credit cards 101
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Credit Cards 101. Brought to you by SAFE Student Advocates for Financial Education. Your on campus personal financial educators! Services Include: Answers to your questions Free and confidential one-on-one financial counseling Presentations to classes and organizations Information sheets - PowerPoint PPT PresentationTRANSCRIPT
Credit Cards 101
Brought to you by SAFEStudent Advocates for Financial Education
Your on campus personal financial educators!$ Services Include:
¢ Answers to your questions ¢ Free and confidential one-on-one financial
counseling¢ Presentations to classes and organizations¢ Information sheets¢ On-line and in-office resources
Today’s Presentation
$ Introduction $ Credit card basics and terminology$ Obtaining a credit card$ Extra information for you$ How to handle disputes$ Conclusion and activity
Please ask questions at any time.
Did You Know
$ The percentage of undergraduate students carrying at least 1 credit card has risen 24% since 1998
$ 92% of college students have a credit card by their sophomore year
$ Almost half (47%) of all college students carry four or more credit cards
$ 21% of undergrads owed between $3000 & $7000 on their credit card – a 61% increase from 2000
Source: Nellie Mae, April 2002. Undergraduate Students & Credit Cards, pp. 1 & 2
What are Credit Cards?
Pre-approved credit which can be used for the purchase of items now and
payment of them later.
Are Debit Cards a type ofCredit Card?
NO!
Debit=Credit
Debit cards allow payment and purchase
to happen simultaneously
Debit Cards are:$ Not the same as
credit cards$ Not a form of credit
at all$ Directly linked to
your bank account.
Why Use a Credit Card?
$ Proper use can help establish good credit rating
$ Conveniently accepted across United States and abroad
$ Emergency buying power$ Additional form of identification$ Record of purchases on bill statement$ Often required to hold a reservation
Why Not Use a Credit Card?
$ Improper use can damage credit rating$ Higher risk for impulsive buying and overspending$ Debt trap when used unwisely$ Expensive way to borrow due to high interest rates$ Less to spend in the future due to paying off
purchases from past$ Possible hidden fees & surcharges$ Privacy is an increasing concern$ Identity theft easier
Types of Credit Cards
Cards where purchases can be made in many Cards where purchases can be made in many locationslocations
$ Bank Credit Cards¢ Card issued by financial institution¢ Credit is issued by service provider (Wells Fargo Visa
card) ¢ Balance paid-off at end of month or extended over period
of time
$ Travel and Entertainment Credit Cards¢ Credit and card issued by service provider (Diner’s Club)¢ Not accepted at as many locations as bank cards¢ Entire balance must be repaid in 30 days
Types of Credit Cards
Cards where purchases are made in Cards where purchases are made in particular locationparticular location
$ Retail Credit Cards¢ Credit and card issued by particular retailer (Old
Navy, The Bon, Home Depot, Shell Oil)¢ Balance paid-off at end of month or extended over
period of time
Obtaining a Credit Card
$ Comparison shop when choosing the right card
$ Know the facts¢ Terms and conditions of credit card accounts
differ¢ Be aware of “hidden” costs of card(s)
$ Federal Truth in Lending Act¢ Requires card issuer to display the cost of
credit card¢ Schumer Box: easy to read box format
A Schumer Box you May Expect To See
Annual Percentage Rate for purchases and balance transfers*
2.99% APR (.00819% daily periodic rate) on purchases and balance transfers until the first day of the billing cycle that includes the six (6) month anniversary date of the opening of your account. In the absence of the introductory rate, 12.99% APR(.03559% daily periodic rate) on purchases and balance transfers.**
Grace period for repayment of the balance for purchases
You will have a minimum of 25 days without a finance charge on new purchases if the total New Balance is paid in full each month by the statement closing date.
Method of computing the balance used in calculating finance charges for purchases
Average daily balance (including new purchases)
Annual fee $25
Minimum finance charge For each Billing Period that your Account is subject to a finance charge, a minimum total Finance Charge of $0.50 will be imposed.
