Introduction Instructor and student introductions. Module overview. 1 2 Your name. Student Introductions Your expectations, questions and concerns about credit cards. Purpose will teach you about credit cards and how to use them responsibly. 3 4 Objectives By the end of this course, you will be able to: Describe the purpose of credit cards. Determine which credit card is best for you. Identify the factors creditors look for when making credit decisions. Objectives (Continued) Describe how to use a credit card responsibly. Identify the steps to take when a credit card is lost or stolen. 5 6 1
Agenda and Ground Rules 90 minutes long One 10-minute break Training methods Classroom participation Credit Cards Credit cards: Are a convenient form of borrowing. Give you a revolving line of credit. Require a minimum payment each month. 7 8 Cash cards Smart cards Stored value cards Other Cards Secured and Unsecured Cards You do not have to provide collateral in order to get a credit card. A credit card is an unsecured loan. You can get a secured credit card if you have no credit history or a negative credit history. 9 10 Gold and Platinum Cards These cards: Have a higher credit limit. Require good credit history and higher income. May not have favorable terms. Reward Cards These cards: Are offered by hotels and airlines. Charge an annual fee. May give you cash rebates 11 12 2
Pre-approved Card Offers Credit Card Terms Credit card companies look at your credit report and determine that you MIGHT qualify for the interest rates and credit limit being offered. Whether or not you get the best terms depends on your income, employment, and credit history. Shop for the best terms. Annual percentage rate (APR) Fees Grace period Balance computation method Cash advance Balance transfer 13 14 Annual Percentage Rate Interest rate + fees = APR, expressed as a yearly percentage rate APRs are either fixed or variable. Penalty APRs are about 52 percent higher than regular APRs. Credit card companies must state how long introductory APRs last. Fees Annual fees Late fees Over-the-limit fees Balance transfer fees Cash advance fees 15 16 Grace Period The number of days you have to pay your balance before the credit card company starts charging interest. Balance Computation Method The balance computation method will determine how your interest is calculated. The most common method used is the average daily balance. 17 18 3
Cash Advance The ability to get cash from your credit card. Credit card companies charge a fee for this service. Example: 2%/$10 The cash advance fee is 2 percent of the cash advance amount or $10, whichever is greater. Balance Transfer Balance transfer is the process of moving unpaid credit card debt from one credit card to another. Credit card companies sometimes offer low rates to encourage balance transfers coming in. 19 20 Other Factors to Consider Customer service Additional protection Application Requirements Individual credit based on the assets, income, and credit history of the individual Joint credit based on the assets, income, and credit history of both people who apply. Age requirement 18 years old 21 22 Credit Report A credit report is a record of how you have paid your debts. It tells lenders: Who you are. How much debt you have. Whether you have made payments on time. Credit Report (Continued) Whether there is negative information about you in public records. Inquiries made about you. 23 24 4
Credit Reporting Agencies Equifax Experian TransUnion Credit Score The credit score: A number that predicts how much of a credit risk you will be. Calculated based on information in your credit report. Check your credit score before applying for new credit. 25 26 FICO Score Scores range from about 300 to 900. Takes into account: Past payment history 35 percent Outstanding debt 30 percent How long you've had credit 15 percent New applications for credit 10 percent Types of credit 10 percent VantageScore Was introduced in March of 2006. 3 credit reporting agencies use the same scoring system. Scores range from 501 990. A, B, C, D, F 27 28 Denial Notice Lists the reasons for denying credit, such as: You have a bad credit history. You have not been at your current address or job long enough. Your income does not meet the creditor s criteria. Also called an adverse action notice. Lost or Stolen Credit Card Be careful giving personal information over the telephone or on the Internet. Immediately notify your credit card company if your card is lost or stolen. If you think you are a victim of credit card fraud, immediately contact your credit card issuer. 29 30 5
Credit Limit Cost of Making the Minimum Payment This is the maximum amount of money the credit card company is loaning you. If you go beyond this limit, the credit card company will assess an over-the-limit fee. TV Item Computer Price $500 APR Interest Paid $216 $516 How Much You Really Pay for the Item $716 $1,516 Years to Pay Off 5 7 Furniture $1,415 $3,915 10 31 32 Benefit of Making More Than the Minimum Payment Original Balance APR Minimum Payment (MP) MP + $25 MP + $50 Number of 123 50 33 Years to Pay Off 10 4 3 of $3,915 $3,258 $2,839 Benefit of Making More Than the Minimum Payment Original Balance APR Minimum Payment (MP) MP + $25 MP + $50 Number of 87 26 16 Years to Pay Off 7 2 1 of $1,516 $1,187 $1,119 33 34 Credit Card Statement The front of the statement lists detailed activity during the account billing cycle. The reverse side describes some basic terms of your credit card agreement, including how the interest is calculated and where to call with billing questions. 35 6