Credit Use and Credit Cards Steven M. Hays BKHS – Personal Finance Steven M. Hays BKHS – Personal Finance

Setting Up a Credit History All credit is an opportunity for good credit in the future (insurance rates, employment, mortgage rates, etc.) Comparison shop Avoid carrying balances Obtain credit reports Keep receipts Avoid add-ons All credit is an opportunity for good credit in the future (insurance rates, employment, mortgage rates, etc.) Comparison shop Avoid carrying balances Obtain credit reports Keep receipts Avoid add-ons

How To Get a Good Reputation Establish checking and savings Have telephone and other bills in your name Request and use oil company cards Establish checking and savings Have telephone and other bills in your name Request and use oil company cards Apply for a bank credit card Get a short-term cash loan Pay off student loans

Important Terms Consumer credit – non-business debt for expenditures OTHER than mortgages Installment credit – pay in equal amounts of a specified period of time Non-installment credit Open-ended (revolving) Single payment Consumer credit – non-business debt for expenditures OTHER than mortgages Installment credit – pay in equal amounts of a specified period of time Non-installment credit Open-ended (revolving) Single payment

Five C’s of Credit Character – reliability of paying Capital – measure of financial worth Capacity – ability to pay Collateral – property pledged against loan Conditions – general economy +/- Character – reliability of paying Capital – measure of financial worth Capacity – ability to pay Collateral – property pledged against loan Conditions – general economy +/-

Why People Use Credit Convenience Emergencies Identification Reservations Get products sooner Enjoy the good life Take advantage of free credit Convenience Emergencies Identification Reservations Get products sooner Enjoy the good life Take advantage of free credit Consolidate loans Protection against rip-offs and frauds Obtain an education

Down Side to Using Credit Interest is costly Additional fees are common Tempting to overspend Privacy is a concern Liability for lost or stolen cards Reduces financial flexibility Interest is costly Additional fees are common Tempting to overspend Privacy is a concern Liability for lost or stolen cards Reduces financial flexibility

How to Get Out of Debt Credit control sheet Do not add to debt amount Transfer to lowest APR (and payment type) Get a low cost loan and use it to pay off credit card debt Calculate amount needed to pay off debt Set up a budget Record every usage like a check Avoid credit cards!! Credit control sheet Do not add to debt amount Transfer to lowest APR (and payment type) Get a low cost loan and use it to pay off credit card debt Calculate amount needed to pay off debt Set up a budget Record every usage like a check Avoid credit cards!!

Open-ended Credit Accounts Entire balance may be due each month Minimum payment Small amount of principal Large amount of interest Interest is the price of credit Finance charge is the total amount charged Entire balance may be due each month Minimum payment Small amount of principal Large amount of interest Interest is the price of credit Finance charge is the total amount charged

Bank Cards Visa, MasterCard, Discovery Co-branded (Bank of America and LL Bean) Cash advance (loan from a bank) Convenience checks Prestige cards (bank and MSU and some percentage of sales goes to MSU) Visa, MasterCard, Discovery Co-branded (Bank of America and LL Bean) Cash advance (loan from a bank) Convenience checks Prestige cards (bank and MSU and some percentage of sales goes to MSU)

Other Kinds of Cards/Credit Secured – collateral cards Retail credit cards (i.e., Target) Travel and entertainment cards (Diner’s club, American Express) Personal line of credit (a running line of credit that you don’t need to keep reapplying for) home-equity line of credit Service credit (utilities) Secured – collateral cards Retail credit cards (i.e., Target) Travel and entertainment cards (Diner’s club, American Express) Personal line of credit (a running line of credit that you don’t need to keep reapplying for) home-equity line of credit Service credit (utilities)

THREE (not one) Most Important Factors APR – Annual Percentage Rate Usury laws (determine max. rates) Variable rates Fixed rates Additional fees Payment calculation (grace periods, including/excluding new purchases, two-cycle) APR – Annual Percentage Rate Usury laws (determine max. rates) Variable rates Fixed rates Additional fees Payment calculation (grace periods, including/excluding new purchases, two-cycle)

Opening a Credit Account Credit history (you need one – never having borrowed money is not ideal) ECOA – equal credit opportunity act Credit investigation – credit report Credit rating – scoring (tiered pricing or no credit at all) Credit history (you need one – never having borrowed money is not ideal) ECOA – equal credit opportunity act Credit investigation – credit report Credit rating – scoring (tiered pricing or no credit at all)

Credit Reports Extra credit if you get a copy of yours for your file drawer project Negative information for seven years Bankruptcy information for ten years Extra credit if you get a copy of yours for your file drawer project Negative information for seven years Bankruptcy information for ten years

Avoid Making Minimum Payments Banks CAREFULLY calculate the minimum payment account to extend the period of your loan for as long as possible. It is NO deal to skip a month of payments. Banks CAREFULLY calculate the minimum payment account to extend the period of your loan for as long as possible. It is NO deal to skip a month of payments.

Correcting Errors Persistence is the key! Written notice to the card issuer. Provide photocopies Withhold payments of disputed charges After dispute is settled take a look at your credit report. IF YOU ARE NOT GETTING SATISFACTION CONTACT YOUR STATE’S ATTORNEY GENERAL Persistence is the key! Written notice to the card issuer. Provide photocopies Withhold payments of disputed charges After dispute is settled take a look at your credit report. IF YOU ARE NOT GETTING SATISFACTION CONTACT YOUR STATE’S ATTORNEY GENERAL