4.4A Credit Cards

Vocabulary A CREDIT CARD is a plastic card that entitles its holder to make purchases and pay for them later. IMPULSE BUYING is when a consumer purchases something to which they suddenly were attracted to and had no intention of buying. There are two types of credit card accounts. The most commonly used is the REVOLVING CHARGE ACCOUNT. This means that the entire bill does not have to be paid in full each month. There is a minimum monthly payment, and there is a finance charge that month following any month the bill is not paid in full. A CHARGE CARD is a special type of credit card that allows the cardholder to make purchases in places that accept the card and the monthly bill for all purchases must be paid in full.

Vocabulary The TRUTH IN LENDING ACT protects you if your card is lost or stolen. Cardholders receive a monthly statement of their purchases, and any payments they made to the creditor. The FAIR CREDIT BILLING ACT protects you if there are any errors in your monthly statement. The FAIR DEBT COLLECTION PRACTICES ACTprohibits the creditor from harassing you or using unfair means to collect the amount owed. A DEBIT CARD is not a credit or charge card, because there is no creditor extending credit. If you open a debit account, you deposit money into your account, and the debit card acts like an electronic check.

Example One Frank lost his credit card in a local mall. He notified his creditor before the card was used. However, late in the day, someone found the card and charged $700 worth of hockey equipment on it. How much is Frank responsible for paying?

Example Two Carrie’s credit card was stolen. She didn’t realize it for days, at which point she notified her creditor. During that time, someone charged $2000. How much is Carrie responsible for paying?

Example Three Credit card companies issue a monthly statement; therefore APR must be converted to a monthly percentage rate. If the APR is 21.6%, what is the monthly interest rate?

Example Four Credit card companies issue a monthly statement; therefore APR must be converted to a monthly percentage rate. If the APR is 29.7%, what is the monthly interest rate?

Example Five Rebecca did not pay last month’s credit card bill in full. Below a list of Rebecca’s daily balances from her last billing cycle. For seven days she owed $456.11. For three days she owed $1,177.60. For six days she owed $990.08. For nine days she owed $2,115.15. For five days she owed $2,309.13. Find Rebecca’s average daily balance.

Example Five Continued

Example Six Josh did not pay last month’s credit card bill in full. Below a list of Josh’s daily balances from his last billing cycle. For seven days she owed $654.11. For three days she owed $1,771.60. For six days she owed $890.08. For nine days she owed $2,511.15. For five days she owed $2,903.13. Find Josh’s average daily balance.

Example Six Continued