What's Your Question?: Credit Quiz

Q. Is there a difference between a debit card that requires a personal identification number, or PIN, and a debit card that simply requires a signature?

A. When a consumer uses a PIN-based or direct debit card, the purchase price is removed from the consumer’s checking account almost immediately. When a consumer uses a signature-based or deferred debit card, the purchase price is removed from the consumer’s account in two or three days. The PIN-based debit card also adds a layer of protection against identity theft.

Q. How many credit-card accounts are currently held in the U.S., and what is the total annual savings predicted for the credit-card holders as a result of the new rules for credit cards?

A: CBS News reported in August 2010 that U.S. consumers held 381 million credit-card accounts. The PEW Charitable Trust predicts that provisions in the Credit Card Accountability and Disclosure Act of 2009 should save consumers at least $10 billion per year.

Q: Because the new credit-card reform laws were created to protect consumers, does this mean it will be easier to get a credit card?

A: No. According to an August 2010 report by CBS News, credit-card issuers have cut back on the amount of credit they extend, with the average credit line on a new card being about $3900, which is a drop of 11% from the previous year.

Q: How do debit cards and credit cards compare in building a credit score?

A: Responsible use of credit cards can help build a credit score. Consumers who have at least one credit card and carry a monthly balance have an average credit score of 689 as compared with a credit score of 563 for consumers who do not carry a credit card. Consumers who carry a balance on credit-card accounts will usually have a higher credit rating than consumers who pay the balance in full each month. Having and using a debit card does not contribute to building a credit score.

Q: How have the new credit-card rules affected the interest rates charged on credit-card accounts? What is considered an average interest rate on credit cards?

A: Credit-card interest rates have hit their highest levels in nine years. The national average for all credit cards is currently above 14 percent; however, interest rates vary according to the type of card and the consumer’s credit rating.

Credit-Card Rate Report
Updated: 09-20-2010
National Average 14.15%
Low Interest 11.99%
Cash Back 2.31%
Balance Transfer 12.68%
Business 2.85%
Student 14.05%
Airline 4.14%
Reward 14.32%
Instant Approval 15.99%
Bad Credit 20.64%

Q: What factors are considered in arriving at a credit score (FICO score)?

A: There are five categories that determine a credit score. The percentages in the chart reflect the weighted measure of each category.

Q: How has the Credit Card Act affected the trends in balance transfer fees and cash advance fees?

A: These fees are not included in the new rules. However, during the past five years, the average fees for balance transfers and cash advance transactions have continued to increase. Additionally, the number of balance transfer offers with no ceiling fees increased from 47% in 2008 to 76% in 2009. Over the same time period, the number of balance transfer offers with no fees charged declined from 19% to 11%.



www.cbsnews.com/stories/2010/08/23/evening news/main6798896.shtml










Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.

Subscription Options

Additional Fed Publications

Fed in Print: An index of the economic research conducted by the Fed.