The Essentials to Take Charge of Your Finances 7.4.2.G1 Understanding Your Credit Card Essentials Advanced Level
What is Credit? Credit- when goods, services or money is received in exchange for a promise to pay a definite sum of money at a future date Credit is derived from the Latin word credo meaning I believe Brainstorm! Why would a person want to use credit? Essentials Slide # 2
Credit Process Wants to acquire an item Does not have enough money and wants to borrow from a lender Borrower Lender Person or organization with resources to provide a loan Credit card company, depository institution, etc. If approved by the lender, receives credit Pays the lender interest for the privilege of borrowing Borrower
Installment Credit A one %me loan that is repaid in a specified number of equal payments Auto Loans, Mortgages, & Student Loans May require a co- signer Second signer who will pay for the loan if the first party defaults Essentials Slide # 4
Non-Installment Credit Credit is extended in advance with a specific credit limit Credit Limit Maximum dollar amount loaned Varies among individuals based upon Creditworthiness Borrower pays interest if credit is not paid back in full each month Examples are Credit Cards & Department Store Cards Essentials Slide # 5
Essentials Slide # 6 7.4.2.G1
Advantages & Disadvantages to using Credit Cards 7.4.2.G1 Convenient payment tool Can be used for emergencies Able to purchase big ticket items and spread out payments Protection against fraud Opportunity to establish a positive credit history Possibility of receiving bonuses Interest can be costly when a balance is revolved Additional penalty fees may apply Tempting to overspend Risk of identity theft Responsible for lost/stolen cards Applying for multiple accounts in a short period of time can lower your credit score Essentials Slide # 7
Creditworthiness Creditworthin ess Credit card approval depends on the borrower s perceived creditworthiness according to the lender How a person uses a credit card affects their creditworthiness Lenders assess an individual s creditworthiness based upon their credit report and/ or credit score Essentials Slide # 8
Positive Credit Card Use Examples of positive credit card behaviors: Paying credit card balances in full every month Paying credit card bills on time Applying for only credit cards that are needed Keeping track of all charges by keeping receipts and using a check register Checking the monthly credit card statement for errors Essentials Slide # 9
Negative Credit Card use Examples of negative credit card behaviors: Making late credit card payments Paying only the minimum payment Exceeding the card s credit limit (usually triggers a penalty fee) Charging items that can t be paid off immediately Owning too many credit cards Essentials Slide # 10
Credit Card Offers Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format This is called the Schumer box Essentials Slide # 11
Obtaining A Credit Card 1. Comparison shop for a credit card Compare credit card offers and determine which card to apply for 2. Complete a credit application A form requesting information about a person s ability to repay 3. Lenders conduct a credit investigation A comparison of information on credit application to information on a credit report 4. Approval? Applicant may or may not be approved for the card they apply for (depends on creditworthiness) Credit card companies send pre-approved credit card applications in the mail when the individual has passed their initial credit check Essentials Slide # 12
Truth in Lending Act Limits liability for unauthorized credit card charges to $50.00 per card Must write a letter within 60 days of the first bill containing the error If a credit card number is used fraudulently but the card itself was not used, the individual has no personal liability Essentials Slide # 13
Credit Card Safety Tips Brainstorm! What are safety tips for using a credit card? Sign card with a signature and Please see ID Do not leave cards lying around, and report lost or stolen cards promptly Close unwanted accounts by writing and phone, then cut up the card Do not give out account numbers unless making a purchase Keep a list of all cards, account numbers, and phone lists separate from cards Shred all pre-approved credit card offers, applications, or solicitations Essentials Slide # 14