1. Shopping for a Credit Card

2. Shopping for A Credit Card Comparison shop credit cards Don’t take the first offer that comes to you: –Pre-approval Means nothing No special rates

3. Card Holder Agreement Written statement that gives the terms and conditions of a credit card account. –Look here for all info before signing up –Required by Federal Reserve –Card issuers can change terms at any time with 15 days notice

4. Billing Statement The monthly bill sent by a credit card issuer to the customer. It gives a summary of activity on an account. Important changes to a credit card account are included in small-print fliers that are sent with the statement. –Schumer box: Important to look here once you’ve selected a card.

5. Annual Percentage Rate (APR) Interest F (Fixed) rate V (variable) rate –Prime + ___ –Libor + ___ –Won’t go below floor Introductory rate –How long? –What will the rate “go to” afterwards?

6. Grace Period Interest-free time between: –Transaction date –Billing date Usually 20 – 30 days No grace period if: –Carry a balance –No stated grace period

7. Billing Methods: Average Daily Balance Determined by: – Adding each day’s balance –Dividing by total number of days in the billing cycle. –Multiplying by monthly periodic rate (APR/12) Example –Day 1: Charge $100 –Day 2: Charge $200 –Avg. Daily Bal $150 –30 days in billing cycle = –$5 average daily balance –Card with 15% APR has a 1.25% monthly periodic rate (15% / 12 months) –$5 daily balance = $6.25 finance charge

8. Billing Methods: Two-cycle Billing If you don’t pay your balance off it: –Charges you interest based off of the current and previous month –Interest starts the day you make the purchase.

9. Credit Limit The maximum amount you can charge on a credit account. You're approved up to $25,000! –“Up to” is the key phrase –Enticement offer –Actual credit limit based on credit score Recommended limit –20% of net income

10. Default and Universal Default Default –A designation that indicates a person has not paid a debt that was owed. Universal default –If you are more than 30 days late on a payment to anyone, your credit card company can raise your interest rate.

11. Payment Allocation How your payments will be applied when you have differing rates Matters when you: –Use card during and after promotional period –Purchases and cash advances Payments will pay off lower rate first –Costs you money. Makes the bank money.

12. Annual Fees on Reward Cards Paying for the privilege of using a credit card Many cards offer rewards without an annual fee Weigh cost of annual fee to value of reward –Mileage Avoid annual fees

13. Late-Payment Fee Charge imposed for not paying on time Know your payment due date & time –9 a.m. –12 noon –5 p.m. –11:59 p.m.? Pay via U.S. mail, phone, online, automatic bill pay, etc.

14. Over-the-Credit-Limit Fee You can exceed your credit limit but it will cost you –Fee –Higher interest rate

15. Currency-Exchange Fee Credit Cards have replaced traveler's checks. Fee will be –Flat amount –Percentage of withdrawal Important only if you travel internationally frequently

16. Cash-Advance Fee & Interest Don’t take cash advances Fee –Flat amount –Percentage of withdrawal Cash advance interest rate is always higher and has no grace period Payments are applied to lower-interest balance first

17. Balance-Transfer Fee Balance Transfer –The process of moving an unpaid credit card debt from one issuer to another Cards charge to transfer balance to or from one card to another.

18. Returned-Check Fee Your check “bounces” at the bank because: –Not enough money in your account –You don’t have a cash-advance line at the bank to cover the check

19. Minimum Finance Charge Also called “No Balance Fee” Fee charged for using the credit card even when you pay off the balance in full every month. Don’t select this card –$1.50 * 12 = $18 –Similar to an annual fee