How Do Credit Cards Affect The Economy

James D Scurlock’s “Maxed Out” focused on the revolving use of credit cards to charge now and pay later and the fact that once the credit card was maxed out another one was sent from the credit card companies and the whole process begins all over again. Scurlock’s essay made the reader aware of the downfalls and hardships that can occur when credit cards are constantly used for purchases compared to Kevin O’Donnell’s “Why Won’t Anyone give Me a Credit Card”.

This growth in national debt has blunt consequences on inflation, interest rates and growing economy. Foreign control of large amounts of government debt means that the taxes will have to be raised to repay debt and percentage owned to overseas governments which is not acceptable. Assuming that trade deficiency also exists it will lead to depreciation of dollar which effect its position as a reserve currency, and if during this process any new currency emerge as a replacement of reserve currency, higher interest rates will be required to sell the debt to foreign countries (Inflation). Raised interest rates have a negative impact on the economy and high accumulation of debts leads to high interest rates (Spending). Hence the economy suffers. This means that the funds for government programs like Social Security and Medicare are not enough (Economic Progress Under Obama). Another consequence of high national debt is the reduced flexibility in fiscal policy (Spending).

Richard Fairbank and Nigel Morris, both diligent entrepreneurs, started laying the bricks for their eventual successful company, Capital One, in the late 1980’s. They both worked in the Virginia-based “Signet Bank”. Fairbank started noticing trends in the financial industry that he felt Signet was missing out on. These opportunities were in the credit card industry. He, as well as all of Signet Bank knew that the credit card industry was very risky, but Fairbank was ready to take a chance in this, what can be, highly profitable field.

The United States of America has carried some amount of federal debt every year since the country was founded. From this empirical evidence, it can be said that debt itself is not damaging to an economy. After all, the country has had periods of rapid growth and economic booms while carrying different amounts of debt. It is also plain to see that a very large amount a debt, an amount that could not ever be eliminated without unreasonably inflating the dollar, could have devastating effects. The US dollar is a fiat currency, which holds value only when holders of the currency have confidence in the issuing institution, in this case the US government. In the event the government could not repay its debts, the value of the currency would drop as people lose confidence. The effects on the US economy, households, businesses, trading partners and foreign governments would be disastrous and widespread.

Debt this high drove all crediting to collapse because people could not make payments on their loans, due to the fact that they simply did not have the income to pay. This then created instability within the banks because the revenue necessary to continue was no longer there. All of things added together equated to the largest market crash since the great depression and governments intervention.

Not only for those seeking to retire, the business motivated economy has transfigured how one must live in order to live comfortably. Building credit through credit cards is often perceived to be the only way in order for a buyer to appear credible. Yet in the quest for the optimal credit score people enter into debt. Considering and evaluating the risks and benefits to credit cards may contribute to opinions towards those flimsy pieces of plastic.

The American economy is now $19 trillion in debt as opposed to 2008, which is when the great financial crisis occurred, of $10 trillion. This debt increase can be attributed to the overindulgent use of credit and loans to make expensive purchases and later not being able to pay off the loan/ provider of the money borrowed. This in turn creates inflation, which essentially leaves investors in debt or unemployment which in turns lowers consumer spending. Now with prices at an all time high people have to rely on borrowed money to purchase products. So after people buy their said products they have to pay back the money borrowed or loaned out in full and often with interest. Here's the kicker though, people cannot pay back what they borrowed and are now in debt. This not only affects the people owing money, but also affects those who loaned it out, primarily due because they now lost money and profit. This rather small simulation can be applied to: investors,corporate figures,large scale companies,people working minimum wage jobs, and the like which helps us see how much debt the American economy is in. All the debt accumulated over the years has created a large gap in our economy which America cannot pay off.Thus leaving the American economy riddled with debt and people not being able to afford

The debt could lead to a financial crisis. A U.S. credit default or fears of such default could cut off credit flowing to the United States. A true sovereign debt crisis is unlikely to occur in the United States as the U.S. debt is held in dollars and the Federal Reserve could always print more dollars (Wallison). A true crisis could only occur if our debt was held in the Euro or Chinese Yuan. But the U.S. could still have a pseudo-default situation where concerns about American ability to repay debt limit creditor’s willingness to loan money.

Your FICO scores are the most regularly used credit scoring methods all of the bureaus use. Your FICO score

Many companies use your fico score to decide on major financial decisions when it comes it you. For example, if you’re trying to get a credit card a company will look at your fico score to decide if you are a high risk and deny you, or if you are a safe risk to take. Some other places such as banks will use that information to make other choices as well.

Your credit score represents your creditworthiness. When you borrow money, your lender sends detailed information to the credit bureau, to create a credit report that analyzes how well you handle your debts. This number can determine everything from the interest rate on your mortgage or auto loan, to whether you’ll be approved for a credit card, to whether you can rent an apartment. The Fair Isaac Corporation (better known as FICO) is the most widely used credit rating agency in the US. This formula calculates your financial habits into a single three-digit FICO score ranging from 300 to 850.

Now that you have a better understanding of the risky business of owning credit cards, let us examine who is to blame?

Money is a necessity in life and is a constant worry for college students especially when you take out a $10,000 loan. Financial aid has replaced studying as the biggest worry for college students. The objective of college is to learn and grow as a person, but is limited by financial capabilities which is a big problem for the U.S. education system and prices continue to go up. Main focus is having to focus on rigorous studying, students may also have to work to stay in school. A student is paying college through a $10,000 loan and working a part time job 20 hours a week. John wonders if getting a credit card will help him financially. The best solution is to attain a credit card that has student benefits included and will make it easier to protect and keep track of your money.

So it is also attractive for Jules Kroll to take this opportunity to enter the credit rating industry. In addition, the “issuer pays” model, which used by the big three rating agencies, lets companies shop around for the best ratings, putting pressure on the agencies to inflate their grades. As a result, it is very difficult to argue that they can adequately represent the users’ side. Therefore, Jules Kroll wants to use another model that can assign unbiased and reliable ratings.

In today’s economy, cash or a credit card is needed to meet the basic human needs. It is an apparent fact that we need cash or credit cards to purchase items such as food, clothing, and to buy gas. Also, when you are out shopping and discover that you have used all the cash in your possession, it is then that you realize that the advantage of having a credit card. Furthermore, with cash, you are restricted to the amount in your wallet or purse; however, a credit card allows you to pay for your purchase at a later date. Both cash and credit cards can be useful when you manage them wisely. While cash and credit cards are similar in that they both are readily accessible, used for goods and services at the time of purchase, they are dissimilar because of theft, high- interest rates, identity theft.