4Corkboard ME…Copy the address on the SMART board and post two things you know about credit cards…Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!
5What is Credit?Opportunity to obtain money, goods or services without having cash in exchange for promise to pay in future.Credit 101 Quiz
6Did you know… Additional facts (Creditcard.com) Average credit card debt: $15,279Nearly two in five Americans (39 percent) carry credit card debt from month to month77 percent of the adult population of the U.S. has credit cardMost Americans have four or more credit cardsAbout 60% consumers pay off bill in full each monthThe average outstanding credit card balance of college students reported in 2012 was $75527 percent of all college students surveyed in spring 2012 had a credit card in their own nameIn 2012: Number of bankruptcy filings was 1,261,140 (down 14% from 2011)Additional facts (Creditcard.com)
7Credit Card Characteristics Convenient form of borrowing1959: Bank of America introduced 1st revolving credit cardMake unlimited number purchases up to pre-approved amountWhen pay, amount goes back up to limitRequire a minimum payment each monthPercentage of balance
8Debit Card & Prepaid Card Characteristics Introduced 1984Tied to checking accountImmediately withdrawnPrepaid Card:Put money on cardPay as you go until 0 valueReload card with more money
9Activity 2: Which Card is This? Credit cards Debit cards PrePaid cardsLoad card with money and pay as you goPrePaid CardTied to checking accountDebit CardHas a spending limit and can be paid back over time?Credit Card
10Secured and Unsecured Cards VSSecured card:Require collateral or deposit to obtain credit$500 limit and $500 in savingsCan get secured credit with no credit history or negative historyUnsecured card:Do not require collateral or deposit to obtain creditUsually need good credit history
11Student Credit Cards Low (or no) introductory interest rates Average interest rate: %Cash back bonusesSome offer no income requirements and no co-signer neededTypically low credit limitOften no annual feeImages changed
12Rewards CardsAre offered by hotels, airlines, and/or your credit card company directlyEarn points for amounts charged on card toward free or discounted travel, hotel, or other goods and servicesUsually charge annual feeMay give cash rebatesAverage Interest Rate: %
13Pre-Approved Card Offers Offers from creditors that you might be able to get advertised interest rate and limit based on viewing your credit reportActual terms depend on income, employment and credit historyNational Average Interest Rate: 14.2% (Dec.2013)Bad Credit Interest Rate: 23.64% (June, 2013)use to find nat avg interest ratebad credit rate found
14There are NO Guarantees! Pre-Approved OffersThere are NO Guarantees!“Pre-approved” but must still qualify for cardRead agreement carefullyShop around! Don’t always take first offerMay be hidden costs such as transfer fees
15Before Applying… Decide what use for Not free money Loan and must pay back with INTERESTFind out interest rates and credit limitOpt out prescreened offersCall OPTOUTShred unwanted applications
16Where can you find credit card offers? Direct mailOnline ads/pop-upsRetail store check out linesMagazinesNewspaperBooths at sporting events, theme parksBooths or tents at collegesMalls
17How do credit card companies sell you to get their card? Low or 0% introductory ratesCash back bonusNo annual feesPersonalized or stylized cardsFree productsHats, t-shirts, reduced air fare tickets
18Shopping for the Best Deal Credit cards have different terms:Annual percentage rate(APR)FeesGrace periodBalance computation methodCash advance requirements and feesBalance transfer requirements and feesHand out Sample Credit Card Forms
19The Fair Credit & Charge Card Disclosure Act Requires lenders to disclose APR, cash advances, and annual feesMust include box describing key features and costs and disclose terms in writingSchumer BoxMore Info…
20APR (Annual Percentage Rate) Cost of borrowing moneyLow Introductory ratesTeaser RatesMust state how long introductory APR lastsAPRs are fixed or variableCharge different rates for different types of transactions
21APR (Annual Percentage Rate) (cont’d.) Penalty APRIncrease in APR if payment is made late or exceeds credit limitPenalty APRs are about 52% higher than regular APRsUniversal DefaultIf you are late paying other loans (such as house, car, phone, APR rate will increase on cardpolicy, even if credit card payment was not late
22Fees Annual fees Late fees Over-the-limit fees Balance transfer fees Cash advance fees
23Grace PeriodSpecified number of days to pay your balance before credit card company starts charging interest and feesFree 25 daysGrace PeriodCosting you money!
24Balance Computation Method States how interest is determinedMost common is average daily balance method
25Cash Advance Ability to get cash from credit card Usually fee for serviceExample: “2%/$10” means 2% of the cash advance amount or $10, whichever is moreAPRs on cash advances are typically much higherNo Grace Period – interest begins immediately!
26Balance TransferMoving unpaid debt (amount of money you owe) from one card to anotherEncouraged by some companies using low rates on transferred balancesBe weary of transfer fees!
