Credit Cards: concept

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What is a Credit Card? Pre-approved credit Used for purchase of items now Payment of items later

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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/financi
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Advantages
Convenient Useful for emergencies Often required to hold a reservation Purchase big ticket items earlier Easy form of debt consolidation Protection against rip-offs and fraud Establish a good credit rating
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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
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Types
1. Bank Credit Cards
Flexible account Accepted anywhere Available from a financial institution (commercial bank, credit union) with a service provider (Visa, MasterCard)
Electronic network

2. Retail Credit Cards

Purchases allowed at a particular retailer
i.e. The Buckle or Old Navy

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Can work with bank to offer a bank credit card with the retailers logo
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 3.

Travel and Entertainment Cards

Similar to bank credit cards
Can make purchases at a number of businesses

Entire balance must be repaid in 30 days

4. Prestige Cards
High status accounts Higher credit qualifications Special benefits
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i.e. Free travelers checks, higher

 5. Affinity Cards
Accounts through financial institutions Logo of sponsoring organization
Example: Mothers Against Drunk Driving

Financial institution donates percentage of charges to organization

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Schumer Box
Fair Truth in Lending Act Information required by law to inform consumer of all costs associated with use Annual a credit card Balance of

Grace Minimum Annual Transacti Late Percenta Period Finance Calculati Fees on Fees Payment ge Rate for Charges on for Cash Fees for Purchase Method Advances Purchase s for s Purchase s 19.9% $.50 when Not less a finance than charge at 25 days a periodic rate is charged Average daily 2% with a balance $20 per minimum method year fee of $3 (including new purchases) $29

 Balance Grace Minimu Annual Transact Late Percenta Period m Calculati Fees ion Fees Payment ge Rate for Finance on for Cash Fees for Purchas Charges Method Advance Purchas es for s es Purchas es 19.9% $.50 Average Not less when a daily 2% with a than finance balance $20 per 25 days charge at method year minimum a periodic (including fee of $3 rate is new charged purchase s) $29

Annual

Annual Percentage Rate

Annual Percentage Rate (APR) Interest rate charged for amount borrowed in terms of per dollar per year ravikantswami@gmail.com

Grace Period
Balance Grace Minimum Annual Transacti Late Percenta Period Calculati Fees on Fees Payment ge Rate for Finance on for Cash Fees for Purchase Charges Method Advance Purchase s for s s Purchase s 19.9% Not less than 25 days $.50 when Average a finance daily 2% with a charge at balance $20 per a periodic method year minimum rate is (including fee of $3 charged new purchases ) $29 Annual

Grace Period Amount of time allowed before finance charges are applied

Minimum Finance Charges

Balance Grace Minimu Annual Transac Late Percent Period m Calculat Fees tion Paymen age for Finance ion Fees for t Fees Rate for Purchas Charges Method Cash Purchas es for Advanc es Purchas es es 19.9% $.50 Average Not less when a daily 2% with than finance balance $20 per a 25 days charge method year minimu at a (includin m fee of periodic g new $3 rate is purchase charged s) $29 Annual

Minimum Finance Charge Minimum amount charged for card

Balance Calculation Method

Balance Grace Minimu Annual Transac Late Percent Period m Calculat Fees tion Paymen age for Finance ion Fees for t Fees Rate for Purchas Charges Method Cash Purchas es for Advanc es Purchas es es 19.9% $.50 Not less when a than finance 25 days charge at a periodic rate is charged Averag e daily 2% with balance $20 per a method year minimu (includi m fee of ng new $3 purchas es) $29 Annual

Balance Calculation Method Method used to determine balance for finance

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Balance Calculation Method cont. 1. Average daily balance excluding new purchases Interest is only paid on the previous balance, not on purchases made since the last payment 2. Average daily balance including new purchases with a grace period If the balance is not zero, interest is applied to new purchases when they are made, if the balance is zero, a grace period is allowed before interest is

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3. Average daily balance including new purchases with no grace period Regardless of the previous months balance, interest is applied to new purchases as they are made 4. Two-cycle average daily balance including new purchases This method should be avoided by consumers, as it is the leastbeneficial. The average daily balance is determined on 60 days, rather than 30 days, so finance
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Annual Fees
Balance Grace Minimu Annual Transac Late Percent Period m Calculat Fees tion Paymen age for Finance ion Fees for t Fees Rate for Purchas Charges Method Cash Purchas es for Advanc es Purchas es es 19.9% $.50 Average Not less when a daily 2% with than finance balance $20 per a 25 days charge method year minimu at a (includin m fee of periodic g new $3 rate is purchase charged s) $29 Annual

Annual Fees Yearly charge for credit card ownership

Cash Advances
Balanc Grace Minimu e Annual Transac Late Percent Period m Calcula Fees tion Paymen age for Finance tion Fees for t Fees Rate for Purchas Charges Method Cash Purchas es for Advanc es Purcha es ses 19.9% $.50 Not less when a than finance 25 days charge at a periodic rate is charged Average daily 2% with balance $20 per a method year minimu (includin m fee g new of $3 purchas es) $29 Annual

Cash Advance Transaction Fees Cash withdrawal fees

Late Payment Fees

Balanc Grace Minimu e Annual Transac Late Percent Period m Calcula Fees tion Paymen age for Finance tion Fees for t Fees Rate for Purchas Charges Method Cash Purchas es for Advanc es Purcha es ses 19.9% $.50 Not less when a than finance 25 days charge at a periodic rate is charged Average daily 2% with balance $20 per a method year minimu (includin m fee of g new $3 purchas es) $29 Annual

Late Payment Fees Penalty fee for payments not made by the due date

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

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Understanding the Bill

Minimum Payment Due The minimum amount to be paid
If this amount is paid and a balance is left on the account, additional finance charges will be included in the following months balance

Past Due Amount The required amount not paid before the due date Due Date The day by which the company requires a payment to be made New Balance The total amount owed on a credit card
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 Credit Line The maximum amount of charges allowed to an account Closing Date Last day for transactions to be reported on the statement Charges, Payments, and Credits The transactions which occur with the use of a credit card Finance Charge Charges assessed for credit card use
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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
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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 ravikantswami@gmail.com separate from cards