Credit Card Basics

http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/n12020

Silly – seems obvious!

In reality, it is EASY to get caught up with credit card debt… Seems like it’s free money and it’s easy to buy thing impulsively

When you are stuck financially, it seems like an easy option

True or False?

True – Left / False – Right(move to one side of the room)

(1) You must be 18 years old or older to

obtain a credit card in your own name.

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.

True or False?

True – Left / False – Right(move to one side of the room)

(2) All credit cards charge the same

annual percentage rate of interest on the

balance you owe.

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

True or False?

True – Left / False – Right(move to one side of the room)

(3) If you pay your credit card balance in

full each month, it doesn’t matter what

rate the bank charges on your credit card.

TRUESince 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 because they don’t make any money

from you! ☺

True or False?

True – Left / False – Right(move to one side of the room)

(4) You pay no interest on a debit card

purchase.

TRUE

A debit card works just like a check.

Your ATM card is probably a debit

card.

True or False?

True – Left / False – Right(move to one side of the room)

(5) There is a credit report for everyone

over age 18.

FALSE

There is a credit report only for people

who have established a credit history.

Having no credit history can have

adverse consequences.

True or False?

True – Left / False – Right(move to one side of the room)

(6) If you are late in making a few

payments on your credit card, the interest

rate you pay may increase sharply.

TRUEFor 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.

True or False?

True – Left / False – Right(move to one side of the room)

(7) If you miss just one or two payments

on your credit card, it won’t hurt your

credit rating.

FALSE

That negative information can

legally remain on your report

for up to 7 years.

True or False?

True – Left / False – Right(move to one side of the room)

(8) If you apply for a car or house loan,

the lender will probably review your

credit report.

TRUEPeople who lend you money will almost

always review your credit report.

True or False?

True – Left / False – Right(move to one side of the room)

(9) When you apply for a job, your

prospective employer may review your

credit report.

TRUEA prospective employer can review your

credit report if you give written

authorization. More employers are

asking to see credit reports.

True or False?

True – Left / False – Right(move to one side of the room)

(10) Bouncing just one check (not having

enough money in your account when

someone cashes a check) won’t cause

you credit problems.

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 may not be able to open

accounts as easily.

Credit Card Basics

Credit is borrowed money that you have to pay back with extra costs such as interest

Fees and changes apply with MANY forms of credit

There are different types of credit products including credit cards, personal loans, and more

Credit can be useful, but if not managed properly you can run into trouble It is important to have a good credit report

You need to pay bills on time

Wait before you decide to spend money to avoid impulse buying

Don’t just stick with the minimum repayments on your credit card – pay as much as you can!

TYPES OF CREDIT CARDS

Private Label• Issued by a single source• Can only be used at a single source• Examples: Department Stores, Gasoline Companies

General Label• Issued by a single source• Can be used in many places• Examples: Bank Card, Major Credit Card

COMMON PARTS OF A CREDIT APPLICATION

• Reason for Loan/Credit• Personal Identification Information• Employment Information• Mortgage/Rental Information• Current Debts• Credit References• Collateral (for some applications)• Bank References• Signature and Date

QUESTIONS TO ASK WHEN APPLYING FOR CREDIT

1. What is the annual fee?

2. What is the annual percentage rate (APR)?

3. When are payments due?

4. What is the minimum payment required each month?

5. Is there a grace period?

6. Are there other fees associated with the credit, such as minimum finance charges?

7. What is the credit limit?

8. What are the penalties for late or missed payments?

9. What are the terms and conditions of the credit?

10. What else is included in the fine print?

11. What are some incentives you offer?

SHOPPING FOR A CREDIT CARD

DECISIONS, DECISIONS...

Activity Time!

With your group, visit your assigned webpage to answer the questions regarding your assigned credit card.

We will compare each of your credit cards to find the best one!

CREDIT DEFINITIONS

CreditTrust given to another person for future payment of a loan, credit card balance, etc.CreditorA person or company to whom a debt is owed.InterestAdditional money that is paid back in addition to what was borrowed

THE FIVE Cs OF CREDITWhat does the creditor look for?

C = Capacity (income/savings/other)

C = Capital (money you have)

C = Collateral (a “big ticket” item)

C = Conditions (use of credit)

C = Character (impression/credit report)

Activity: WHEN TO USE CREDIT

Can you describe a situation when it is

a good time to use credit and when it is

NOT a good time to use credit?

When to Use Credit• Great to have in times of emergencies, family crisis, unexpected illness, etc.• Could be a convenient way to manage income by keeping track of spending—provided bills are paid in full each month.• Allows the benefit of having large items such as a home, car, and appliances while still paying for them.

When Not to Use Credit• Can lead to spending beyond one’s means because it is so convenient and easy to use.• If one is tempted to live on credit.• When credit takes away the opportunity to use the income that pays off the credit, which is needed for other things.• When there is concern that the credit cards and credit account numbers may be stolen and used by others.

QUESTIONS TO ASK BEFORE USING CREDIT

1. Is this a necessity or luxury item?2. Do I really need this good or service?3. Can I meet my obligation to pay for it without

hurting my existing cash flow?4. Do I really understand all of the terms and

obligations that I must agree to when purchasing this?

5. Have I really thought about the potential consequences of making this purchase?

6. Can I repay the debt in a timely fashion to avoid finance charges?

COSTS OF CREDIT

How much can credit cost? If you make only the minimum

payment for an item, here are some examples of what you

might actually pay and how long it will take you to pay it.