars. There are some certain recommendations to the Lopez family which will help the young couple to maintain a high credit score:
It is necessary to pay the bills on time.
It is recommended not to open many credit cards because it can do harm to their credit score.
It is very important to have a long credit history because a short credit history can reduce credit score. That is why the Lopez family should not cancel the old credit card.
It is also recommended to keep the balance on the credit card to less than 50% of the total limit which is available on the credit card.
It is necessary to pay more than the minimum payment on the credit card in order to show the bank that the owner of the card is credit worthy.
The above mentioned recommendations will allow the Lopez family to maintain the high credit score. (The Importance of Your credit Rating)

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