What does credit cost? What is credit? What are advantages of using credit? Have you received credit card offers in mail? How many feel they are ready for credit card? What percentage of teenagers do you think have credit cards already? Essential Questions

Statistics 28% of students with credit card don’t repay entire balance each month. 68% of teenagers say they have never discussed using credit cards with family members 56% of teenagers say they are pretty familiar with credit cards 9% of teenagers say they have access to their parents credit cards

Before Choosing a Credit Card Spending Habits Interest Rates and Card Services Credit Limit Grace Period Fees and Penalties (Read the Fine Print) Rewards and Incentives

Things to know…. Credit Limit- the maximum amount of money the credit issuer will let you borrow on your card “Maxing Out” – sign that you may be in financial trouble --limit is determined by several factors: 1. Credit Score 2. Type of Card you Choose 3. Income

Grace Period- the amount of time you have to pay your credit card balance in full before the finance charges are applied to your balance

Common Fees and Penalties Annual Fee Late Payment Fee Over-the-Limit Fee Cash Advance Fee

Types of Credit Cards

A. Standard Credit Card Most Common Type Carry a Balance from Month to Month Up to a Certain Credit Limit (Revolving Credit) Minimum Payment: Least amount allowed to be paid on the balance without penalty

B. Charge Card Entire Balance Must be Paid at the End of Each Month Do not have Finance Charge

C. Limited Purpose Card Used at Specific Locations Store, Gas cards

D. Secured Credit Card (Prepaid) Require a deposit to create a credit limit on the card Using your own money (no risk) Mainly for those who have no prior credit history or with poor credit

Advantages …. 1. Temporary Expansion of Income Use goods and services while paying for them Unexpected expenses that can’t wait Major purchases that you can’t pay for all at once

2. Convenience Don’t need to carry a lot of cash Detailed spending records

3. Financial Responsibility Provides proof of your financial history of good credit spending

Disadvantages… 1. Interest and Fees 2. Opportunity Costs: reduces future purchasing power with income being spent to pay off credit purchases instead 3. Card Security (Lost or Stolen and Used)

4. Impulse Buying More likely to make purchases without fully thinking of the costs that will have to be repaid in the future 5. Reclaimed Merchandise Reposes: taking back any unpaid property

6. Overspending Creates the feeling of the items being “free” Paying by cash or check helps to limit purchases to what you can afford Financial trouble that may take years to undo when buying more than you can afford

Obtaining Credit… 1. Character : A person’s financial reputation, repaying debts on time Credit Rating: A score evaluation based on a person’s entire financial history maintained in their Credit Report

2. Capacity: A person’s earning power and ability to pay debts from a regular income

3. Capital: assets owned (property, savings, stocks) Employment Residence (renting vs. owning, stability vs. mobile) Collateral—property that is used to guarantee the repayment of the loan and can be taken in place for the unpaid amount