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Charge It Right FDIC Money Smart for Young Adults

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Presentation on theme: "Charge It Right FDIC Money Smart for Young Adults"— Presentation transcript:

1 Charge It Right FDIC Money Smart for Young Adults
Building: Knowledge, Security, Confidence

2 What is the first thing you think of when you see the words…

3 Cash, Credit, or Don’t Buy?

4 Corkboard 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!

5 What is Credit? Opportunity to obtain money, goods or services without having cash in exchange for promise to pay in future. Credit 101 Quiz

6 Did you know… Additional facts (
Average credit card debt: $15,279 Nearly two in five Americans (39 percent) carry credit card debt from month to month 77 percent of the adult population of the U.S. has credit card Most Americans have four or more credit cards About 60% consumers pay off bill in full each month The average outstanding credit card balance of college students reported in 2012 was $755 27 percent of all college students surveyed in spring 2012 had a credit card in their own name In 2012: Number of bankruptcy filings was 1,261,140 (down 14% from 2011) Additional facts (

7 Credit Card Characteristics
Convenient form of borrowing 1959: Bank of America introduced 1st revolving credit card Make unlimited number purchases up to pre-approved amount When pay, amount goes back up to limit Require a minimum payment each month Percentage of balance

8 Debit Card & Prepaid Card Characteristics
Introduced 1984 Tied to checking account Immediately withdrawn Prepaid Card: Put money on card Pay as you go until 0 value Reload card with more money

9 Activity 2: Which Card is This?
Credit cards Debit cards PrePaid cards Load card with money and pay as you go PrePaid Card Tied to checking account Debit Card Has a spending limit and can be paid back over time? Credit Card

10 Secured and Unsecured Cards
VS Secured card: Require collateral or deposit to obtain credit $500 limit and $500 in savings Can get secured credit with no credit history or negative history Unsecured card: Do not require collateral or deposit to obtain credit Usually need good credit history

11 Student Credit Cards Low (or no) introductory interest rates
Average interest rate: % Cash back bonuses Some offer no income requirements and no co-signer needed Typically low credit limit Often no annual fee Images changed

12 Rewards Cards Are offered by hotels, airlines, and/or your credit card company directly Earn points for amounts charged on card toward free or discounted travel, hotel, or other goods and services Usually charge annual fee May give cash rebates Average Interest Rate: %

13 Pre-Approved Card Offers
Offers from creditors that you might be able to get advertised interest rate and limit based on viewing your credit report Actual terms depend on income, employment and credit history National Average Interest Rate: 14.2% (Dec.2013) Bad Credit Interest Rate: 23.64% (June, 2013) use to find nat avg interest rate bad credit rate found

14 There are NO Guarantees!
Pre-Approved Offers There are NO Guarantees! “Pre-approved” but must still qualify for card Read agreement carefully Shop around! Don’t always take first offer May be hidden costs such as transfer fees

15 Before Applying… Decide what use for Not free money
Loan and must pay back with INTEREST Find out interest rates and credit limit Opt out prescreened offers Call OPTOUT Shred unwanted applications

16 Where can you find credit card offers?
Direct mail Online ads/pop-ups Retail store check out lines Magazines Newspaper Booths at sporting events, theme parks Booths or tents at colleges Malls

17 How do credit card companies sell you to get their card?
Low or 0% introductory rates Cash back bonus No annual fees Personalized or stylized cards Free products Hats, t-shirts, reduced air fare tickets

18 Shopping for the Best Deal
Credit cards have different terms: Annual percentage rate (APR) Fees Grace period Balance computation method Cash advance requirements and fees Balance transfer requirements and fees Hand out Sample Credit Card Forms

19 The Fair Credit & Charge Card Disclosure Act
Requires lenders to disclose APR, cash advances, and annual fees Must include box describing key features and costs and disclose terms in writing Schumer Box More Info…

20 APR (Annual Percentage Rate)
Cost of borrowing money Low Introductory rates Teaser Rates Must state how long introductory APR lasts APRs are fixed or variable Charge different rates for different types of transactions

21 APR (Annual Percentage Rate) (cont’d.)
Penalty APR Increase in APR if payment is made late or exceeds credit limit Penalty APRs are about 52% higher than regular APRs Universal Default If you are late paying other loans (such as house, car, phone, APR rate will increase on card policy, even if credit card payment was not late

22 Fees Annual fees Late fees Over-the-limit fees Balance transfer fees
Cash advance fees

23 Grace Period Specified number of days to pay your balance before credit card company starts charging interest and fees Free 25 days Grace Period Costing you money!

24 Balance Computation Method
States how interest is determined Most common is average daily balance method

25 Cash Advance Ability to get cash from credit card
Usually fee for service Example: “2%/$10” means 2% of the cash advance amount or $10, whichever is more APRs on cash advances are typically much higher No Grace Period – interest begins immediately!

26 Balance Transfer Moving unpaid debt (amount of money you owe) from one card to another Encouraged by some companies using low rates on transferred balances Be weary of transfer fees!

