1. Unit 3 Payment, Interest Rates, & Credit Cards
Copyright 2007 Thomson South-Western

2. Key Terms Credit Annual fee Credit card Cash advance Credit limit
Charge
Interest rate
Payment due date
Outstanding balance
Finance Charge
Grace period
Late fee
Annual fee
Cash advance
Cash advance limit
New purchases/ charges
Previous payments
Daily finance charge
Annual percentage rate
Minimum payment
Average daily balance
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3. What is Credit?
Credit
The ability to make purchases or borrow money with the agreement to pay it back later.
Repayment usually includes paying extra money, called interest
You are granted credit so you can buy something now and pay for it in the future
The actual process of borrowing money is called “financing”
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4. INSTALLMENT PAYMENT PLAN
Sources of Credit
Service credit
Utilities, Medical, etc (service now, pay later)
Bank credit cards [MOST COMMON]
Revolving credit accounts (Read top of page 199)
Store accounts
Installment credit plans (Monthly Payment plan)
INSTALLMENT PAYMENT PLAN
Initial Balance
$800.00
Monthly Payment (36 mo)
$28.92
Total Payments Amount
$1,041.19
Interest Paid
$241.19
7-2 Sources and Benefits of Credit
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5. Sources of Credit Charge cards No Interest! (Yay!)
No service fee (Huzzah!)
Large Annual Fee (BOO!)
Loans
Installment loan
Single-payment loan
Collateral
Cosigner
Don’t abuse credit, or else you’ll be poor and have no furniture like me. *SIGH*
Lines of credit
7-2 Sources and Benefits of Credit
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6. Benefits of Credit
Fast, convenient way to make purchases and give rewards
Increased spending power
Records
Proof of purchase
Help with resolving disputes with merchants
Protection against risks
Fraudulent use of credit cards
Settlement for damaged goods or disputes
7-2 Sources and Benefits of Credit
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7. Focus on... Credit in America Credit is easy to get for many people
Credit can be used for online purchases
Credit card payments can be taken over the phone.
Credit offers and use may pose a security threat
Credit use should be managed wisely
7-2 Sources and Benefits of Credit
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8. Shopping for a credit card
Costs
Annual Percentage Rate (APR)
Grace period
Annual fees
Transaction fees
Balancing computation for the finance charge
Features
Credit limit
How widely the card is accepted
What services and features are available
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9. Choosing a credit card Getting the Best Deal
Name of credit card company/Type of card?
Visa? Amex, etc.?
Link to offer
Type of card (Bonus/ Reward, Cash Back, Low Interest, etc.)
Intro APR/interest
Regular APR
Annual Fee
(If yes, list amount)
Type of Credit needed (Excellent, Good, Fair)
Minimum age to sign up?
Phone number
Perks of the card. List at least 3 1 2 3
and click on link or go to Char’s compare creditcard.com or cardratings.com
Ed’s activity – Closure – review page 24 in book
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10. Debit cards vs. Credit cards
Debit cards give you access to your own money
A credit card is a separate supply of money. When you use a credit card, you are simply taking a loan from the company that issued the card. Your purchases are then totaled and sent to you in a monthly bill or statement. In most cases, if you pay your bill in full and on time, interest will not be changed.
How does a credit card work?
How do credit card companies make money?
Do some cards allow you to take cash out?
Credit Limit – What is it? Do not go over.
What are some credit card features? APR/Interest, annual fee, bonus/rewards
How to sign up and use the card.
How to protect your credit card – keeping information private, lost card.
Credit Score consideration.
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11. Advantages and Disadvantages of using credit
Ability to buy needed items now
Don’t have to carry cash
Creates a record of purchases
More convenient than writing checks
Consolidates bills into one payment
Disadvantages
Interest (higher cost of items)
May require additional fees
Financial difficulties may arise if one loses track of how much has been spent each month
Increased impulse buying
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12. Technology Corner Applying for Credit Online
Consumers can apply for many types of loans online
Applications require sensitive personal data
Do not respond to credit offers sent to you online
Apply only at sites that you know are for a reputable company
7-3 Costs of Credit
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13. Ethics Credit Card Fraud Take steps to help prevent credit card fraud
Guard your cards and account numbers
Carry only one or two cards at a time
Do not lend your cards to others
Cut cards and receipts into pieces before discarding them
Check your Credit Card Statements carefully
Report lost or stolen cards right away
7-3 Costs of Credit
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14. Credit card application
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15. Reading a Credit Card statement
teens – lesson 8 - slide 8-F

