Credit Cards
How to Use Them, But Not Abuse Them
Developed by Melissa King
Agenda
Credit Cards: The Basics
Credit Reports
Positives and Disadvantages of Credit Cards
The Do’s and Don’ts of Credit Cards
Credit Cards: The Basics
What is credit?
It is a loan, allowing you to receive goods
and services now and pay for them later
It is an agreement that the money borrowed
will be paid back
It is a debt, it is NOT income
It comes with fees; interest and other charges
Credit Cards: The Basics
Fees, fees, and more fees
Interest rate fees--what you pay for using the $$
usually 10% - 25% for students (after intro rate)
Annual fee for just having the credit card
Over the limit fees, charged whenever you
exceed your credit limit
Late payment fees
Transaction fees
Other miscellaneous fees
read the fine print!!!
Plastic Money
Charge Cards
must be paid back every thirty days
provides convenience of not having to pay for
purchases with cash, but balance may not be
carried over month-to-month
Credit Cards
operate on a credit limit and revolving basis
if not paid-in-full within grace period, interest
is charged on the remaining balance
Plastic Money
Debit or Check Cards
allow access to checking account via ATMs
and point of sale (POS) terminals
amount is deducted from checking account
not a charge card, must have the funds available
“Smart Cards”
these cardsstore personal information
may be “loaded” with a certain dollar value that
can then be spent at POS terminals
Students & Credit Cards
Some recent statistics
76% of undergraduate students (18-24) have
credit cards (an 8% decrease from the 83% with
cards in 2001)
56% of final year students have four credit
cards or more (up from 27% in 1998 & 32% in
2000)
2005 Nellie Mae Study
Credit Card Ownership by Grade
Level
Year 1 Year 2 Year 3 Year 4/5
Percentage 42 72 83 91
who have
credit cards
Average 2.26 3.44 4.0 5.07
number of
credit cards
Percentage 15 34 41 56
who have 4
or more
cards
Student Credit Card Balances
1998 2000 2001 2004
Average $1879 $2748 $2327 $2169
credit card
debt per
student
Median credit $1222 $1236 $1770 $946
card debt per
student
Percentage 14 13 21 16
with balances
$3000-$7000
Percentage 10 9 6 7
with balances
over $7000
Stats on Credit Card Balances
By senior year, 31% of students have a balance
of $3000-$7000
1 in 8 students owe $7,000 or more
In the past 10 years, bankruptcy filings by those
under 25 have increased by 96%
Credit Card Debt – EUP students
Spring, 2001
Credit Card Debt
$5000 or more 7.6
$4000 - $4999 2.0
$3000 - $3999 2.0
$2000 - $2999 3.7
$1000 - $1999 7.1
$500 - $999 5.3
Total %
$250 - $499 5.5
$100 - $249 5.1
$1 - $99 4.5
None, pay full amount 18.0
None, not responsible 5.1
I don’t have a credit card 31.8
0.0 10.0 20.0 30.0 40.0
Percent
Credit Reports
Your financial resume
Shows financial responsibility
Follows you for life - just like your school
transcript
Credit Reports
What is in a credit report?
personal information
payment history
amount of credit you have access to and are
using
inquiries
public records, judgments, liens, bankruptcies
Credit Scores
Range from 300-850
Components:
Payment history (35%)
Outstanding debt (30%)
Length of credit history (15%)
Number of inquiries on your report (10%)
Types of credit currently (10%)
More Info on Credit Scores
Check the Internet
www.myfico.com
http://money.howstuffworks.com
www.bankrate.com
The Positives
majority of students use credit cards
responsibly
provide convenience and security
allow students to establish credit histories
The Disadvantages
college students are more likely than other
types of credit card users to run up debts
they cannot pay
many students do not understand the
consequences of incurring excessive debt
and making payments late
impaired credit rating
more difficult and costly to obtain credit later
The Disadvantages (continued)
college students (with limited or no credit
history and income) are charged higher
interest rates
many students pay only the minimum
amount due each month, not aware of how
much this will cost them in interest and time
Credit Card Payment Behavior
Pay off all credit card balances on all cards each 21%
month
Make the minimum monthly payments on all 12%
cards every month
Pay off some cards in full each month but make 8%
only the minimum monthly payment on others
Make more than the minimum payment but 44%
always carry a balance
Make less then the minimum payment on some 11%
or all cards each month
My parents pay my credit card bills 4%
Table 1. Minimum Repayment Schedule
on a $2000 Credit Card Loan at 19 Percent
Minimum monthly Number of months Total Interest
payment amount to repay Payment
$40 100 $1,994
$50 64 $1,193
$75 35 $619
$100 25 $424
Source: Credit Card Minimum Payment Interest Calculator, Daniel C. Peterson
www.webwinder.com
Interest savings between lowest/highest payment = $1,570;
time saved = 75 months or 6.25 years!
Credit Cards: Possible
Consequences
Between 10 - 20% of students are risking
unacceptably high levels of debt
Many students must take on additional jobs to
pay their debts
Many cut back on the number of classes or drop
out of school all together
Career choices can be limited
Some are forced to file bankruptcy
Credit Cards: The Risks
Characteristics of high-risk use
Average credit card balances over $1,000
Owning four or more credit cards
Carrying a balance each month
Using credit cards to charge tuition or fees
Credit Card Don’ts
Don’t use them for cash advances
Don’t use them to pay for basics: rent,
groceries, etc.
Don’t charge more than you can pay off
in a month
Don’t let banks increase your credit limit
Source: USA Funds Life Skills -Module 1
Credit Card Do’s
Limit the number of cards you have
Use a debit card instead of a credit card
Use a card that has no annual fee and lower
interest rates
Know all of your card’s fees
Pay your full balance each month or at least
pay more than the minimum amount due
Pay on time, all the time
Source: USA Funds Life Skills -Module 1
Questions ? ? ?
Student Financial Support and Services
can help!
www.youcandealwithit.com
Community Resources
Consumer Credit Counseling Service of
Western Pennsylvania Inc
4402 Peach St
Erie, PA 16509
866-4509