Credit and Credit Cards

Credit Cards – True or False? 1. All credit card companies charge an annual fee and offer rewards. True or False? 2. The interest rate, or fee for paying off credit card debt in monthly installments, can be as high as 30 percent. True or False? 3. The average American carries an average of at least five credit cards in his or her wallet. True or False? 4. All credit cards charge the same annual fees and interest rates. True or False? 5. Credit card companies send pre-approved offers in the mail only to those people who have good credit scores. True or False?

Credit Card – True or False? 6. If you don't pay your credit card bills, your credit score goes down. This affects your ability to make purchases such as cars or homes. True or False? 7. The fine print on a credit card agreement, which outlines interest rates, late payment fees, and annual fees, can be changed at any time by the credit card company. True or False? 8. The average American household owes about $10,000 in credit card debt. True or False? 9. The minimum age for a user to be added to a credit card account (e.g. for a child to be authorized to use a parent's credit card account) is 18. True or False?

Advantages of Credit Cards Credit cards offer protection against theft of your cash. You can purchase the products and services you need when you need them, even if you do not have the cash in your pocket. Credit cards are very helpful in emergencies, and many parents actually prefer that their students carry a credit card to pay for such essentials as gas, repairs and towing. They feel more comfortable knowing that their young adults have the ability to take care of any emergency quickly with a credit card. Also, you can become a better money manager as you learn to use credit responsibly.

Disadvantages of Credit Cards There are disadvantages, however, to using credit. When you carry a credit card, it is easy to buy beyond your means, to spend so much that you cannot meet the bill when it is due. When you carry a credit card, it is very easy to buy on impulse and forget you are spending future income, money that you do not yet have (and may not have in time). Moreover, if you only pay the minimum balance each month, you may be surprised to find out how many years it will take to take to pay off the balance. Interest charges really add up to increase significantly the "bottom line" of the total of what you must pay. Also, it is rarely wise to buy something that will wear out before you finish paying for it, such as a vacation or a used bicycle.

Credit History The way you use credit will effect your credit history and a negative credit history is a serious liability. Your credit history is maintained by credit bureaus in the form of a credit report. This credit report is a record of your credit use. Your credit history will be reviewed by employers, insurance companies, apartment managers and businesses for consumer products, such as cars or furniture, and your record follows you wherever you go. The credit reporting system works so efficiently that creditors can obtain information on any consumer that uses credit within minutes. Maintaining a positive credit history is an important responsibility. The responsibilities of credit start as soon as you receive, sign and use a credit card. It is important to know what terms and conditions you have agreed to and the interest charges that will be added to your bill, if you cannot pay the balance each month.

Costs of Credit/Credit Cards The credit application or contract will disclose the terms and conditions for the credit card use. The following terms and conditions will effect the total cost of credit: Annual Fee — A yearly charge similar to a membership fee, usually ranges between $0 and $50. Annual Percentage Rate — The APR is the cost of credit expressed as an (APR) yearly rate. Finance Charge — The dollar amount paid to use credit, includes interest and all charges associated with the transaction. Grace Period — The grace period is the number of days you have before a credit card company starts charging interest on new purchases. Not all credit cards have a grace period. Periodic Rate — The interest rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing cycle. Transaction Fees — Some credit card issuers charge a fee for a cash advance, a late payment or exceeding your credit limit. There may be a monthly fee if you do not use your card.

Establishing Credit In the United States, a credit score is a number based on a statistical analysis of a person's credit files, that in theory represents the creditworthiness of that person, which is the likelihood that people will pay their bills. A credit score is primarily based on credit report information.creditworthinesscredit report The generic FICO(Fair, Isaac and Company-Credit Scoring) credit score ranges between 300 and 850. In the United States, generic FICO scores range from , with 711 being the median FICO score of Americans in 2011.median

What is the BEST Credit Score? Based on that range, it appears that the grades correspond, roughly, to: 750 – 850: A 700 – 749: B 630 – 699: C 580 – 629: D 300 – 529: F

How is your credit score calculated? Your credit score is based on a variety of factors but it comes down to five basic areas to focus on when you want to get a good credit score:

Payment history: 35% of your score is based on your payment history, that is your history of on-time payments (and any misses, defaults, past due items, etc.) Amounts owed: 30% is based on the amounts you owe, what types of accounts you owe them on, credit utilization, and other debt related items.credit utilization Length of credit history: 15% is based on the length of your credit history, how long you’ve had certain types of accounts and time since activity. New credit: 10% is based on the amount of new credit items on your account – recently opened accounts, recent hard inquiries, time since most recent open, and time since recent inquiries. Types of credit used: Finally, the last 10% is based on the number and types of accounts you have – revolving, installment, retail, etc.

You will almost always be able to find someone to give you a loan regardless of your credit score. You might have to put down a larger down payment and pay a higher interest rate, but even if you have the world’s worst score of 300, someone will give you a loan – you’ll just pay dearly for it.

Credit Risk Profile Scoring 1-2 True - Just barely “OK” observe the caution signs now. If any of the statements were marked TRUE, developing and strengthening financial self-discipline is more necessary and urgent than obtaining a credit card or an additional credit card or even an expanded line of credit. 3-5 True - Danger Ahead! Suspend all credit based spending now. If more than three questions were marked TRUE, better put that credit card application on hold. Next, look for ways to improve spending practices such as comparison shopping techniques and increase savings through better spending. Don’t apply for more credit or make any credit based purchases until all outstanding balances are paid in full.

Credit Risk Profile Scoring 5-10 – True – You are close to becoming a “debt-head” avoid credit all together. If more than five questions were marked TRUE this isn’t the time for you to be considering any sort of credit-based spending. Consider a debit card instead – True – Confirmed plastic spending addict. Financial melt-down ahead. Put your credit cards in a glass of water in the freezer. You should simply cut-up your credit cards today.

Are you a good spender? – Very Perceptive: Time to teach others how to do it – Pretty Good: Concentrate on improving a few of the weaker areas and you’ll be amazed at the difference overall – Average: An hour a week focused on improving spending would equal an increase saving and give you more to invest – Lousy: Immediate changes required to avoid financial disaster implement a spending-plan, get on a pay-as-go basis as soon as possible It Stinks: Signs 7 Symptoms of money troubles. Need immediate help! You’re on the path to bankruptcy and a bad credit rating.

Signs and Symptoms of Money Difficulties Someone will come along and rescue me. I wish someone else handle my finances. Spending money makes me feel good. Twenty percent or more of my take-home pay goes for debt payments. I frequently find myself borrowing small amounts of money. I don’t know the total amount of my debts and obligations. It is very difficult for me to save any money at all. I borrow money from family and friends to make ends meet.

Remember to Pay Yourself First Savings= Money = Investing