What to know and understand before you obtain one…
A contractual agreement in which a
borrower receives something of value now
and agrees to repay the lender at some later
A privilege – it can be damaged or taken
away… but if used wisely, can be of great
benefit to the borrower
Important to understand – it can have great
impact on your financial future
Types of Credit
Loan is paid back in set monthly payments.
Buyer signs a legally binding contract.
Secured loan means the seller owns product
until paid in full.
Installment credit is typically used for large
purchases such as vehicles, homes,
Monthly payment varies depending on the amount
Minimum payment = highest cost of credit
Pay in full within grace period to avoid finance
APR can be adjusted by creditor.
Interest rates are higher than for installment credit.
There is a limit on the amount that can be charged.
Bank cards and store/retail cards are examples of
Credit Terms and
CREDIT TERMS & VOCABULARY
– The total dollar amount of purchases made on a credit card.
– The balance remaining on the loan not including interest.
– The cost of using credit – the amount charged to borrow
money. This includes interest, fees, and other charges billed
to you on your statement.
You can avoid finance charges by
paying on time and in full each month.
CREDIT TERMS & VOCABULARY
Introductory APR Grace Period
Fixed Rate (or Fixed Late Fee
APR) Over Limit Fee
Variable Rate (or Balance Transfer
Variable APR) Fee
Minimum Payment Cash Advance Fee
Credit Limit Annual Fee
Method of Computing Balances of
Average Daily Balance – Banks measure and compute how
much you owe on an average day of your billing cycle and use
this to calculate interest for one month.
Typical to see on most cards, but read carefully! It could be…
Two Cycle Billing – Issuers calculate the balance by making
use of the last two months of account activity.
Most expensive for card holders,
but as of 2009, the law no longer permits
Adjusted Balance - Balance is determined by subtracting
payments or credits received during the current billing period
from the ending balance. Purchases made during the billing
period aren’t included.
Best for card holders.
Credit CARD Act 2009 –
Must be 21 to get a credit card
– Unless they can show proof they earn enough income to
repay the debt
– Or have adult co-signers on their account
No more double-cycle (two-cycle) billing
Minimum 25 day grace period
No over-limit fees (transactions rejected instead)
Good Debt vs. Bad Debt
GOOD DEBT BAD DEBT
– The purchase outlasts – Financial obligations last
the debt. longer than the
– The ratio of debt to
income does not exceed – The ratio of debt to
20%. income exceeds 20% or
security if payments
cannot be made.
Benefits of Using Credit
Use of product or service before you “own” it
Free loan if you pay bill in full
Convenient- no-hassle shopping
More secure than cash – report to the bank that issued
the card within two business days and you are not liable
for more than $50
Useful in emergencies
Universal acceptance – global
Necessary for rental car and hotel reservations
Use for catalog/Internet shopping
Establish a good credit score
Disadvantages of Using
“Too convenient” – can lead to overspending
Predetermines future income
Can hurt your credit score
The 3 C’s of Getting Credit
– Can you be counted on to pay your bills?
– Do you have a steady source of income?
– How many assets do you have? How much debt do
Types of Credit Cards
Retail - Highest interest rates.
Bank Cards – Visa-MC-Discover-AE
Secured Card - For people to be able to
Reward Cards - Perks
Affinity Cards - Organizations
Choosing a Credit Card
Which One Is Best for YOU?
What is the APR?
What are the fees – penalty for over the limit,
late payments, etc.?
How long is the GRACE PERIOD?
READ THE FINE PRINT BEFORE YOU SIGN
Just starting out? Do your homework!
Get 1 credit card with a limit of $500-$1000
Pay it off (in full) every month
If you must carry a balance, keep it under 35% of
your credit limit.
Use resources on the Internet to help!
Tips to PROTECT Your Credit
Never lend your card to anyone.
Never give your card number over the phone or Internet unless you
initiated the call and you are certain of the company or organization.
Sign the back of your cards as soon as you receive them.
Do not leave your card as a security deposit or as identification.
Keep a record of your card number, expiration date, and phone
number of card company separate from your wallet.
Contact the credit card issuer if any questionable charges appear on
Federal Laws Protect You
Truth in Lending Law – Discloses all terms of loan
Fair Credit Billing Act – May dispute billing errors & unauthorized
use of your account.
Equal Credit Opportunity Act – Fair opportunity for credit based
on race, creed or gender.
Unauthorized charges – You’re only liable for $50
Credit Card Jeopardy!
Show What You Know!
Whose Team will be the