Selecting a Credit Card © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Used for purchase of items now Payment of items later What is a Credit Card? Pre-approved credit Used for purchase of items now Payment of items later © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

(Source: http://www.fcs.iastate.edu/financial) Statistics 92% of college students have a credit card by their sophomore year 1 out of every 5 college students owes between $3,000 and $7,000 in credit card debt Almost half (47%) of all college students carry four or more credit cards (Source: http://www.fcs.iastate.edu/financial) © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Advantages Why Use a Credit Card? Convenient Useful for emergencies Often required to hold a reservation Purchase ‘big ticket’ items earlier Easy form of debt consolidation Protection against rip-offs and fraud Establish a good credit rating © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Disadvantages Why Use a Credit Card? Interest is costly Additional fees are common Tempting to overspend Privacy is an increasing concern Personally responsible for lost/stolen cards Identity theft easier Can lose financial freedom from overspending © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Types of Credit Cards Bank Credit Cards Retail Credit Cards Flexible account Accepted anywhere Available from a financial institution (commercial bank, credit union) with a service provider (Visa, MasterCard) Electronic network Retail Credit Cards Purchases allowed at a particular retailer i.e. The Buckle or Old Navy Can work with bank to offer a bank credit card with the retailer’s logo © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Types of Credit Cards cont. Travel and Entertainment Cards Similar to bank credit cards Can make purchases at a number of businesses Entire balance must be repaid in 30 days Prestige Cards High status accounts Higher credit qualifications Special benefits i.e. Free travelers checks, higher credit limits © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Types of Credit Cards cont. Affinity Cards Accounts through financial institutions Logo of sponsoring organization Example: Mothers Against Drunk Driving Financial institution donates percentage of charges to organization © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Fair Truth in Lending Act Schumer Box Fair Truth in Lending Act Information required by law to inform consumer of all costs associated with use of a credit card Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Annual Percentage Rate Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Annual Percentage Rate (APR) – Interest rate charged for amount borrowed in terms of per dollar per year © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Grace Period Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Grace Period – Amount of time allowed before finance charges are applied © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Minimum Finance Charges Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Minimum Finance Charge – Minimum amount charged for card use © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Balance Calculation Method Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Balance Calculation Method – Method used to determine balance for finance charges © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Balance Calculation Method cont. Average daily balance excluding new purchases – Interest is only paid on the previous balance, not on purchases made since the last payment Average daily balance including new purchases with a grace period – If the balance is not zero, interest is applied to new purchases when they are made, if the balance is zero, a grace period is allowed before interest is charged © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Balance Calculation Method cont. Average daily balance including new purchases with no grace period – Regardless of the previous month’s balance, interest is applied to new purchases as they are made Two-cycle average daily balance including new purchases – This method should be avoided by consumers, as it is the least-beneficial. The average daily balance is determined on 60 days, rather than 30 days, so finance charges are doubled. A zero balance must be held for two months in order to avoid charges © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Annual Fees – Yearly charge for credit card ownership Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Annual Fees – Yearly charge for credit card ownership © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Cash Advance Transaction Fees – Cash withdrawal fees Cash Advances Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Cash Advance Transaction Fees – Cash withdrawal fees © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Late Payment Fees – Penalty fee for payments not made by the due date Annual Percentage Rate for Purchases   Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual Fees Transaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Late Payment Fees – Penalty fee for payments not made by the due date © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Opening a Credit Account Applicant completes a credit application Lender conducts a credit investigation Applicant is given a credit rating Lender accepts or denies the credit request If accepted, applicant evaluates the credit card details Applicant accepts or refuses credit terms © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Understanding the Bill Minimum Payment Due – The minimum amount to be paid If this amount is paid and a balance is left on the account, additional finance charges will be included in the following month’s balance Past Due Amount – The required amount 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 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Understanding the Bill cont. 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 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Using a Credit Card Properly Only use a card 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 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Safety Tips Sign card with signature and “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 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona