Presentation on theme: "BUDGETING FOR COLLEGE: Credit Cards & Credit Reports"— Presentation transcript:
1BUDGETING FOR COLLEGE: Credit Cards & Credit Reports Andrea Morgan, Gary Moore, Melissa Greenslade Program Coordinators University of Arkansas, Office of Financial Aid
2What is Credit?Credit the extent to which someone, usually a bank, is willing to loan you money and trusts that you will pay it back in the future.
3Benefits and Rewards of Using Credit Can be helpful in emergency situationsCan be safer for online purchases or travelSafer than carrying cashEstablish good credit history
4Risks of Credit Cards Easy to make impulse purchases Interest rates (APR) and fees can add up and increase the amount you oweCould damage your credit report
5Establish Healthy Credit Having a good credit history is important!To qualify to borrow more and at a lower interest rate on future purchases, like buying a car or a houseTypes of Credit:Revolving Accounts: Credit CardsSecured, Store, Standard(Retail) Installment LoansMortgage LoansStudent LoansDon’t use over 15-20% of your net income for non- mortgage debt payments
6Types of Credit:Secured Credit: something of value is presented to the lender as collateral in case you default on the loan.Examples: Vehicle or House Loans – if you don’t pay, the lender can take back your car or house.Unsecured Credit: a loan that does not have collateral securing the loan. If you stop paying, there is nothing for the lender to take back.Examples: Credit Cards, Student Loans, Personal Loans
7Dangerous Credit! Payday Loans Cash Advance on your Credit Card Rent to Own
8Credit Card Rules for Those Under 21 Anyone under 21 will need a co-signer for a credit card and/or to prove ability to payThe co-signer must agree in writing to any credit limit increaseConsumers under 21 can sign up for a secured credit card.
9Evaluating Credit Card Offers When evaluating a credit card offer consider:APR (Annual Percentage Rate)Grace Periodand Fees(sample credit card offer handout)
10APRAnnual Percentage Rate: the actual cost of borrowing money, expressed in the form of a yearly measure (monthly interest = APR)Can be Fixed or VariableFixed stays the same throughout the loanVariable rates can change annually, monthly or quarterlyAverage Credit Card Interest Rate: 14.97%(#1-6 and 12 on sample credit card offer handout)
11Credit Card Grace Period The Grace Period is the number of days you have before you’ll be charged interest on your purchase amount, usually between 20 days and 1 month.(#5 on sample credit card offer handout)
12Credit Card Fees Annual Fees – between $25 and $60 Cash Advance Fees Balance Transfer FeesLate Fees – average $29Over the Limit Fee - $25 per purchase(#7, 8, 9 on sample credit card offer handout)
13What to Look for in a Credit Card Offer Look for the lowest APR, no annual fees, a grace period, and rewards you might be interested in getting (cash back, airline miles, etc.)Good credit sources will be able to offer lower interest rates, provide repayment assistance, and remedy errors and correct billing statements(credit cards tab)
14Reading Your Credit Card Statement (sample credit card account statement handout)Summary of Account ActivityPayment InformationLate Payment WarningMinimum Payment WarningNotice of Changes to Your Interest RateOther Changes to Your Account TermsTransactionsFees and Interest ChargesYear-to-date TotalsInterest Charge Calculation
15Repayment Example Credit Card Balance = $1000 APR 15% $20 minimum paymentHow long to pay off loan at minimum payment?7 years!How much interest will be charged during that time?$580!Credit Card Repayment Calculator:
16Credit Reports and Credit Scores A credit report is a collection of information about you and your credit historyIncludes personal information, account information, some public record information, inquiries into your credit, and creditor information listFree credit reports available annually atA credit score is a number predicting how risky it may be to lend you money.Fair Isaac Score (FICO) or VantageScore
17What Makes Up Your Credit Scores FICO ScoreVantageScorePayment History- 35%Outstanding Balances- 30%Length of Credit History- 15%New Credit- 10%Credit Mix- 10%Best: 850 Good: 720 Worst: 300Payment History- 32%Utilization- 23%Outstanding Balances- 15%Depth of Credit- 13%Recent Credit- 10%Available Credit- 7%Best: Worst:
18Why are Credit Reports and Credit Scores Important? Lenders usually look at your credit history to help determine whether they will extend you credit, how much, and at what interest rateEmployers and Service Providers may also look at your credit historyMaking late payments, having too many credit cards, or being up to your credit limit can have a negative impact on your credit scoreNegative information can stay on your credit report for 7-10 years
19Be a Good Credit Consumer Wisely consider the types of debt you haveOnly borrow for purchases that help you make money, grow your wealth, or satisfy basic needsUse credit cards sparingly; keep debt balance lowStop charging the moment you know you can’t pay the entire balancePay off credit cards in full and on time each month, or at least pay more than the minimum amountKnow your budget and live within your means
20What if you Are in Over Your Head? Set a budget and stick to it!Pay more than the minimum payment amountCall your credit card company to see if they can work with you on a payment planPay off debt with the highest interest rate first or pay off debt smallest balance firstFind a reputable credit counselorUse savings or assets to pay off debtMaintain a good payment history for months and then petition to lower your interest rate
21The Long and Short of It… College Credit for Life
22Before you go… Please complete and submit your evaluation forms PowerPoint presentation and handouts will be posted on our website
23Thank You!Contact Information:Office of Financial Aid; Andrea, Gary, and MelissaCampus location: 114 Silas Hunt HallPhone:Fax:Website:And find us on Facebook at University of Arkansas Financial Aid!