Marketing Essentials
n Chapter 32 Extended Product Features
Section 32.2 Credit
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SECTION 32.2
Credit
What You'll Learn
 The importance of credit
 The five sources of consumer credit
 The four types of credit accounts extended to
consumers
 How businesses use trade credit
 Important credit legislation
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SECTION 32.2
Credit
Why It's Important
Extending credit to customers or accepting
credit cards for purchases is an important
part of product planning. The wise use of
credit can be a great benefit to a business
and its customers.
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SECTION 32.2
Credit
Key Terms
 credit
 regular, or 30-day, charge accounts
 installment accounts
 revolving accounts
 budget accounts
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SECTION 32.2
Credit
Credit and Its Importance
Credit allows businesses or individuals to
obtain products or money in exchange for a
promise to pay later. The use of credit is
essential to our economy. In 2000 there were
over 500 million credit cards in circulation.
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SECTION 32.2
Credit
Credit and Its Importance
Credit is important because income often does
not match buying needs when they occur.
 Example: It is often difficult to save enough
to buy a car. Credit allows you to buy a car
and pay for it over a period of time.
Extending credit gives consumers an incentive
to purchase, which increases businesses'
sales and profits.
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SECTION 32.2
Credit
Consumer Credit
Companies that offer credit to consumers typically
issue credit cards. There are several kinds of
consumer credit:
 bank credit cards
 store and gasoline credit cards
 travel and entertainment cards
 rebate cards
 affinity cards
 debit cards
 special customer cards
 secured and unsecured loans
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SECTION 32.2
Credit
Consumer Credit
Bank Credit Cards Sponsored by companies
such as VISA and MasterCard, bank credit cards
are issued by banks. Banks charge businesses
fees for each transaction, and charge customers
finance charges and annual fees.
Store and Gasoline Credit Cards Some
businesses, such as Sears and Target, offer their
own proprietary credit cards. The companies
receive income from finance charges.
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SECTION 32.2
Credit
Consumer Credit
Travel and Entertainment Cards American
Express, Discover, and Diners Club require that
payments be made in full each month. They
receive income from retailer transaction fees,
and customer annual fees and service charges.
Rebate Cards Companies offer a reward or
incentive, such as airline miles, cash, or long
distance telephone service, for using the card.
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SECTION 32.2
Credit
Consumer Credit
Affinity Cards These credit cards are issued
by banks to show loyalties to a sports team,
university, charity, or other organization.
A small percentage of interest is given to
the organization.
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SECTION 32.2
Credit
Consumer Credit
Debit Cards Not actually a credit card,
a debit card allows purchase amounts to be
automatically deducted from a customer’s
bank account.
Special Customer Cards Also not a credit
card, these are offered to frequent shoppers to
allow them to receive reduced prices on some
items or discounts on future purchases.
Businesses get valuable marketing research
information about customers.
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SECTION 32.2
Credit
Consumer Credit
Secured and Unsecured Loans
In secured loans, something of value,
such as property, motor vehicles, machinery,
or merchandise, is pledged as collateral to
ensure that a loan is repaid. Unsecured loans
represent a written promise to repay a loan.
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SECTION 32.2
Credit
Types of Accounts
There are four major consumer credit plans
in use today:
 regular, or 30-day accounts
 installment accounts
 revolving accounts
 budget accounts
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SECTION 32.2
Credit
Types of Accounts
Regular charge accounts, or 30-day
accounts, allow customers to charge
purchases and pay in full within 30 days
after they are billed without incurring a
finance charge.
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SECTION 32.2
Credit
Types of Accounts
Installment accounts, or time payment plans,
allow for payment at a specific interest rate
over a set period of time. They are normally
used for large purchases, such as travel,
appliances, and furniture.
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SECTION 32.2
Credit
Types of Accounts
Revolving accounts are accounts in which
the issuer determines the credit limit,
payment due date, and minimum payment.
The customer can choose to pay more than
the minimum payment to reduce the balance
owed and finance charges. Interest is charged
on the unpaid balance.
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SECTION 32.2
Credit
Types of Accounts
Budget accounts allow for the payment
of a purchased item over a certain time
period (usually 90 days to one year)
without a finance charge. This is common
for purchases such as appliances,
furniture, and electronics.
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SECTION 32.2
Credit
Business Credit
Business credit, or trade credit, is similar
to consumer credit in that money is lent for
goods and services. Trade credit involves
credit memorandums, letters of credit, and
credit drafts instead of credit cards.
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SECTION 32.2
Credit
Legislation Affecting Credit
There are many regulations that protect
consumers and their credit standing while
providing information on the proper use
of credit.
The Truth in Lending Act of 1968 requires
that lenders disclose information about
annual percentage rates, the issuer, and
the amount financed.
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SECTION 32.2
Credit
Legislation Affecting Credit
The Fair Credit Reporting Act of 1971
requires that a lender report the name and
address of the credit bureau that was used
when consumer credit was denied.
The Equal Credit Opportunity Acts of
1975 and 1977 set guidelines for the
review of credit applications and prohibit
discrimination.
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SECTION 32.2
Credit
Legislation Affecting Credit
The Fair Debt Collection Act of 1980
prevents businesses from harassing or
abusing bad-debt customers.
The Credit and Charge Card Disclosure
Act of 1988 requires credit card issuers to
provide information about card costs.
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32.2 ASSESSMENT
Reviewing Key Terms and Concepts
1. Why is credit important to our economy?
2. List the types of consumer credit.
3. Identify the four major credit plans extended
to consumers.
4. How do businesses use trade credit?
5. Why do federal and state governments pass
legislation regulating credit?
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32.2 ASSESSMENT
Thinking Critically
More and more banks are issuing credit
cards that offer low interest six-month
"teaser" rates. What are some possible
disadvantages of accepting these offers?
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Marketing Essentials
End of Section 32.2
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