1. Credit Basics
Consumers Math

2. Three Cs of Credit
Character-the way you handle your money and have repaid debt in the past.
Capacity-your ability to pay the debt after monthly expense
Capital-the value of your assets

3. Things to Consider when Shopping for a Credit Card
Annual Fee
APR
Grace Period
Transaction Fees
ATM access
Credit Limit
Credit Advance
Penalties

4. Annual Fee
Flat dollar amount issuer charges each year for the use of the credit card
Do not want to have this fee but cards with no annual fee have higher interest rates
Not the same thing as APR

5. Finance Charge Interest Rate your card issuer charges
Main cost of using credit
Bad credit or no credit results in higher interest rates because it reduces card issuers risk-higher the debt the faster it will grow and the harder it will be to pay it off

6. Minimum Payments Minimum amount of money you have to pay each month
Credit card issuers make payments low, not as a favor to you, but to maximize profit
Usually it is 2% of the balance including interest

7. Minimum Payments Continued
$2500 debt (.02) = $50 minimum payment. It will take you 28 years to pay off debt if you only pay the minimum each month
18% finance charge/12 months=1.5%
$2500(.015)=$37.50 in interest each month
*Pay $5896 in interest in 28 years so an item costing $2500 will item will actually cost $8396
$ =$12.50 only that much is going to pay off your debt each month

8. Grace Period
The time between the date you are billed and the date your payment is due
Usually 25 days
If you pay your entire balance within the grace period no interest charges
If you carry a balance and do not have a grace period, interest incurs right away

9. Cash Advance
Receive cash against your credit line and are paid in addition to the interest rate. There is usually no grace period on cash advances.
Pay interest from the day you get the cash
Transaction fee of 2%-3% of cash advance total
Used for emergencies only.
$100 billion a year comes from cash advances generating $3 billion a year to Visa

10. Late Fee
Penalty assessed if your monthly payment is made after the due date or Grace Period.
Depends on the credit issuer.
Usually between $20- $40

11. Over-the-Limit-Fee
Penalty assessed if you exceed your maximum credit limit.
Finance charges can sometimes put you over your limit without you even realizing it.
Depends on credit issuer
Usually is between $20-$40

12. Types of Credit
Open
Retail
Service
Closed
Installment

13. Attributes of Revolving or Open Credit
Flexible payment
Minimum payment
APR can be adjusted by creditor
Credit limit
Finance charge
Transaction fees

14. Attributes of Installment or Closed Credit
Contract
Down payment
Finance charge
Fixed monthly payment
Acceleration clause
Balloon payment

15. Retail Credit Open Flexible Payment
Finance charge or perhaps no finance charge if paid during grace period
Fees
APR can change
Examples: Universal Bank Cards, JC Penny

16. Installment Credit Closed Fixed Payment Finance Charge
APR cannot change
Examples: Car payment or mortgage

17. Service Credit Open Flexible payment
Finance charge or no finance charge if paid during grace period
APR fixed or no APR
Examples: Dentist, doctor, car repair at service station

18. Advantages of Using Credit
Limited liability
Convenience
Rebates or special programs
Increased purchasing power
Free use of someone’s money for grace period
Emergencies

19. Disadvantages of Using Credit
Overspending
Finance charges = increased cost
Opportunity cost
Obligates future income