StandardSSEPF4 – The student will

evaluate the costs and benefits of using a credit card.

SSEPF4a- List factors that affect credit worthiness.

CreditCredit is the ability to obtain

goods or services before paying them, based on a promise to pay later.

Each time a person uses credit he or she is in effect borrowing money.

Revolving CreditIt is credit that is available up to

a limit and automatically renewed when debts are paid off or down.

The 3 C’s of Credit WorthinessCharacter

• Are you a good person?

• Do you have a job?

• Have you used your credit wisely?

Capacity

• How much money do you want?

• Are you able to pay it back?

Collateral

• Property or other security used to guarantee the repayment of a loan

Other Factors that affect Credit WorthinessPayment on timeHow much credit are you usingHow many people have looked at

your credit

Benefits of good creditLow interest rates meaning lower

paymentsEasy to get loans and more credit

Causes of problems

High Monthly Payment

Cannot afford to buy things

Unpaid Balances or Worst Case Scenario

Bankruptcy

What is the first step in choosing a credit card?Determine how it will be used

◦Emergencies◦Purchases◦Bill paying◦Gas

What about APR?APR is the Annual Percentage

Rate.◦The cost of credit (finance charge)

expressed as a yearly percentage.Credit Cards can have many

different APR’s.◦Purchases ◦Cash Advances◦Balance transfers◦Late Payments or Introductory Rates

Fixed vs. Variable APRFixed APR’s do not change with

out notice from the credit company

Variable APR’s can change at specified times according to your contract (usually every 6 months).

Credit LimitThe maximum total amount the

user may charge on the card.

Common IncentivesRebatesFrequent Flyer

MilesAdditional

Warranty coverage

Car rental insurance

Travel accident insurance

Rewards points

Common Fees Credit Cards ChargeAnnual fee – Charged for having

the cardCash-advance fee – when the

user gets cash from on ATMBalance transfer fee – when the

user moves a balance from another credit card

More Fees…..Late payment fee – charged

when payment is received after the due date.

Over-the-credit limit fee – when the user goes over their credit limit.

Credit-limit increase fee – when a user asks for an increase in the credit limit.

And even more fees…..Set up fee – charged when a new

account is openedReturn item fee – when the user’s

payment check bounces.

Other fees◦Paying by phone◦Talking to a customer service person◦Reporting to credit bureau’s

Credit Card Companies must disclose:APR’s for purchasesOther APR’sVariable rate informationGrace period for repayment of balancesMethod of computing the balance for

purchasesAnnual feesMinimum finance chargeTransaction fee for cash advancesBalance-transfer feesLate-payment feesOver-the-credit-limit fees

Consider this situationIt is midnight and your car breaks

down. You are far away from home. You use your cell phone to call an auto-repair service. The service representative says that a service visit will cost $50, plus the cost of any parts or labor that are necessary to get you driving again. All you have is $7 in your pocket (you have no debit card). Should you use a credit card? Explain your answer.