Standard SSEPF4 – The student will evaluate the costs and benefits of using a credit card. SSEPF4a- List factors that affect credit worthiness.

Credit Credit is the ability to obtain goods or services before paying them, based on a promise to pay later. Each time a person uses credit he or she is in effect borrowing money.

Revolving Credit It is credit that is available up to a limit and automatically renewed when debts are paid off or down.

The 3 C’s of Credit Worthiness Character Are you a good person? Do you have a job? Have you used your credit wisely? Capacity How much money do you want? Are you able to pay it back? Collateral Property or other security used to guarantee the repayment of a loan

Other Factors that Affect Your Ability to Get Credit… Annual Earned Income: the more money that you make, the more credit you will be offered Amount of Current Debt Timeliness of Paying previous loans

Benefits of good credit Low interest rates meaning lower payments Easy to get loans and more credit

What is the first step in choosing a credit card? Determine how it will be used Emergencies Purchases Bill paying Gas

What about APR? APR is the Annual Percentage Rate. The cost of credit (finance charge) expressed as a yearly percentage. Credit Cards can have many different APR’s. Purchases Cash Advances Balance transfers Late Payments or Introductory Rates

Fixed vs. Variable APR Fixed APR’s do not change with out notice from the credit company Variable APR’s can change at specified times according to your contract (usually every 6 months).

Credit Limit The maximum total amount the user may charge on the card.

Common Incentives Rebates Frequent Flyer Miles Additional Warranty coverage Car rental insurance Travel accident insurance Rewards points

Common Fees Credit Cards Charge Annual fee – Charged for having the card Cash-advance fee – when the user gets cash from on ATM Balance transfer fee – when the user moves a balance from another credit card

More Fees….. Late payment fee – charged when payment is received after the due date. Over-the-credit limit fee – when the user goes over their credit limit. Credit-limit increase fee – when a user asks for an increase in the credit limit.

And even more fees….. Set up fee – charged when a new account is opened Return item fee – when the user’s payment check bounces. Other fees Paying by phone Talking to a customer service person Reporting to credit bureau’s

Credit Card Companies must disclose: APR’s for purchases Other APR’s Variable rate information Grace period for repayment of balances Method of computing the balance for purchases Annual fees Minimum finance charge Transaction fee for cash advances Balance-transfer fees Late-payment fees Over-the-credit-limit fees