Get documents about "first time credit card
Document Sample
FCS7230
YOU and YOUR CREDIT: Credit Card Basics1
Joan P. Elmore, Michael S. Gutter, and Travis P. Mountain2
Below are links to each of the YOU and YOUR CREDIT series.
Credit Dos and Don'ts: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY106400.pdf
Credit Card Basics: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY106500.pdf
Managing Your Credit: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY106700.pdf
Credit Scores: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY106800.pdf
Home Ownership and Credit: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY106900.pdf
Further Resources: PDF version ‐ http://edis.ifas.ufl.edu/pdffiles/FY/FY107000.pdf
Series of Five Parts, Bound as Single Document: PDF version ‐
http://edis.ifas.ufl.edu/pdffiles/FY/FY107100.pdf
1. This document is FCS7230, one of a series of the Department of Family, Youth, and Community Sciences, Florida Cooperative Extension Service, Institute
of Food and Agricultural Sciences, University of Florida. Original publication date September 22, 2008. Visit the EDIS Web site at http://edis.ifas.ufl.edu.
2. Joan P. Elmore, Extension Agent IV, Jackson County Extension, Marianna, Florida 32448; Michael S. Gutter, Financial Management State Specialist and
Assistant Professor, and Travis P. Mountain, Lecturer, Department of Family, Youth, and Community Sciences, Institute of Food and Agricultural
Sciences, University of Florida, Gainesville, Florida 32611.
The Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and
other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex,
sexual orientation, marital status, national origin, political opinions or affiliations. U.S. Department of Agriculture, Cooperative Extension Service,
University of Florida, IFAS, Florida A. & M. University Cooperative Extension Program, and Boards of County Commissioners Cooperating. Larry
Arrington, Dean
FCS7230
YOU and YOUR CREDIT: Credit Card Basics 1
Joan P. Elmore, Extension Agent IV, Jackson County Extension, Marianna, Florida 32448, Michael S. Gutter,
2
Financial Management State Specialist, IFAS/UF, Travis P. Mountain, Lecturer, IFAS/UF
Using credit cards to pay for goods and • Can help you to track how much you
services is a fact of life for most consumers. are spending by giving you a record of
Yet, many consumers do not take the time to your purchases.
comparison shop for them. Rebates, bonuses, • Can offer a protection against theft. If
points, or rewards that allow us to earn credit your card is lost or stolen and you
toward other services or purchases can distract notify the credit card company
us. immediately, the most you would
typically be liable for is $50 of the
While credit card balances in America average unauthorized spending. Many
over $8,000, the reality is that only about one companies currently waive this fee,
out of 20 households who have a credit card however.
actually owes more than $8,000 on their credit
card. If you do have $8,000 in credit card debt, DISADVANTAGES of CREDIT
at a typical interest rate of 18 percent, it would
take 14 years to pay it off, making the
CARDS
minimum payments of 4% of the average
daily balance ($320 per month). The cost of • Purchases may cost more, if not paid
credit is $4,715 in interest payments for a total in full at the end of the month. Interest
of $12,615. and other charges are added to the
purchase price of goods and services.
• Ties up future income. When you use
ADVANTAGES of CREDIT credit, you owe money that must be
CARDS paid back from income you have not
yet earned. This may make it more
• Allow you to shop or travel without difficult to deal with unexpected
carrying large sums of cash. Most events and emergencies.
cards are accepted all over the world. • Can encourage overspending. You
• Can give you immediate use of the may buy more than you can pay for,
goods and services, especially and may even buy things you don’t
important for expensive items like need.
appliances and furniture. • Can lead to major financial problems
• Can be used to deal with unexpected if poorly managed.
financial emergencies.
1. This document is FCS7230, one of a series of the Department of Family, Youth and Community Sciences, Florida Cooperative Extension Service,
Institute of Food and Agricultural Sciences, University of Florida. First published: September 2008. Please visit the EDIS Web site at
http://edis.ifas.ufl.edu.
2. Joan P. Elmore, Extension Agent IV, Jackson County Extension, Marianna, Florida 32448, Michael S. Gutter, Financial Management State Specialist,
IFAS/UF, Travis P. Mountain, Lecturer, IFAS/UF.
The Institute of Food and Agricultural Sciences (IFAS) is an Equal Employment Opportunity-Affirmative Action Employer authorized to
provide research, educational information and other services only to individuals and institutions that function without regard to race, creed,
color, religion, age, disability, sexual orientation, marital status, national origin, political opinions, or affiliation. For information on obtaining
other extension publications, contact your county Cooperative Extension Service office. Florida Cooperative Extension Service/Institute of
Food and Agricultural Sciences/University of Florida/Larry R. Arrington, Dean.
Credit Card YOU and YOUR CREDIT
Basics
NUMBER OF CARDS • No major blemishes on your credit
report such as a bankruptcy,
Having too many credit cards can lead to repossession, or a 90-day delinquency
overspending. Generally, consumers want at • Active accounts which show that your
least one card that is widely accepted which information is valid - at least two
active open accounts including one
also can be used for identification and
that has been open for at least two
services.
years
• Consistent payments of at least the
TYPES OF CREDIT minimum amount and no recent late
payments
• Bank Cards, such as Visa, Master • A verifiable address
Card, and Discover, are sponsored by • No more than 50 percent of your
an individual bank. The bank defines a available credit lines used
spending limit, sometimes called
credit lines, and each bank offers Apply for a credit card for which you think
different terms and conditions. you are a good candidate. For example, if you
• Company or Retail Store Cards, have no credit, look for a credit card that is
such as Sears, J.C. Penney, and Gas advertised for first time users.
