Credit Cards. Annual Percentage Rate - What you are paying each month -- unpaid balances calculated as a percentage.

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1 Credit Cards Annual Fee - Amount you pay each year to have a credit card. Annual Percentage Rate - What you are paying each month -- unpaid balances calculated as a percentage. Balance - The total charges you have made Billing Cycle - Length of time between billing statements. Cash Advance APR - Interest rate charged when you take out a cash advance using your credit card. Most credit cards charge a much higher interest rate. Oct 15-7:21 AM 1

2 Credit Cards Credit Limit - The most you can charge on your credit card. When you receive a new credit card, you are usually issued a set credit limit. Keep your balance at 50% or less of your credit limit. Grace period - Time you have before a credit card company starts charging you interest on your new purchases. Most cards have 25-day grace period. Interest Rate - Credit is NOT free! This is how credit card companies calculate what you will owe them for "borrowing" money. APR is what credit card companies use. Introductory APR - Short term, low, interest rate offered by credit card companies to invite you to open an account. It will increase after a certain period of time. Oct 15-7:38 AM 2

3 Credit Cards Late Payment - A payment is received after the due date on the bill. Fees for late payments can range from $20 to $35 or more. Late payments may trigger an increase in your interest rate. Minimum Payment - Shown on your credit card statement, the lowest amount you can pay every month without triggering additional finance charges (besides interest). Secured Card - Often used as a "first credit card" to establish your credit rating. This kind of card is secured by money you deposit in a special savings account that only allows you to "charge" the amount in that account. Transaction fees - Fees charged when you make certain types of transactions using your credit card. Transaction fees are typically taking for cash advances. Oct 15-7:42 AM 3

4 Truth in Lending Act Federal law that requires lenders to tell you about the costs, terms, and conditions at the time they offer you a loan or credit card. But you have to read the fine print on the offer and on anything else they mail you. Oct 15-7:46 AM 4

5 Oct 16-8:34 PM 5

6 Too much debt = BANKRUPTCY B credit rating it ruins your How many years does a bankruptcy stay on your credit report? Oct 16-8:43 PM 6

7 > Late payments: 7 years > Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies. > Foreclosures: 7 years > Collections: Generally, about 7 years, depending on the age of the debt being collected. > Public Record: Generally 7 years, although unpaid tax liens can remain indefinitely. Keep in mind: For all of these negative items, the older they are the less impact they are going to have on your FICO score. For example, a collection that is 5 years old will hurt much less than a collection that is 5 months old. Oct 14-6:44 AM 7

8 Bankruptcy is a legal decision that a person makes when he/she is absolutely unable to pay his/her debts. More than 1 million Americans file for bankruptcy each year. A large number of those people are under the age of 25. Bankruptcy is divided into 2 chapters: Ch 7 and Ch 13 Oct 15-6:53 AM 8

9 Bankruptcy Chapter 7 Chapter 13 Eliminates most debt (not student loans or support obligations Stays on credit report for 10 years Turn property over to be sold to creditors Provides a payment plan to a trustee Usually get to keep the assets you own Stays on credit report for 7 years Mandatory credit counseling May be allowed to keep car & other personal items Oct 14-9:35 AM 9

10 2. if you have a good reason, lenders Oct 16-8:48 PM 10

11 Credit Rating & Score: Your financial reputation affects: Rent an apartment Buy a car Purchase a cell phone Connect utilities Apply for a job dealing with money Car Insurance 3 Credit Reporting Agencies: 1. Experian 2. Equifax 3. TransUnion Oct 15-9:13 PM 11

12 Your credit rating is based solely on your past use of credit. It has nothing to do with your age or income. The credit score is calculated using a mathematical algorithm. The number generated is compared against millions of other consumers which then determines your credit score. Oct 16-6:59 AM 12

13 FICO Scores The higher your score, the better you look to lenders. People with higher scores, receive the lowest interest rates. Range: Oct 15-9:14 PM 13

14 How the scores "work" 35% - How timely you pay your bills 30% - How much you owe & available amount of credit: mortgages, student loans, car loans 15% - Length of your credit history 10% - Mix of credit: revolving credit, installment loans (how do you handle credit) 10% - New credit applications - applying for credit cards too much can have negative impact on your credit score. Oct 16-7:03 AM 14

15 How the Credit scores "work" Oct 15-8:49 AM 15

16 FICO Table FICO Score Rating Excellent - Qualifies you for the best financing and interest rates Very good - Qualifies you for favorable interest rates & financing Average - this score range usually qualifies you for most loans Sub Prime - You may qualify for a loan but pay higher interest rates Very Risky - You will have trouble getting a loan Oct 16-8:41 AM 16

17 Building & Maintaining your credit history Pay your bills on time Never miss a payment Always stay within your credit limit Be responsible - don't bite off more than you can chew Know the amount owed at all times Don't bounce checks Have a savings account for emergencies CHECK YOUR CREDIT REPORTS Oct 15-9:14 PM 17

18 Credit bureaus - Organization that tracks credit. Three major credit bureaus are: Equifax TransUnion Experian Let's visit Oct 15-9:15 PM 18

19 If Identity Theft Occurs: Place a "Fraud Alert" on your credit reports - lasts for 90 days Contact your local Social Security office - lasts for 90 days Close your affected accounts Place "holds" or use special PIN #'s with credit card companies File a police report Oct 16-8:48 AM 19

20 Avoiding Identity Theft Shred or burn documents with personal information Monitor your credit report Monitor your credit card statements & bank accounts regularly Protect your passwords Empty your mailbox regularly Never lose your driver's license or social security card Oct 16-8:52 AM 20

21 Test Review - Test on Tuesday, March 24 1) Be able to identify the definition/characteristics of the following types of loans: Mortgage Loan Revolving Credit Student Loan Rent-to-Own loan Pawnshop Loan Cash Advance Loan Refund Anticipation Loan Payday Loan Oct 16-7:02 AM 21

22 Test Review - Test on Tuesday, March 24 Know the definitions of the following terms related to financing a loan: Down Payment Finance Charge Term Minimum Payment Annual Fee Introductory APR Annual Percentage Rate (APR) Principal Collateral Oct 16-7:04 AM 22

23 Test Review - Test on Tuesday, March 24 Know the 4 C's of credit: Capacity, Character, Collateral, and Capital Definition of Bankruptcy Know what a credit score is and how it's determined Know what an excellent credit score is ( ) Know what a bad credit score is (Anything below 500) Know how you can build your credit history/build credit Know the Truth in Lending Act Know the 3 Credit Reporting Bureaus: TransUnion, Equifax, and Experian Know how to calculate a Finance Charge and Monthly Payment (formulas and description of variables will be provided.) Oct 16-7:06 AM 23