Which one of the following is the most suitable source of credit for Nadiya? She has a bank credit card with a credit limit of £2 000. She uses the card to ...
Question 1 Report
Which one of the following is the most suitable source of credit for Nadiya? She has a bank credit card with a credit limit of £2 000. She uses the card to buy train tickets for work and clears the full balance when her monthly statement arrives. Her card company also offers travel insurance.
(a) Which type of credit is Nadiya using for the train-ticket purchase? [2]
(b) State the meaning of a credit limit. [1]
(c) Give three reasons why the card company may offer credit cards to its customers. [3]
Answer Details
(a) Nadiya is using a credit card [1]. This is revolving credit: it can be used repeatedly up to an agreed limit [1], provided the account remains within that limit.
(b) A credit limit is the maximum amount a customer may owe on the card at one time [1].
(c) The card company may earn interest when customers do not clear balances [1], receive merchant charges from businesses accepting the card [1], and attract new customers [1]. Customer loyalty, linked services such as insurance, and annual or late-payment fees are also valid reasons.
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