how to close a credit card

Document Sample
how to close a credit card Powered By Docstoc
					                               Agenda




Understanding Credit and
Identity Theft: Protecting Your Good
Name



Margaret Carothers
Pitzer College


David Levy
Scripps College

                                        1
                              Agenda




All About Credit
• What is credit?
• Credit cards
  – Rewards
  – Risks
  – Terms
• Interest rates
• Using credit successfully

                                       2
                                 What is Credit?




What Is Credit?
• Borrowing money
  – Paying interest
  – Paying fees
• Revolving
  – Can repeatedly borrow up to a set limit
  – Minimum payments
  – Possible fees
• A credit card is a loan

                                                   3
                                   What is Credit?




When to Use Credit or Cash
• When the bill is paid off, will:
  − I remember what I bought?
  − the item have value?
  − the total cost be worth it? (item + interest)
• Yes to all is a good use of credit
• No to one, consider paying cash



                                                     4
                     Credit Card Risks and Rewards




Credit Card Benefits
•   Emergency
•   Convenient
•   Internet purchases
•   Car rental
•   Safer than carrying cash
•   DVD rental membership
•   Travel & cash-back rewards

                                                     5
                      Credit Card Risks and Rewards




Rewards of Wise Credit Use
•   Easier to rent an apartment
•   Easier to buy a car
•   Increases job opportunities
•   Better interest rates
•   Saves money
•   Helps establish good credit


                                                      6
                      Credit Card Risks and Rewards




Credit Card Risks
•   Fees
•   High interest rates
•   Short or no grace period
•   Impulse purchases
•   Emotional spending
•   Bad credit
•   Confusing credit terms

                                                      7
                        Reading a Credit Card Offer




Reading a Credit Card Offer
• Annual percentage rate (APRs)
• Other APRs
  – Balance transfer
  – Cash advance
  – Default
• Variable/fixed interest rates



                                                      8
                          Reading a Credit Card Offer



Reading a Credit Card Offer
• Grace period
• Method for computing interest charges
• Fees
  – Annual
  – Cash advance
  – Over limit
  – Late
  – Others
• Additional fine print
                                                        9
                             Reading a Credit Card Offer




APR
• Annual Percentage Rate (APR)
 – Annual basis
 – Up-front charges
   • Origination fees on non-credit card loans
 – Compounding frequency
• Can make shopping easier
 – Price tag


                                                           10
                            Reading a Credit Card Offer




Interest Rate
• A charge for a loan
 – Shown as a percent of borrowed amount
• How payment is applied for most loans
 – Fees
 – Interest
   • Lowest interest rate balance
   • Higher interest rate balance
 – Principal

                                                          11
                           Reading a Credit Card Offer




Fixed or Variable Rate
• Fixed Rate
 – Rate doesn’t change
 – Risk is on the lender
   • When rates increase
• Variable Rate
 – Rate changes
 – Risk is on the borrower
   • When rates increase

                                                         12
                          Reading a Credit Card Offer




Determining Interest Rates
• Index + margin = rate
• Index (cost of funds)                           4%
 – T-bill, LIBOR, Prime             +

• Margin (covers expenses)                        6%
• Rate the borrower pays                       10%



                                                        13
                          Reading a Credit Card Offer




Adjustment Period
• Credit card rate change frequency
  – Annually, quarterly, monthly
• Purpose
  – Easier budgeting for borrower
  – Maintain lender’s margin




                                                        14
                           Reading a Credit Card Offer



Grace Period
• Number of days without interest
• Between 20 days & one month
• Conditions
  − Pay new balance in full for billing period
  − Before due date
• Making minimum payments
  − No grace period
  − Interest charged from purchase date

                                                         15
                          Reading a Credit Card Offer


Calculating Interest Charges
• Average daily (most common)
 – Outstanding balance ÷ number of days
• Two-cycle (most expensive)
 – Outstanding balance for last month and this
   month ÷ by number of days
• Adjusted
 – Balance at beginning of cycle minus payments
   during cycle
• Previous
 – Interest based on balance at beginning of cycle
                                                        16
                         Fees and Fine Print




Types of Fees
•   Late
•   Annual
•   ATM
•   Over the limit
•   Cash advance
•   Balance transfer
•   High interest rate

                                               17
                         Fees and Fine Print




Cash Advance Fee
On a $20 cash advance, you’ll be charged:
• 3% of amount, but
  − no less than $5
  − or more than $50
• A $5 fee on a $20 cash advance is a
  hefty 25%!



