Credit and Credit Cards

What is Credit? Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. Consumer credit is the use of credit for personal needs.

What are Credit Cards? Pre-approved credit which can be used for the purchase of items now and payment of them later. The average household receives five credit card offers per month in the mail, and more by telephone and the Internet. Remember, that the average household in the United States carries over $8, 400.00 in credit card debt.

Why Use a Credit Card? Proper use can help establish a good credit rating (FICO Score) Conveniently accepted across the United States and around the world Emergency buying power Additional form of identification Record of purchases on bill statement Often required to hold a reservation

Why Not Use a Credit Card? Improper use can damage credit rating (FICO Score) Higher risk for impulsive buying and overspending Debt trap when used unwisely Expensive way to borrow due to high interest rates Less to spend in the future due to paying off purchases from past Possible hidden fees & surcharges Privacy is an increasing concern Identity theft easier

Types of Credit Card Accounts Revolving Charge Secured Sub-Prime We will briefly discuss these four types of credit cards over the next few slides.

Revolving Credit Cards Credit line can be used up to the credit limit Pay charges in full each month, pay just the minimum, or make a partial payment greater than the minimum due Available credit goes up and down as purchases and payments are made Most credit cards are revolving credit cards

Charge Credit Cards Pay all charges in full every month by the due date Cannot carry a balance No balance = no interest A regular issue American Express Card is an example of a charge credit card.

Secured Credit Cards Guaranteed by money deposited in an account Credit limit usually equals the amount of the deposit Can be used by people with credit problems to reestablish good credit

Sub-Prime Credit Cards Marketed to people who have poor credit Typically have very low lines of credit, large upfront fees and high interest rates

Understanding the Credit Card Billing Statement Some Important Terms Include: Minimum Payment Due: minimum amount to be paid Past Due Amount: the previous amount due which was not paid before the due date Due Date: the day by which the company requires a payment to be made New Balance: the total amount owed on a credit card

Continued Credit Line: the maximum amount of charges allowed to an account Closing Date: last day for transactions to be reported on the statement Charges, Payments, and Credits: the transactions which occur with the use of a credit card Finance Charge: charges assessed for credit card use Grace Period: The time between the close of the billing cycle and the payment due date Remember, if you do not carry a balance from the last credit card bill, interest will not be charged on purchases if the new bill is paid in full by the due date (This is the most important thing to remember concerning credit card usage! Pay off the bill in full and never pay interest to the credit card company!)

Using a Credit Card Properly Only use when there is no doubt about ability to pay-off the charges at the end of the billing cycle Record all expenses and keep receipts Check credit statement for errors Always pay off balance completely and timely !

Credit Card Safety Tips Sign card with signature or “Please See ID” Do not leave cards lying around Close unused accounts in writing and by phone, then cut up the card Do not give out account number unless making purchases Keep a list of all cards, account numbers, and phone numbers separate from cards Report lost or stolen cards promptly

Are Debit Cards a type of Credit Card? Debit Cards are: Not the same as credit cards Not a form of credit at all Directly linked to your bank account