Companies. Typically, these cards are
only accepted by the specific company
and do not have annual fees. However, DENIED CREDIT
the terms and conditions of these cards
do vary. The following are negative signals you may be
• Travel and Entertainment Cards sending a potential creditor, which may reduce
such as Diners Club. These cards your chances of approval:
typically have no pre-determined
spending limit and must be paid in full • Too much outstanding debt
each month. They usually have an • Too little time in current job or at
annual fee. current address
• Utilities, such as Electricity, Gas, • Unreasonable purpose for requesting
Telephone, allow you to use the credit
product and then pay at the end of the • Co-signer cannot take on additional
month. Note these are typically not debt
listed on your report, nor do they • Errors on credit report
affect your score, unless you have
missed payments and are in If denied credit, you have the right to get a
collections. free credit report.
QUALIFYING for CREDIT EVALUATING CREDIT CARDS
Use the credit card comparison worksheet to
CARDS
evaluate different credit cards for the card
costs, terms, and options. Then list the features
The following are examples or positive signals
that are best suited to your needs and spending
you may show a creditor. These typically
habits. You can analyze each credit card with
increase the chances you will be approved.
this information and select the right credit card
2
Credit Card YOU and YOUR CREDIT
Basics
for you. Printed solicitations must display the • Average daily balance including
following information in easy to read type in a new purchases with no grace period.
disclosure box. The balance from the previous cycle
and all new charges in the current
• Credit Card terms: When selecting a billing cycle are included in the
credit card, the following credit terms balance calculation even if the
and conditions are important because previous month’s balance was paid in
they affect the total cost of credit: full.
• Annual Fee: A flat, yearly charge, • Two-cycle average daily balance
similar to a membership fee, usually including new purchases. Several
$25 to $50. Many credit cards do not issuers use the two-cycle average daily
require an annual fee. balance method. It is used primarily to
• Annual Percentage Rate: The APR is back-charge interest on a balance on
the measure of the cost of credit which no finance charges were paid
expressed as a yearly rate. It may be (because the previous balance was
fixed or variable. If it is variable, this zero). This method is not favorable to
is typically tied to an interest rate consumers, especially if they are
index. trying to pay off their credit balance.
• Finance Charge: The total cost of In essence, you must pay off your
credit, which includes interest, late balance for at least two months to
fees, over- the- limit fee, other fees, avoid finance charges.
etc.
• Grace Period: Number of days Extra charges may include:
allowed for payment in full to avoid
interest. • Late payment – Your payment arrives
after the due date. When this happens,
The four main ways that credit card balances you can lose a low introductory rate or
are calculated are: trigger a higher default rate.
• Over the Credit Limit - Any amount
• Average daily balance, excluding charged over your credit line will
new purchases. This balance is trigger a fee.
figured by adding the outstanding • Cash Advances – It is not a good idea
balance for each day in the billing to use your credit card for cash
cycle, and then dividing by the number advances. The interest rate is higher
of days in the cycle. than when you use your card for
• Average daily balance, including purchases and there is usually no grace
new purchases, which have a grace period for a cash advance. Often, the
period. This balance is calculated by interest begins accruing before you
adding the outstanding balance even receive the money.
(including new purchases and
deducting payments) for each day in Read the fine print after the disclosure box.
the billing cycle, then dividing by the There may be additional fees. Your interest
number of days. The grace period only rate may be changed at any time for any
takes effect if the balance from the reason. For instance, even with a fixed rate
previous billing cycle was zero. card, the rate can still be increased if you miss
a payment.
3
Credit Card YOU and YOUR CREDIT
Basics
YOUR RESPONSIBILITIES the creditors to correct inaccuracies and
update the credit bureaus. You should
• Assess your financial situation and follow up with the credit bureau to verify
determine how much you can repay this is done. Experts recommend that you
monthly. check your credit report annually to spot
• Understand the total cost of credit. inaccuracies and detect identity theft
• Keep copies of your transactions and problems. Note this does not always
compare with your monthly improve one’s score but can eliminate a
statement. source of temptation.
• Remove and destroy all credit card
carbons; these are not common but DID YOU KNOW?
you may encounter them.
• Do not give your credit card numbers Universal Default is the industry's name for
to anyone who has initiated a phone the practice of raising your interest rate
call or via the internet.
automatically if you're late on any credit
• Pay bills on time and notify creditors card or loan payments. This means that if
if you can’t pay on time.
you are late with a payment on one credit
• Inform your creditors of any billing
card, the APR on one or more of your other
errors.
credit cards could increase. In addition,
• Make a list of all credit card account
some cards may have tiered rates applying
numbers and the issuer’s telephone
to different purchases. However, payments
numbers.
you make will typically first reduce the
amounts tied to the lower rate.
CARD CANCELING
PROCEDURE
• Cancel AFTER card is paid in full.
• NOTIFY the card issuer by phone.
• FOLLOW UP with a letter and send
by certified mail or “return receipt
requested.” The letter should say that
you are closing your account and that
you want your credit report to reflect
that it was closed per your request.
• PROVIDE your name, address, and
account number.
• CHECK your credit report.
Wait a month or two, then get a copy of
your credit report and make sure it says-
Closed at customer’s request. You don't
want your report to say “Account closed by
creditor,” as that reflects negatively on you.
Credit bureaus report what creditors tell
them. If your credit report is inaccurate, ask
4
Related docs