                                               18
                          Fees and Fine Print




The Fine Print
Raising your rate to 24.99% or higher
• Fail to pay on time
• Fail to pay another creditor on time
• Bounce a check for a credit card
  payment
• Exceed your credit limit


                                                19
                           Fees and Fine Print




Credit Card Temptations
• Bonuses          • Teasers
 − Free gifts        − Introductory rates
 − Miles/points      − Balance transfers
 − Cash back         − Limited-time offers
 − Car discounts
 − Merchandise
   discounts


                                                 20
                                         Fees and Fine Print




Paying for Free Gifts
                     Cash     Late   Over                   Annual
                                             Annual
             Est.   Advance          Limit                Interest on
                              Fee             Fee
            Value     Fee             Fee                   $1,000
Gift         $5      $30      $29    $29        $0        $149 - $229
Cash Back    $2      $30      $29    $29        $0        $149 - $229
Airline     $12      $20      $29    $29       $39        $154 - $229
Miles
Shopping    $50      $30      $29    $29        $0        $189 - $240




                                                                        21
                             Charging Habits




Charging Habits for One Week

        Expense               Cost
  Morning coffee           $20/week
  Eating out               $35/week
  Night out with friends   $45/week
  Total                    $100/week



                                               22
                                                    Charging Habits




True Cost of Charging $100
                                                    Minimum
         End of Period            Balance
                                                    Payment
       1st month                       $400               $12
       1 year                         $4,713             $146
       5 years                        $2,232              $69
       10 years                        $877               $21
       19 years                           $7               $7

Assumes $100 weekly charge for 52 weeks then borrower stops charging.
Payments based on 3 percent minimum payment. Interest rate is 18 percent. No
additional charges made in years 2-19.
                                                                               23
                              Convenient Alternatives




Convenient Alternatives
•   Cash
•   Checks
•   Debit & check cards
•   ATM cards
    – Track expenses and avoid usage fees
• Loan
    – Usually less expensive than a credit card
    – A fixed repayment term
                                                        24
Create a Good Credit History
• Pay your bills on time
• Keep your debt load reasonable
• Understand the basics
• Know the terms and conditions of all
  credit
• Review your credit history every year



                                          25
Your Credit Report
• Visit annualcreditreport.com
• One free credit report per year from
  each reporting agency
• Additional reasons for free reports
  – Unemployed and plan to apply for
    employment in the next 60 days
  – Denied credit within 60 days on public
    assistance
  – Denied employment or insurance in the past
    60 days
  – A victim of identity theft
                                                 26
Credit Reporting Agencies
• Equifax, 1-800-685-1111
  – www.equifax.com
• Trans Union, 1-800-888-4213
  – www.transunion.com
• Experian, 1-888-397-3742
  – www.experian.com




                                27
Information on Your Credit Report
• Personal Information
  – Name, address (current and prior), SSN,
    DOB, employment
• Credit Information
  – current open accounts, closed accounts,
    rating and number of day(s) delinquent,
    timeliness of repayment, installment or open
    ended
• Public Record Information
  – bankruptcy, legal judgment, property lien,
    warrants                                       28
Information on Your Credit Report
• Inquiries
  – Creditors and agencies who have requested
    your credit report
• Statements of dispute




                                                29
Sample
Credit
Report




         30
Fixing Errors
• Document discrepancies in your credit
  report in a letter to the credit reporting
  agency, detailing:
  – Name, address, SSN
  – Account and account numbers in dispute
  – The information you are disputing and why
  – Any documentation to support your claim
  – A request for an updated credit report
    reflecting the correct information

                                                31
   FICO (Fair, Isaac and Company)
   Scoring, a.k.a. Credit Scoring
• Credit scoring is a system creditors use to help
  determine
   – Whether or not to give you credit
   – The interest rate to charge for the credit they do give
• A credit scoring system awards points for each
  factor that helps predict who is most likely to repay a
  debt
• Your credit score is based on information on your
  credit report, therefore, make sure your report is
  accurate


                                                               32
What is Your Credit Score?
• Forecast of how likely you are to repay
  a debt as agreed during the next 24
  months
  – The higher the score, the better the score, the
    better the forecast that you will repay
• Snapshot of your credit history at a
  particular point in time
• Only includes factors related to your
  credit
• Always changing
                                                      33
Information Considered in
Scoring




                            34
Credit Scoring Does Not Consider:

• Race, color, religion, national origin,
  sex or marital status
• Age
• Employment history, occupation, salary
• Where you live
• Non-credit inquiries
• Any information not found in your
  credit

                                            35
Why Credit Scoring?
• More than 70% of the top 100 financial
  institutions use FICO scoring to make
  billions of credit decisions annually
  because it is …
  – Fast
  – Consistent
  – Objective
  – Cost Effective
  – Reliable and updated regularly
  – Strong analytical support
  – Support increase lending               36
FICO Scores - Ranges and Grades

