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    How Do Credit Cards Work

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    Juanfer Sandoval
    The document provides an overview of how credit cards work through a series of reading activities and questions. It discusses the main differences between credit and debit cards, including that credit cards allow purchases to be paid back later while debit cards deduct money immediately from a linked bank account. It then outlines the typical steps in a credit card transaction process and explains key terms like credit limits, grace periods, and annual percentage rates. The document also notes that credit cards can help build a strong financial history and better credit score if used responsibly by making on-time payments and keeping balances low.

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    How Do Credit Cards Work

    Uploaded by

    Juanfer Sandoval
    15 views5 pages
    The document provides an overview of how credit cards work through a series of reading activities and questions. It discusses the main differences between credit and debit cards, including that credit cards allow purchases to be paid back later while debit cards deduct money immediately from a linked bank account. It then outlines the typical steps in a credit card transaction process and explains key terms like credit limits, grace periods, and annual percentage rates. The document also notes that credit cards can help build a strong financial history and better credit score if used responsibly by making on-time payments and keeping balances low.

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    How do Credit Cards Work

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    The document provides an overview of how credit cards work through a series of reading activities and questions. It discusses the main differences between credit and debit cards, including that credit cards allow purchases to be paid back later while debit cards deduct money immediately from a linked bank account. It then outlines the typical steps in a credit card transaction process and explains key terms like credit limits, grace periods, and annual percentage rates. The document also notes that credit cards can help build a strong financial history and better credit score if used responsibly by making on-time payments and keeping balances low.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    15 views5 pages

    How Do Credit Cards Work

    Uploaded by

    Juanfer Sandoval
    The document provides an overview of how credit cards work through a series of reading activities and questions. It discusses the main differences between credit and debit cards, including that credit cards allow purchases to be paid back later while debit cards deduct money immediately from a linked bank account. It then outlines the typical steps in a credit card transaction process and explains key terms like credit limits, grace periods, and annual percentage rates. The document also notes that credit cards can help build a strong financial history and better credit score if used responsibly by making on-time payments and keeping balances low.

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    You are on page 1of 5

    Learning & Development Guatemala

    Bryan Adrian Barcenes Linares

    José Ángel Lainfiesta Rosales

    Juan Fernando Sandoval Paiz

    Fabian Osoy

    How Do Credit Cards Work?


    Speaking

    What do know about how credit cards work?

    Vocabulary

    Look up the words before reading the article:

     Trigger

     Fine print

     Card issuer

     Merchant

     Inquiries

     Liability

     Accrue

     Linked to

     Boost

     Annualized

    Reading

    © 2021 [24]7.ai, Inc. All Rights Reserved. <1>


    Learning & Development Guatemala

    Go to the article: https://www.investopedia.com/how-do-credit-cards-work-5025119

    Do each of the reading activities.

    Reading Activity 1

    Read the article. What are the main differences between credit and debit cards?

     When you make purchases with a credit card, you're not actually spending any of
    your own money at that moment. Instead, you're spending the credit card
    company's money which you then have to pay back, potentially with interest.
    Debit cards, on the other hand, are linked to your checking account (they're not
    exactly the same as a prepaid card). When you make a purchase with your debit
    card, the money is automatically deducted from your bank account as soon as
    the transaction is processed. There's nothing to pay back later since the money
    has already been taken from your account.

     Debit and credit cards also differ in terms of their credit score impact. Using a
    debit card has no impact on your credit score because your bank account activity
    is not reported to the credit bureaus. Credit cards, on the other hand, can impact
    your credit score directly. FICO credit scores, for instance, calculate your scores
    based on: Payment history Credit usage Credit age Credit mix Inquiries for new
    credit

     Another key difference between debit and credit cards lies in fraud protections.
    Federal law offers more fraud protections for credit cards than debit cards. This
    chart highlights your liability for unauthorized transactions with debit and credit
    cards

    © 2021 [24]7.ai, Inc. All Rights Reserved. <2>


    Learning & Development Guatemala

    Reading Activity 2

    Read the article. Put the steps of how a credit card works in the right order.

    __4___ The bank then gets authorization from the credit card network to process
    the transaction.
    __3___ Card details are sent to the merchant's bank.
    __6___ The payment is made to the merchant
    1 Open a credit card account.
    __9___ You pay your bill in full by the due date or your card issuer charges you
    interest.
    __2___ Make purchases online or in stores and pay bills.
    __7___ Your card's available credit is reduced by the transaction amount.
    _8___ Your card issuer sends you a statement.
    ___5__ Your card issuer then has to verify your information and either approve or
    decline the transaction.

    Reading Activity 3

    Read the article again. Answer the questions:

    1. What is a credit limit?

    The term credit limit refers to the maximum amount of credit a financial
    institution extends to a client

    2. What is the difference between a secured and unsecured credit card?

    Credit cards can be secured or unsecured. A secured credit card requires a


    cash deposit to open, which typically doubles as your credit limit.

    3. What is a grace period?

    A grace period (credit) is the number of days between a consumer’s credit


    card statement date and payment due date when interest does not accrue. The
    grace period is a window of time during which a consumer owes money to a

    © 2021 [24]7.ai, Inc. All Rights Reserved. <3>


    Learning & Development Guatemala

    credit card company for new purchases made during the last billing cycle but
    isn’t being charged interest

    4. What sets the guidelines on when credit card companies can and can’t change a
    card’s APR?

    Being 60 days late on making payments to your credit card can trigger a
    penalty APR, which can approach the 30% range

    5. For which type of card does Federal law offer more fraud protections?

    Credit cards

    6. How does a credit card help you build a strong financial history and better credit?

    Making credit card payments on time can help your score while paying late
    could hurt it. Similarly, keeping a low balance compared to your credit limit
    can have a positive impact while maxing out your card limits can detract from
    your score

    7. How does a person shop for credit cards?

    Comparison shopping is how you find the best card for you. Compare things
    like: regular variable APR for purchases; APR for balance transfers and cash
    advances; promotional APR terms and conditions; annual fees, rewards and
    more

    Role Play

    Many people don’t know how a credit card works. Using the information from the article,
    create a role play in which one person describes how a credit card works to an
    unknowing friend or family member.

    © 2021 [24]7.ai, Inc. All Rights Reserved. <4>


    Learning & Development Guatemala

    Online Research

    In the United States, it is vital to start building your credit score from a young age.
    Therefore, using credit cards while young is very important. Research some tips online
    on how to teach kids about credit cards. You will have 20 minutes to research. After
    looking up information online, present your findings to the class.

    © 2021 [24]7.ai, Inc. All Rights Reserved. <5>

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