16. Credit Card Statements pg. 18-19
Payment due date: the date by which the credit card company expects to receive your payment. Many credit card companies waive finance charges if the outstanding balance is fully paid by the payment due date.
Outstanding balance: the amount of money you still need to repay
Finance charge: the interest payment you owe on the credit card balance
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17. Credit Card Statements
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18. Checking Credit Statements
Compare the charges on the statement with sales receipts and purchase records
Verify that payments and credits have been recorded
Note fees charged
Verify the interest amount and the new balance owed
Contact the company regarding errors
7-3 Costs of Credit
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19. May omit because Ed has a matching column handout that goes along with credit card stmts
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20. Credit Costs Fixed rates Variable rates
Interest rate is set and does not change each month
Can change with written notice
Variable rates
Can change often without prior notice
Tend to rise fast when interest rates in general go up
Possibly skip this slide
7-3 Costs of Credit
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21. How much can you afford? 20-10 rule
Never borrow more than 20% of your yearly net income
If you earn $400 a month after taxes, then your net income in one year is 12x400=4800
So you should never have more than 960 of debt outstanding
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22. How much can you afford? 20-10 rule continued
Monthly payments shouldn’t exceed 10% of your monthly net income
If your take-home pay is $400 a month 400x 10% =40
Your total monthly debt payments shouldn’t total more than $40 per month
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23. reading a credit report
teens – lesson 7 - slide 7-F

24. Building a Credit History
Establish a steady work record
Pay all bills promptly
Open a checking account and don’t bounce checks
Open a savings account and make regular deposits
Apply for a local store credit card and make monthly payments
Apply for a small loan using your savings account as collateral.
Get a co-signor on a loan and pay back the loan as agreed.
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25. 3 C’s of Credit
When a prospective creditor evaluates a credit application, they look for the three C’s
Character
Capital
Capacity
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26. reading a credit report
teens – lesson 7 - slide 7-F

27. 4 Major Categories of Information That Appear On a Credit Report
Identification and employment data
Payment history
Inquiries
Public record information
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28. Ways to maintain a good credit rating
Don’t borrow more than you can afford
Don’t overdraw your checking account
Pay your bills on time
Limit the number of credit cards
Review your credit once a year
Correct any mistakes immediately
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29. Your responsibilities Conclusion
Borrow only what you can repay
Read and understand the credit contract
Pay debts promptly
Notify creditor if you cannot meet payments
Report lost or stolen credit cards promptly
Never give your card number over the phone unless you initiated the call or are certain of the caller’s identity
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30. Methods of Computing Interest
Minimum payments
How much you must pay each month on a credit account
DON’T ONLY PAY THE MINIMUM. (Nummyheads!)
Penalties and fees
Late Penalty, over the limit fees, termination penalties
Minimum payments can be high on an expensive purchase, such as a car.
7-3 Costs of Credit
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31. Special Rates
Credit card interest rates are given as annual percentage rates
Creditors must clearly state the rate of interest on all credit offers
Low introductory interest rates often last only a few months
7-3 Costs of Credit
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32. Credit Cards
Your beginning balance on 12/1 is $700 You make the following transactions: 12/5 – Purchase $500 12/13 – Purchase $40 12/28 – Purchase $100 12/31 – Payment $400 What is your new balance on 12/31? = $940

33. Credit Cards
When you receive your credit card bill, you want to calculate the following: Minimum monthly payment at a rate of 2% Interest payment for the month at an APR of 12% (APR –means it is for the year) What is the minimum monthly payment? $940 x 0.02 = $18.80 WILL ASK YOU TO PAY THIS OR $10 WHICHEVER IS GEATER What is the interest payment for the month? 12% / 12 = 1% (divide APR by 12 to get montlhy) $940 x .01 = $9.40

34. Page 20
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35. Page 20
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38. Slide 38

39. Themint.org www.themint.org Teens Owing I paid how much
Debt calculator
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40. Conclusion www.spendster.org www.themint.org Teens Owing
Credit card iq quiz
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