•   760 and above Excellent A++
•   700 to 759 Very Good A+
•   680 to 699 Good A
•   660 to 679 Above Satisfactory B
•   640 to 659 Satisfactory B-
•   620 to 639 Below Satisfactory C



                                      37
Improving Your FICO
• Make loan/credit payments on time
• Pay down your debt and consider
  charging less often
• Keep balances low
• Don’t close old, paid-off accounts
• Don’t be afraid of credit counseling
• Stay out of bankruptcy


                                         38
Identity Theft
Protecting Your Good Name




                            39
Identity Theft
• Identity theft is the deliberate
  assumption of another person’s
  identity by using their personal
  information, such as date of birth,
  mother’s maiden name and social
  security number
• The theft of identity is usually to gain
  access to their credit and commit fraud
• Most identity theft is committed by
  people we know like friends, family, or
  co-workers                                 40
Protect Yourself
•   Check financial statements promptly
•   Review your credit report annually
•   Be careful with personal information
•   Say NO
    – opt out of credit offers
    – minimize the number of credit cards you carry
      by calling 1-888-567-8688.



                                                      41
Protect Yourself
•   Shred and destroy
•   Protect your mail
•   Beware of strange ATM’s
•   Watch “Shoulder Surfing”
•   Keep your eye on your card at
    restaurants and gas stations.



                                    42
Steps to Take
If You Are a Victim
• Place a fraud alert
• Start your search
• File a police report
• File and complete the Federal Trade
  Commission
• Identity Theft Affidavit (1-877-ID-THEFT)
• Document everything

                                              43
  WHAT CAN YOU DO?
DETER
 Deter identity thieves by safeguarding your information
DETECT
  Detect suspicious activity by routinely monitoring your financial
  accounts and billing statements
DEFEND
  Defend against identity theft as soon as you suspect a problem



                                                                  44
DETER identity thieves by safeguarding your information.

   Shred financial documents before discarding them

   Protect your Social Security number

   Don’t give out personal information unless you’re sure who

   you’re dealing with

   Don’t use obvious passwords

   Keep your information secure


                                                                45
DETECT suspicious activity by routinely monitoring your financial
accounts and billing statements.
   Be alert
       Mail or bills that don’t arrive
       Denials of credit for no reason
  Inspect your credit report
       Law entitles you to one free report a year from each nationwide
       credit reporting agencies if you ask for it
       Online: www.AnnualCreditReport.com; by phone: 1-877-322-8228;
       or by mail: Annual Credit Report Request Service, P.O. Box 105281,
       Atlanta, GA 30348-5281
  Inspect your financial statements
       Look for charges you didn’t make



                                                                            46
DEFEND against identity theft as soon as you suspect
a problem.
 Place a “Fraud Alert” on your credit reports by calling any one of the
 three nationwide credit reporting companies:
      Equifax: 1-800-525-6285
      Experian: 1-888-397-3742
      TransUnion: 1-800-680-7289
      Review reports carefully, looking for fraudulent activity
  Close accounts that have been tampered with or opened fraudulently

  File a police report

  Contact the Federal Trade Commission



                                                                          47
 WHERE CAN YOU LEARN MORE?
Online: ftc.gov/idtheft


By phone: 1-877-ID-THEFT


By mail: Identity Theft Clearinghouse
     Federal Trade Commission
     600 Pennsylvania Avenue, NW
     Washington, DC 20580



                                        48
Credit Trouble




                 49
Signs of Credit Trouble
• Your credit card balances are rising
  and your income is decreasing
• Only paying the minimum monthly
  payment
• Too many credit cards
• Near, over, or at your limit



                                         50
Signs of Credit Trouble
• Charge more than you pay monthly
• Using credit for food or gas
• Lost job
• Receiving letters and calls on
  delinquent debts
• Use credit cards because you have no
  money


                                         51
Steps Toward Resolving Trouble

•   Contact your lenders immediately
•   Stop using credit
•   Pay your bills when they are due
•   Consolidate
•   Get help from the professionals



                                       52
Credit Counseling Resources
• National Foundation for Credit
  Counseling (NFCC) and its member
  agencies
  – Member agencies known as Consumer Credit
    Counseling Services (CCCS)
  – To locate, visit: www.nfcc.org or call (800)
    388-2227




                                                   53
                                    Review




Using Credit Successfully
•   Identify your spending habits
•   Understand the fine print
•   Manage credit wisely
•   Have only one card
•   Pay balance in full each month
•   Ask for help at the first sign of trouble


                                                54
                              What’s Next?




What’s Next
•   Solving The Financial Aid Puzzle
•   Date: January 2009
•   Time: 7pm
•   Location: TBA




                                             55
    Credit 100
Understanding Credit



                       56

				
DOCUMENT INFO
Shared By:
Stats:
views:63
posted:1/4/2009
language:English
pages:56