27 Truth in Lending Disclosure
Mandates disclosure of information about cost of credit Finance charge APR Payments and payment schedule Protects against unauthorized use If lost or stolen, max. amount liable $50

28 Other Factors to Consider
Customer service Access to account Information Bill Payment Update personal information Problem resolution Additional protection Lose your job & unable to pay bills Lose card Identity is stolen

29 Tips to Think About When Choosing a Card
How and when you will use card Start small Understand terms before accept card Beware of introductory rates Beware of application fees Understand fixed and variable rates Credit Card Simulator

30 Application Requirements
Individual credit – based on assets, income, and credit history Joint credit – based on assets, income, and credit history of two people who apply Typically, you must be at least age 21 to apply

31 Credit Report – A record of how you paid your debts…

32 Credit Report – What is it?
A record of how you paid your debts…

33 Credit Report – What’s on it?
A record of how you paid your debts… Identifying Information Name, current and previous address, SS number, DOB, current and past employers, spouse info Credit Information Accounts with banks, retailers, credit card issuers, utility companies, mortgage, student loan, Date opened, Credit limit, Co-signers Payment pattern over past two years Public Record Information Bankruptcy, tax liens, monetary judgments Recent Inquiries Name of those who obtained copies of your credit report within past year

34 Credit Reporting Agencies
Fair Credit Reporting Act Requires each of 3 agencies to provide FREE copy of report Equifax Sample Experian TransUnion

35 You may also get FREE copy if…
Denied credit, insurance or employment Unemployed and plan to look for job within 60 days Receiving public assistance Report inaccurate b/c of fraud or identify theft

36 Credit Score Determines credit risk Determined by your credit report
Two types FICO (Fair Isaac Corp) VantageScore Check your score before applying

37 The national average FICO score was 646 as of July 2013
Scores range from 300 to 850 The higher your score, the better Great Very Good Good Not Good Bad The national average FICO score was 646 as of July 2013

38 The national average VantageScore was 750 in 2012
New as of March 2006 Used by all three reporting agencies Should be the same score from each agency Scores range from 501 to 990 Number score goes with a letter grade Example: = A, = F The national average VantageScore was 750 in 2012

39 Denied Credit? Poor credit history Not at current address or job long enough Income not high enough 60 Days to contact credit bureau to receive free copy of credit report!

40 How long does information stay on my credit report?
Suits, judgments, tax liens, arrest records, collection agencies 7 years Bankruptcy 10 years You have right to dispute any incorrect information with credit agency and/or company

41 Using Your Credit Card Responsibly
Protect card and account numbers Draw line through blank spaces on charge slips Tear up or shred receipts Keep a record of account information Carry only cards you think will use Avoid having more than two cards! Pay off balance monthly Do not exceed credit limit

42 Need Help with Credit Card Problems?
Pay off high interest rate loans first! Pay using cash or check Credit counselor Enroll in DMP (debt mgt program) Regular, timely payments 48 months or more Beware of Debt Consolidation traps

43 Lost or Stolen Credit Card
Lost or stolen – Notify credit card company immediately Do not give personal or account information over phone Suspect fraud – Notify credit card company immediately Liable for at most $50 per card if notify immediately If contact before any unauthorized charges made, liable $0

44 Identify Theft Make charges to account without knowing
Take years to clear up Be careful providing personal info on-line over phone FTC ID Theft video

45 Paying Your Bill: The Credit Limit
$ Fees $ Credit Limit: maximum amount creditor is lending you Charged over-the-limit fees May reduce credit score

46 Minimum Payment Practical Money Skills Original Balance APR
Monthly Payment Total Number of Monthly Payments Total Interest Paid Total Years to Pay Off Total of Payments $2500 18% Minimum Payment $38 291 $ 24.3 $ $50 94 $ 7.8 $ $100 32 $656.80 2.7 $ Practical Money Skills

47 Finance Charge Calculation
You need a current newer calculator such as T1 Finance Charge Calculation APR= 18%; 30 days; $200 balance Divide 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

48 Try this… 30 Days $18.49 $2.47 $7.40 $23.01 APR = 15% Balance = $1500
Finance Charge = APR = 12% Balance = $250 Finance Charge = $18.49 $2.47 30 Days APR = 18% Balance = $500 Finance Charge = APR = 10% Balance = $2800 Finance Charge = $7.40 $23.01

49 Fair Debt Collection Practices Act
Prohibits debt collectors from using abusive, unfair, or deceptive practices to collect Debt collector Someone who regularly collects debts owed Collection agencies Lawyers who collect debts on regular basis Companies that buy delinquent debts and try to collect them

50 What types of debts are covered?
Personal Family Household 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.

51 Credit Card Statement Front – Shows detailed activity that happened for billing cycle Back – Describes terms, how interest is calculated, and contact information Credit card statement video

52 Fair Credit Billing Act Errors on Your Statement
Addition to Truth in Lending Act Requires prompt credit for payments and error corrections Dispute billing errors and withhold payment for damaged goods

53 To 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 error Send letter to creditor within 60 days after first bill containing error was mailed Send 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.

54 New Credit Card Laws video
Credit Card Act of 2009 Est. new rules and amend previous Requires changes on disclosures Limits on fees and rate increases Requires consistency in payment dates and times EX: under 21 must demonstrate able to make payment or have a co-signer New Credit Card Laws video

55 Keep Good Records Receipts Check for mistakes

56 Corkboard 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!)

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