Miscellaneous fees Cash advance fee: 2.5% of amount of the cash advance, but not less than $2.50.Late payment fee: $25 Over-the-credit-limit fee: $25 Returned check fee: $25
$ Annual Percentage Rate (APR): interest rate charged for amount borrowed in terms of percentage per year
$ Grace Period: amount of time allowed before finance charges (interest or cost of credit) are applied
Annual
Percentage Rate for
Purchases
Grace Period
for Purchase
s
Minimum Finance Charges
Balance
Calculation
Method for
Purchases
Annual
FeesTransaction Fees for Cash Advances
Late
Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic
rate is charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a minimum fee of $3
$29
A Schumer Box and Credit Card Terms Explained
$ Minimum Finance Charge: minimum amount charged for card use
$ Balance Calculation Method: method used to determine balance including finance charges
Annual
Percentage Rate for
Purchases
Grace Period
for Purchase
s
Minimum Finance Charges
Balance
Calculation
Method for
Purchases
Annual
FeesTransaction Fees for Cash Advances
Late
Payment Fees
19.9%
Not less than
25 days
$.50 when a finance
charge at a periodic
rate is charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a minimum fee of $3
$29
A Schumer Box and Credit Card Terms Explained
Balance Calculation Methods
Creditors use a number of ways to determine Creditors use a number of ways to determine howhow
interest, often called finance charges, interest, often called finance charges, accumulateaccumulate
$ Average Daily Balance Method (including new purchases witha grace period)¢ If the balance is not zero, interest is applied to new purchases
when they are made, if balance is zero, a grace period is allowed before interest is charged
$ Average Daily Balance Method (including new purchases withno grace period)¢ Regardless of the previous month’s balance, interest is applied
to new purchases as they are made
Balance Calculation Methods (continued)
$ Previous Balance Method¢ Interest is only paid on the previous balance, not on
purchasesmade since the last payment
$ Two-cycle Average Daily Balance (including new purchases)¢ This method should be avoided by consumers! ¢ The interest is paid on the current balance as well as
the previous month’s balance, this leads to double finance charges
¢ A zero-balance must be held for two months in order to avoidcharges
$ Annual Fees: yearly charge for credit card ownership
$ Cash Advance Transaction Fees: cash withdrawal fees
$ Late Payment Fees: penalty fee for payments not made by the due date
Annual
Percentage Rate for
Purchases
Grace Period
for Purchase
s
Minimum Finance Charges
Balance
Calculation
Method for
Purchases
Annual
FeesTransaction Fees for Cash Advances
Late
Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic
rate is charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of $3
$29
A Schumer Box and Credit Card Terms Explained
Opening a Credit Account
1. Applicant completes a credit application2. Lender conducts a credit investigation3. Applicant is given a credit rating4. Lender accepts or denies the credit request5. If accepted, applicant evaluates the credit
card details (USE THE SCHUMER BOX!)6. Applicant accepts or refuses credit terms
Understanding the Bill
$ Minimum Payment Due: minimum amount to be paid ¢ If this amount is paid and a balance is left on
the account, additional finance charges will be included in the following month’s balance
$ Past Due Amount: the previous amount due which was not paid before the due date
$ Due Date: the day by which the company requires a payment to be made
$ New Balance: the total amount owed on a credit card
Understanding the Bill (continued)
$ Credit Line: the maximum amount of charges allowed to an account
$ Closing Date: last day for transactions to be reported on the statement
$ Charges, Payments, and Credits: the transactions which occur with the use of a credit card
$ Finance Charge: charges assessed for credit card use
Handling Disputes
Two Types of Disputes: 1. In the case of any
unauthorized use of your card…¢ Liability Limited to
$50¢ Must Notify Company
ASAP¢ Phone AND Written
Notice Required
Handling Disputes (continued)
2. In the case of a billing error…¢ Notify Company Within
60 Days¢ Letter must include
+Name+Account+Dollar Amount Involved+Reason for Dispute+Any Other Clarifying
Information
Using a Credit Card Properly
$ Only use when there is no doubt about ability to pay-off the charges at the end of the billing cycle
$ Record all expenses and keep receipts $ Check credit statement for errors $ Always pay off balance completely and
timely
Sign card with signature and “Please See ID”
Do not leave cards lying aroundClose unused accounts in writing and by
phone, then cut up the cardDo not give out account number unless
making purchasesKeep a list of all cards, account
numbers, and phone numbers separate from cards
Report lost or stolen cards promptly
Safety Tips
Conclusion
$ What are credit cards$ Different types of credit cards$ Understanding the Schumer Box and
credit card vocabulary$ Understanding the bill$ How to handle disputes$ Tips for proper and safe use of credit
cards
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