Unit 4 Part 2: Credit Cards What You Need To KNOW

Objectives Understand the types of cards available Sort through card offers Compare terms and conditions Avoid penalty rates and fees Find more information and assistance

Credit in Wisconsin The average credit card balance for 2011 was $6, Wisconsin’s average was $5,062.00

Credit cards The average household receives five credit card offers per month in the mail, and more by telephone and the Internet This array of choices makes it difficult to: Sort through offers Understand terms & conditions Select the right card

Wise credit Not managing your credit wisely can lead to: Increased annual percentage rates (APRs) Unnecessary fees A decline in your credit Denials of future credit

Topics covered Types of credit cards Card offers Card terms and conditions Credit card billing statements Using credit cards Card fees Optional services and card benefits

What are credit cards good for? Emergencies Big ticket items Establishing credit Safer than cash More purchasing power Protection from fraud on the Internet

Types of Cards

Credit cards Revolving Credit 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

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

Prepaid cards Also called stored value cards These are used by retailers as gift cards travelers as a safe way to get funds on the road parents who want to give their kids the convenience of a credit card without the risk

Card Offers

Types of offers Pre-approved Invitations to apply Offers come in the mail, by telephone and online Instant credit at stores

Pre-approved offers Personalized and based on credit history Federal law requires that pre-approved solicitations contain a “firm” offer of credit The only exception is if consumer has experienced a serious decline in creditworthiness since the offer was made

Invitations Ask consumer to apply for a card Does not require a firm offer of credit Intended to interest consumers in applying

Instant credit Salespeople often ask you if you want to get the store’s credit card Get a discount on purchases If the shopper’s credit is good, credit is issued on the spot

Compare basic terms Look for a box with: interest rates grace period annual fee This box is: required by law often headed with the words “Rates and Fees” or “summary of terms”

Look closely Credit limits While the offer of credit may be guaranteed, the actual credit limit may not be Balance transfers If you don’t know your credit limit, it’s difficult to know if you can transfer balances from another card

Credit line Consumers don’t know when they apply what credit line they will receive Many offers state “up to” a certain amount (for example: “up to” $25,000) Key words — “up to” Company can—and often will—give consumer a lower credit limit

Balance transfers Many offers include the opportunity to transfer a balance from one card to another without a fee Consumer should ask if this is a limited time offer Transfer balance after receiving card If the balance transferred is higher than the new credit limit, the company may only transfer a portion of the balance, or may decline the whole transfer, leaving a balance on the old card

Card Terms and Conditions

Cardholder agreements Sent with every new card Legal contract between consumer and the card issuer By using the card, consumer agrees to honor the terms and conditions in the agreement

Subject to change Card terms and conditions are subject to change at any time Change notices are usually sent by mail, along with the monthly statement Consumers should review everything sent by issuer, even if it looks like junk mail Notices must be sent at least 45 days before the change takes effect New rate will apply only to new transactions unless an intro rate has expired, a variable rate has changed, you’re more than 60 days late or haven’t paid as agreed under a workout agreement If your credit card company is going to make changes in certain fees (but not your APR), it must give you the option to cancel the card before these fee increases take effect.

Keep all paperwork Save card terms and conditions in an easily accessible file for easy reference When the company updates your cardholder agreement, replace the old copy with the new one

Annual percentage rate (APR) Card’s interest charge, expressed as a yearly rate The interest rate is the cost of borrowing money from the credit card company Your card’s interest rate is usually for purchases — if you withdraw cash you might be charged a higher interest rate

Variable rates If card has a variable rate, the APR will change when interest rates go up or down Variable interest rates change according to a set formula using an “index” and a “margin” The most common index is the Prime Rate published in the business sections of major newspapers and online

Fixed rates If an issuer calls a rate “fixed” the rate can’t change ever, for any reason. So issuers will use terms like “non-variable” for rates that do not vary with the Prime Rate. Non-variable rates can change at any time after the first year, or whenever you are more than 60 days past due, with 45 days notice

Default or penalty rates Higher interest rates charged for late payments or decline in credit Default factors Late payment Bounced check You default on another account you have with the same creditor Higher rate will apply to new transactions only, unless you are more than 60 days late

Cash advance APR Most cards charge a higher interest rate for cash advances

Credit card checks These special checks - “convenience checks” - are linked to credit card account They can be used to transfer a balance from another card or to make purchases or payments to companies that do not accept credit cards Convenience checks are charged the cash advance interest rate, usually higher than the regular rate, plus a cash advance fee

Grace period The time between the close of the billing cycle and the payment due date 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

Your Task Complete a Credit Card Comparison using the Shopping for a Credit Card Worksheet. Use the 3 credit card offers to fill in the table Answer the questions that follow the table