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					           CREDIT CARDS
What to know and understand before you obtain one…
CREDIT IS…

   A contractual agreement in which a
    borrower receives something of value now
    and agrees to repay the lender at some later
    date.
   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
INSTALLMENT 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,
               education, etc.
REVOLVING CREDIT

   Monthly payment varies depending on the amount
    spent.
   Minimum payment = highest cost of credit
   Pay in full within grace period to avoid finance
    charges.
   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
                 revolving credit.
Credit Terms and
   Vocabulary
    CREDIT TERMS & VOCABULARY

   Principal
    –   The total dollar amount of purchases made on a credit card.
    –   The balance remaining on the loan not including interest.

   Finance Charge
    –   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
Purchases

 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 –
                                 What changed?

   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)

   Additional changes…
    –   http://www.creditcards.com/credit-card-news/help/what-the-
        new-credit-card-rules-mean-6000.php
    Good Debt vs. Bad Debt
     GOOD DEBT                     BAD DEBT

–   The purchase outlasts    –   Financial obligations last
    the debt.                    longer than the
                                 purchase.
–   The ratio of debt to
    income does not exceed   –   The ratio of debt to
    20%.                         income exceeds 20% or
                                 jeopardizes financial
                                 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
             Credit

   “Too convenient” – can lead to overspending

   Finance charges

   Predetermines future income

   Can hurt your credit score
         The 3 C’s of Getting Credit

   CHARACTER
    –   Can you be counted on to pay your bills?


   CAPACITY
    –   Do you have a steady source of income?


   CAPITAL
    –   How many assets do you have? How much debt do
        you have?
Types of Credit Cards


   Retail - Highest interest rates.
   Bank Cards – Visa-MC-Discover-AE
   Secured Card - For people to be able to
    establish credit.
   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
                     ANYTHING!!!!
RECOMMENDATIONS

             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!
    http://www.creditcardguide.com/
    http://www.creditcards.com/best-credit-cards.php
    http://www.debtslapped.org
      Tips to PROTECT Your Credit
              Card Account
   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
    your statement.
       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
   Hot Tamales?

				
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