What Constitutes Credit Card Risk?
A credit card company will consider you a risk if you do not meet certain criteria. Your risk can be reevaluated, at a future date, even after you have been approved for a credit card.
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Significance
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A credit card company will consider you a risk if you have a low FICO--or credit--score. Credit scores are used to determine the likelihood that you will not repay a loan. Scores range from 300 to 850 and the lower your score the more risk you present for a credit card company.
Effects
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When you have been approved for a credit card, your credit history will be reviewed periodically by the credit card issuer when you have an outstanding balance. If you have accumulated too much debt they will consider you a risk. They may shut down your credit card or lower the limit on your card.
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Function
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If you miss payments with other creditors such as your mortgage or auto loan, a credit card company will consider you a risk.
Prevention/Solution
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The amount of credit you use can establish you as a risk. If your credit usage is 30 percent or greater, credit card companies will consider you a risk. A credit card with a limit of $5,000 and a balance of $1,650 has usage of 33 percent, ($1,650/$5,000). This situation would represent a risk in the eyes of a credit card company. Always pay down or payoff your credit card balances whenever possible.
Warning
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When you represent a risk to a credit card company, they may decide to increase your interest rate. This is how they compensate for the risk you pose to the company. Your credit card is priced according to the risk you present.
Potential
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Consumers and business stand to lose when fraud is committed. Credit card risk is present if practices are not implemented to safe guard account information on the Internet and in other locations.
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