MONEY 2004

Made available to the CARE Program courtesy of

Carol Kenner, retired Bankruptcy Judge from D. of Mass.

True or False?
1. You must be 18 or older to obtain a
credit card in your own name.
2. All credit cards charge the same
annual percentage rate (APR) of
interest on the balance you owe.

 3. If you pay your credit card balance

in full each month, it doesnt matter
what rate the bank charges on your
credit card.
4. You pay no interest on a debit card
purchase.

 5. There is a credit report for everyone

over age 18.

6. If you are late in making a few
payments on your credit card, the
interest rate you pay may increase
sharply.
7. If you miss just one or two
payments on your credit card, it wont
hurt your credit rating.

 8. If you apply for a car loan, the lender

will probably review your credit report.
9. When you apply for a job, your
prospective employer may review your
credit report.
10. Bouncing just one check wont cause
you credit problems.

11. The average college undergraduate

owes credit card debt of

(A)
(B)
(C)
(D)

none
$500
$1,500
$3,000

12. What do the following

people have in common?

Tony Braxton

Burt Reynolds

Kim Bassinger

M.C. Hammer and Shannen

Doherty

Answers

 1. You must be 18 years old or older to

obtain a credit card in your own name.

 1. TRUE.
Before you become
18, you may obtain a
credit card where an
adult is the authorized
user. Once you
become 18, you can
legally incur debt in
your own name.

 2. All credit cards charge the same

annual percentage rate of interest on
the balance you owe.

 2. FALSE

Different banks charge

different rates. Other
important terms vary
also, such as annual
fees, late fees, grace
period.

Check out this

website for a
comparison of
terms:
www.cardtrak.com
. See also
smartmoney.com

 3. If you pay your credit card balance

in full each month, it doesnt matter

what rate the bank charges on your
credit card.

 3. TRUE
Since you only
pay interest on
the unpaid
amount each
month, you
never pay any
interest charge if
you pay the entire
debt. Banks hate
when you do this.

 4. You pay no interest on a debit card

purchase.

 4. TRUE
A debit card
works just
like a check.
Your ATM
card is
probably a
debit card.

 5. There is a credit report for everyone

over age 18.

 5. FALSE
There is a credit
report only for
people who have
established a
credit history.
Having no credit
history can have
adverse
consequences.

 6. If you are late in making a few

payments on your credit card, the

interest rate you pay may increase
sharply.

 6. TRUE
For example, on
one Platinum
VISA card, the
rate jumps from
4.9% to 24% if
you pay late or
miss even one
payment. Late
charges also
accrue.

 7. If you miss just one or two

payments on your credit card, it wont

hurt your credit rating.

 7.FALSE
That negative
information
can legally
remain on
your report
for up to 7
years.

 8. If you apply for a car loan, the

lender will probably review your credit
report.

 8. TRUE
People who lend
you money will
almost always
review your
credit report. To
get a free copy
of your credit
report, call 1888-experian.

 9. When you apply for a job, your

prospective employer may review your

credit report.

 9. TRUE
A prospective
employer can
review your
credit report if
you give
written
authorization.
More
employers are
asking to see
credit reports.

 10. Bouncing just one check wont

cause you credit problems.

 10. FALSE
If you bounce
a check your
bank may put
your name in
ChexSystems.
You could be
blacklisted
for up to 5
years - this
means you
cannot use a
checking
account.

The average college student owes

about $3,000 in credit card debt
today.

12. What do these people have

in common?
They are all bankrupt. Kim Bassinger pays
$7,000 for pet care and $9,000 for alimony each month. M.C. Hammer has a bath tub
seating 8 people, a 40-person entourage, 17
cars, several racehorses and a $3 million
swimming pool.

How do you spend money?

What are the good reasons to

use credit cards?

convenience
safety - $50 limit on liability
good ID
to purchase something necessary that you
otherwise could not afford (e.g., you buy
a car in order to commute to a job) or to
purchase something that saves you money
(e.g., storm windows which save you
heating costs)
internet purchases

 They often
provide special
consumer
protections
They can
provide you
leverage with a
merchant

 Different credit
cards offer different
rewards, such as
air mileage, savings
bonds, sporting
equipment.
Evaluate whether
these features are
worth any extra
credit costs to you.

What are the downsides of using

credit?

 If your
payment
record is
poor, your
credit rating
will suffer.
A poor credit
rating means
credit will
cost you
more - youll
pay higher
interest.

 Or you
may be
denied
credit
entirely.

 Money
troubles can
be
embarrassing

What if you bought ...

 Speakers for
$1,200.00
CD player $500
and
Tuner $300
TOTAL: $2,000

 And what if you use your credit card to buy

the system and you make monthly payments
of $300?
Assume you never miss a payment and the
annual percentage rate on your card is 8%.

What will the system end up

costing you?
How long will it take to pay for it?

 Your total cost will be

$2052

It will take you

SEVEN
MONTHS to pay
for it

 Now, instead of an 8% rate, assume

that, because your credit rating is poor,
you must pay interest at a rate of 24%.
Also assume that you pay the
MINIMUM MONTHLY PAYMENT
of only $50 per month.

How long will it take you to pay

for the system?
How much will you end up paying
for the system?

 It will take
you 82
MONTHS
(almost
SEVEN
YEARS).
Total
payment:
$4,062!

Your choices:
pay $2,000
cash
pay $2,052
over seven
months
pay $4,062
over seven
years

What if you take the $2,000 you

save as a result of paying cash for
the stereo and invest it together
with $2,000 every year until you
are age 60?

Youll have a nest egg of

approximately $1,200,000.

Tips
Limit the number of cards you use to just one
or two. Keep track of where they are.
Cancel unused cards. Unused cards are a
factor lenders consider in extending credit.
Either use credit only for essential purchases
or pay off the entire debt each month.
Keep your card in view whenever you hand it
to a merchant.

 Check your credit report yearly and correct

errors. Find out what your credit score is.
Shop around for a credit card with the best
terms.
Establish good credit by using a checking
account, a debit card and paying all bills on
time.
Take out a small loan (perhaps with parent
as co-signer) and repay it timely in order to
establish a track record.

 New credit products come out frequently

(prepaid cards, secured credit cards);
determine which works best for you

The End