1. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Credit Cards: Pros and Cons

2. Family Economics & Financial Education 1.4.1.G1 Objectives Objective: What is a credit card? What are the costs and benefits of owning a credit card? Is a Credit Card for me? © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

3. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona What is a Credit Card? Pre-approved credit Used for purchase of items now Payment of items later

4. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Statistics 92% of college students have a credit card by their sophomore year 1 out of every 5 college students owes between $3,000 and $7,000 in credit card debt Almost half (47%) of all college students carry four or more credit cards (Source: http://www.fcs.iastate.edu/financial)

5. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Use a Credit Card? Advantages  Purchase ‘big ticket’ items earlier Can buy them immediately instead of saving up.  Easy form of debt consolidation  Protection against rip-offs and fraud Usually liable for only $50 if reported immediately.  Gives you a record of your purchases  Establish a good credit rating

6. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Use a Credit Card? More Advantages  Convenient You can travel without having large sums of cash, accepted everywhere.  Useful for emergencies  Often required to hold a reservation  Special Services Replacement of lost or stolen merchandise, extension of warranties, air travel insurance.  Protection Power Company will intercede on your behalf if you are unhappy with a purchase

7. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Use a Credit Card? Disadvantages Interest is costly Additional fees are common Tempting to overspend Privacy is an increasing concern Personally responsible for lost/stolen cards Identity theft easier Can lose financial freedom from overspending

8. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Types of Credit Cards There are three basic types of credit cards: Travel and entertainment cards such as American Express or Diners Club.  They have no predetermined spending limits and must be paid in full each month. Bank cards such as MasterCard, Visa, Discover, Optima, GM and Ford cards which are sponsored by individual banks.  The bank defines spending limit and each offers different terms and conditions.  Banks offer a choice of payment methods, either pay the balance in full with no interest or pay a minimum part or some part of the balance with a finance charge.

9. Family Economics & Financial Education 1.4.1.G1 Company or Retail store cards such as Sears, J.C. Penney, Shell, or Mobil.  These cards are only accepted by the specific company and do not have an annual fee. However, the terms and conditions of these cards vary widely. © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Types of Credit Cards

10. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Schumer Box Fair Truth in Lending Act Information required by law to inform consumer of all costs associated with use of a credit card Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

11. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Annual Percentage Rate Annual Percentage Rate (APR) – Interest rate charged for amount borrowed in terms of per dollar per year Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

12. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Grace Period Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 " 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.

13. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Minimum Finance Charges "Finance Charge” The dollar amount you pay to use credit, includes interest costs and all charges associated with the transaction. Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

14. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Calculation Method Balance Calculation Method – Method used to determine balance for finance charges Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

15. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Annual Fees "Annual Fee" A flat, yearly charge similar to a membership fee, usually $25 to $50. Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

16. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Cash Advances Cash Advance Transaction Fees – Cash withdrawal fees Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

17. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Late Payment Fees Late Payment Fees – Penalty fee for payments not made by the due date "Transaction Fees” A fee for a cash advance, a late payment, or going over your credit limit. Sometimes there is a monthly fee if you did not use the card. Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

18. Family Economics & Financial Education 1.4.1.G1 Computing Finance Charges Beginning Balance$1,000 Payment $800 on the 15th on the month APR 18% or (l.5% monthly) "Average Daily Balance" Balance $600 ($1,000 for 15 days and $200 for 15 days) Finance Charge $9 ($600 times.015) "Adjusted Balance" Balance $200 ($1,000 minus $800) Finance Charge $3 ($200 times.015) "Previous Balance” Balance $1,000 Finance Charge $15 ($1,000 times.015) © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

19. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Opening a Credit Account 1.Applicant completes a credit application 2.Lender conducts a credit investigation 3.Applicant is given a credit rating 4.Lender accepts or denies the credit request 5.If accepted, applicant evaluates the credit card details 6.Applicant accepts or refuses credit terms

20. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Using a Credit Card Properly Only use a card when there is no doubt about ability to pay off the charges at the end of the billing cycle Record all expenses and keep receipts Check credit statement for errors Always pay off balance completely and timely

21. Family Economics & Financial Education 1.4.1.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Safety Tips Sign card with signature and “Please See ID” Do not leave cards lying around Close unused accounts in writing and by phone, then cut up the card Do not give out account number unless making purchases Keep a list of all cards, account numbers, and phone numbers separate from cards Report lost or stolen cards promptly

22. Family Economics & Financial Education 1.4.1.G1 Discussion Questions © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 1. Define credit and list advantages and disadvantages of using credit. 2. Describe the types of credit cards. 3. Give three inappropriate uses of credit cards. 4. Differentiate between a bank card, a travel and an entertainment card. What would be an appropriate use of each? 5. What factors would you consider when selecting a credit card? 6. Identify the steps to evaluate and select a Credit card. 7. Explain the three methods of calculating finance charges.