Credit Risks Management
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Credit Risks Management

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Credit Risks Management

When you apply online for a credit card there are a number of risks that you need to take just as there are a number of risks you would take at other points in your life. We all take risks at frequent intervals during our lives and in many senses it is the way that we handle these risks that define a great part of our lives.

After all, even crossing the street presents a risk but the way that you very likely deal with this risk is to unconsciously cross when the light is in your favor and when there are no cars approaching. This is an intelligent way of dealing with the risk that is borne from understanding exactly what the risk is in the first place.

Just like this type of risk the best way to deal with the risks inherent to the final product of your credit card search is to make sure that you understand the risks involved. This type of understanding will not only help you deal with the risk but it will also make you rest easier in doing so.

People with bad credit history in general are people that didn’t understand the risks involved; by the time you get to the end of this article you will have hopefully rectified this lack of understanding.

The first thing you need to understand when approaching this problem is that the risk is not just there for you; your credit card company takes risks as well when they enter into this agreement with you and the more good credit cards they give you the higher their risk becomes.

Many people are easily able to understand their own risks in this game of credit lending but at the same time many people can not really fathom the reason that the credit card company might also be taking a risk as well.

Therefore, it is very important to understand this part of it especially and after a brief explanation of the risks inherent to you this article will continue onwards to explain the risks inherent to the credit card company you are dealing with.

Credit Risks to You

There are a number of risks that you face when you are using credit cards; even good credit cards come with all of these risks because without them the companies wouldn’t make money and if a credit card company is not making money then there is really no reason for the company to exist in the first place.

The first risk that you take on to you when you’re using the credit card is the risk inherent to all credit cards; the interest rate. Interest rates vary depending on the specific card they are being used with and because of that you will quite frequently find that many different interest rates exist for the different credit cards available.

One of the most common ranges for an interest rate to fall in is the 15 to 20 percent range and most credit cards nowadays will have an interest rate towards the higher end of that range. Interest rates will vary depending on whether you have a bad credit history or a good one but in general, all other things being equal, you will be presented with an interest rate in that range.

Interest rates add money to balances that you have on your credit card and if you are not careful with how you handle your finances these interest rates can cause your balance to expand very high, very fast. This is the main risk inherent to your use of credit cards.

In addition to those risks there are also the risks inherent with fees. A no fee credit card obviously will not have the annual fee risks but check the fine print; you’ll often find that fees for things like going over the balance and missing a payment will still be hanging around. This means that if you are somehow unable to make a payment or accidentally charge too much on your credit card you’ll be subject to fees.

Some fees are small but then again on bad credit cards some of them can get quite large and these can serve to inflate your balance up to a point that might be very difficult for you to handle from a financial point of view; another very serious risk that you need to keep in mind. Interest rates and fees are the risks inherent to you, now it’s time to find out the risks inherent to the credit card company.

Credit Risks to the Company

To understand the risks inherent to a credit card company you need to understand the history of the credit card itself. The credit card came about in the 1950s during a period of time when previously to its introduction the only real way for people to get money loaned to them was to take out a conventional loan with putting up something as collateral. In the event that they defaulted (i.e. were unable to pay) on the loan then their collateral was simply liquidated for the bank to cover their costs.

In the modern day, even bad credit cards do not require collateral and in part this is why they are such a popular financial tool amongst most people. Because credit cards do not require collateral it is a lot safer for a person to take money out on their credit card without having to fear something bad happening to some of their possessions if they ever ended up defaulting on the loan.

This is a very important factor to keep in mind because it is the single most important factor in the increasing popularity of people borrowing money and subsequently getting themselves into debt.

In order to offset the risk that comes with not requiring a person to put up collateral the credit card company charges a higher interest rate. They want to make sure that the higher risk they are taking is offset by the higher reward they are getting back.

This is basic business policy and in fact is quite sound. Now that you understand the risks that are inherent to both yourself and to the credit card company you can take the appropriate steps necessary to help yourself avoid the ill effects of most of those risks.

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