27Truth in Lending Disclosure Mandates disclosure of information about cost of creditFinance chargeAPRPayments and payment scheduleProtects against unauthorized useIf lost or stolen, max. amount liable $50
28Other Factors to Consider Customer serviceAccess to account InformationBill PaymentUpdate personal informationProblem resolutionAdditional protectionLose your job & unable to pay billsLose cardIdentity is stolen
29Tips to Think About When Choosing a Card How and when you will use cardStart smallUnderstand terms before accept cardBeware of introductory ratesBeware of application feesUnderstand fixed and variable ratesCredit Card Simulator
30Application Requirements Individual credit – based on assets, income, and credit historyJoint credit – based on assets, income, and credit history of two people who applyTypically, you must be at least age 21 to apply
31Credit Report – A record of how you paid your debts…
32Credit Report – What is it? A record of how you paid your debts…
33Credit Report – What’s on it? A record of how you paid your debts…Identifying InformationName, current and previous address, SS number, DOB, current and past employers, spouse infoCredit InformationAccounts with banks, retailers, credit card issuers, utility companies, mortgage, student loan,Date opened, Credit limit, Co-signersPayment pattern over past two yearsPublic Record InformationBankruptcy, tax liens, monetary judgmentsRecent InquiriesName of those who obtained copies of your credit report within past year
34Credit Reporting Agencies Fair Credit Reporting ActRequires each of 3 agencies to provide FREE copy of reportEquifaxSampleExperianTransUnion
35You may also get FREE copy if… Denied credit, insurance or employmentUnemployed and plan to look for job within 60 daysReceiving public assistanceReport inaccurate b/c of fraud or identify theft
36Credit Score Determines credit risk Determined by your credit report Two typesFICO (Fair Isaac Corp)VantageScoreCheck your score before applying
37The national average FICO score was 646 as of July 2013 Scores range from 300 to 850The higher your score, the betterGreatVery GoodGoodNot GoodBadThe national average FICO score was 646 as of July 2013
38The national average VantageScore was 750 in 2012 New as of March 2006Used by all three reporting agenciesShould be the same score from each agencyScores range from 501 to 990Number score goes with a letter gradeExample: = A, = FThe national average VantageScore was 750 in 2012
39Denied Credit?Poor credit historyNot at current address or job long enoughIncome not high enough60 Days to contact credit bureau to receive free copy of credit report!
40How long does information stay on my credit report? Suits, judgments, tax liens, arrestrecords, collection agencies7 yearsBankruptcy10 yearsYou have right to dispute any incorrect information with credit agency and/or company
41Using Your Credit Card Responsibly Protect card and account numbersDraw line through blank spaces on charge slipsTear up or shred receiptsKeep a record of account informationCarry only cards you think will useAvoid having more than two cards!Pay off balance monthlyDo not exceed credit limit
42Need Help with Credit Card Problems? Pay off high interest rate loans first!Pay using cash or checkCredit counselorEnroll in DMP (debt mgt program)Regular, timely payments48 months or moreBeware of Debt Consolidation traps
43Lost or Stolen Credit Card Lost or stolen – Notify credit card company immediatelyDo not give personal or account information over phoneSuspect fraud – Notify credit card company immediatelyLiable for at most $50 per card if notify immediatelyIf contact before any unauthorized charges made, liable $0
44Identify Theft Make charges to account without knowing Take years to clear upBe careful providing personal infoon-lineover phoneFTC ID Theft video
45Paying Your Bill: The Credit Limit $ Fees $Credit Limit: maximum amount creditor is lending youCharged over-the-limit feesMay reduce credit score
46Minimum Payment Practical Money Skills Original Balance APR Monthly PaymentTotal Numberof Monthly PaymentsTotalInterestPaidTotal Years to Pay OffTotal of Payments$250018%Minimum Payment $38291$24.3$$5094$7.8$$10032$656.802.7$Practical Money Skills
47Finance Charge Calculation You need acurrent newer calculator such as T1Finance Charge CalculationAPR= 18%; 30 days; $200 balanceDivide Interest rate by 365/year.18/365 days = (daily interest rate)Take the daily interest rate and multiply it by the number of days between billing cycles.X 30 days = (periodic interest rate)Multiply balance by periodic rate$200 X = $2.96 finance charge
49Fair Debt Collection Practices Act Prohibits debt collectors from using abusive, unfair, or deceptive practices to collectDebt collectorSomeone who regularly collects debts owedCollection agenciesLawyers who collect debts on regular basisCompanies that buy delinquent debts and try to collect them
50What types of debts are covered? PersonalFamilyHousehold debts (personal credit card account, auto loan, medical bill, and mortgage)Can a debt collector contact me any time or any place?No.May not contact at inconvenient times or places,Before 8 am or after 9 pm, unless agree.May not contact at work if they’re told (orally or in writing) that not allowed to get calls there.
51Credit Card StatementFront – Shows detailed activity that happened for billing cycleBack – Describes terms, how interest is calculated, and contact informationCredit card statement video
52Fair Credit Billing Act Errors on Your Statement Addition to Truth in Lending ActRequires prompt credit for payments and error correctionsDispute billing errors and withhold payment for damaged goods
53To take advantage of the law's consumer protections, you must: Write creditor at address given for "billing inquiries,“Include name, address, account number and description of billing errorSend letter to creditor within 60 days after first bill containing error was mailedSend letter by certified mail, return receipt requested,Proof and include copies (not originals) of sales slips or other documents that support position.Keep a copy of dispute letter.Creditor must acknowledge complaint in writing within 30 days after receiving it, unless problem resolved.Must resolve dispute within two billing cycles (but not more than 90 days) after receiving letter.
54New Credit Card Laws video Credit Card Act of 2009Est. new rules and amend previousRequires changes on disclosuresLimits on fees and rate increasesRequires consistency in payment dates and timesEX: under 21 must demonstrate able to make payment or have a co-signerNew Credit Card Laws video
56Corkboard ME…Copy the address on the SMART board and post TWO things you LEARNED about credit cards…(Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!)