TRAINER’S GUIDE

The ABCs of Credit Card Finance – Essential Facts for Students –

2010

Carol A. Carolan, Ph.D.

The ABCs of Credit Card FinancePre-Test

1. YourAnnualPercentageRate(APR),whichrepresentstheinterestyoupayonunpaidcreditcardbalances,isafunctionof:a. Yourageb. Thelengthoftimeyouhavehadthecardc. Theamountofmoneyyouoweonyourcreditcardd. Thetermsandconditionsofferedbyyourcreditcardissuer

2. Allcreditcards:a. Havethesamecreditlimitb. Mustbeusedeachmonthortheybecomeinactivec. Haveanannualfeed. Noneoftheabove

3. Itwouldtakelonger,butitwouldn’tcostmoretopayoffyourcreditcardbalanceifyoupaidjusttheminimummonthlypaymentsratherthanpayingmorethantheminimummonthlypayments.a.True b.False

4. Acreditreport:a. Isproducedmonthlybythefederalgovernmentb. Ischangedonlyonceayearc. Isafinancialreportcardd. Isusuallyonlyofinteresttoindividualswhoplantopurchaseahouse

5. Whenyouuseacreditcarda. Youarewithdrawingmoneyfromsavingsb. Youareborrowingmoneyfromcheckingc. Yourcreditcardissuerisloaningyoumoneyd. Noneoftheabove

6. Whichofthefollowingstatementsaretrue:a. Acreditcardisrequiredifyouwanttoestablishcreditb. Allcreditcardsarethesamec. Creditcardsareaprivileged. Youpayafeeeverytimeyouuseacreditcard

7. Whenyouhaveacreditcard:a. Youcanbuywhatyouwant,aslongasyoucanaffordthecard’sminimummonthlypaymentb. Youwillhaveabettercreditscorethanifyoudonothaveacreditcardc. Youwillnotbeallowedtochargeoveryourcreditlimitd. Noneoftheabove

8. Keepingarevolvingbalanceonyourcreditcardaccountmeansyoupaymoreforyourpurchases.a.True b.False

TRAINER’S GUIDE

The ABCs of Credit Card Finance –Essential Facts for Students

2010

Carol A. Carolan, Ph.D.

Trainer’s Guide

The ABCs of Credit Card Finance

Message to Trainers

The ABCs of Credit Card Financeisrevisedyearlytoensuretheaccuracyofitscontentandtocontinuallyimproveitseffectiveness.Thisyear’smaterialscontainanumberofchangesinthe“CreditCardCosts”sectionduetothepassageoftheCreditCardAccountability,ReliabilityandDisclosureAct(CARDAct)whichwassignedintolawbyPresidentObamaon5/22/09toestablishamorefairandtransparentcreditcardindustry.ThisAct,initsentirety,willtakeeffect2/10.Asusual,weappreciateyourparticipationandrecognizeyourroleinmakingthisasuccessfullearningexperience.Ifyouhavesuggestionsorcommentstoimprovetheprogram,pleaseemailusatfeedback@cscce.com.

Theprogram, endingwith“ConsequencesofIrresponsibleCreditCardUse,”takesapproximatelyonehourtoteach.Instructorswhowanttoreviewthe“IdentityTheft”sectionwillneedtoallocateapproximatelytentofifteenminutesmore.YoumayalsowanttoincludethePre-TestandPost-TestwhichareprintedontheinsidecoversoftheTrainer’sGuide.Inaddition,andastimepermits,theclassroomexerciseslistedbelowareprovidedforyourconsideration.

Downloading MaterialsCSCCEisattemptingtofindanewsponsorsothatwecancontinuetoofferthestudentprimerandTrainer’sGuideinprintformat.Untilanewsponsorisobtained,theprogramisonlyofferedinPDFformat.PleasecontactCSCCEatstaff@cscce.comtoobtainthePDFfilesandPowerPoint.

Suggested Classroom Exercises• Bringintoclassseveralcreditcardoffersandhavestudentschoosethebestprogram.Referto

thesampleSchumerBoxonpage6ofthestudentprimer.Studentsshouldconsiderthecard’sAPR,whetherornotthereisanannualfee,thelengthofthegraceperiod,defaultrates,etc.

• UsingtheBudgetFormprintedonpage2ofthestudentprimer,havestudentscompleteabudgetexercise.TheInternetalsooffersmanyhelpfulsitesonthetopicofbudgeting.Forexample,ausefulsiteis:http://faao.concordia.ca/main/finmanage/

• Usingthefirsttableprintedontheinsidecoveroftheprimer,askstudentstodeterminethetotalpayoutamountandpayouttimerequiredtopayoffspecificcreditcardbalanceswhencarduseisdiscontinued,paymentsareontime,andonlytheminimummonthlypaymentispaidontheaccount.Thendirectstudentstothesecondtable,andusethesamecreditcardbalancesandAPRs.Havethemcomparethepayouttimesandpayoutamountsbetweenthetwotablestoobservetheimpactofaddingjust$10toaminimummonthlypayment.

• BringintoclassaCreditReportsothatstudentscanseewhatisincludedinanactualreport.

• Havestudentslisttheadvantagesanddisadvantagesofcreditcards.Formoreinformation,goto:www.mtstcil.org/skills/budget-12.html.

Correct Responses to Pre-Test and Post-TestPre-Test–1-d,2-d,3-b,4-c,5-c,6-c,7-d,8-aPost-Test–1-a,2-d,3-b,4-d,5-b,6-a,7-a,8-c

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PowerPoint – TITLE PAGE (Slide 1)

StartThe ABCs of Credit Card Financebyplacingontheblackboardthesevenpointslistedbelow.Toemphasizetheirimportance,askstudentstocopythemintoanotebook.Eachofthesetopicswillbediscussedduringthepresentation.

1. Chargeonlywhatyouknowyoucanaffordtorepay.2. Youpaymorewhenyouuseyourcreditcardandkeeparevolvingbalance(i.e.,youdon’tpay

yourbillinfulleachmonth)becauseyoupayinterestonyouroutstandingbalance.3. Payyourcreditcardbillinfulleachmonth.Ifyoucan’tpayinfull,ALWAYSmakemorethan

theminimummonthlypayment.4. Don’tspendoveryourcreditlimit…over-credit-limitfeesareexpensive.5. Payyourbillsontime.Youpayalatefee,riskthechanceoflosingalowAPR,andyourcredit

scoreisnegativelyaffectedwhenyoumakelatepayments.6. Learnhowtoprotectyourcreditrating…it’syourfinancialreportcard.7. Neveruseonecreditcardtopayanother(i.e.,don’ttakeoutacashadvanceon onecardtopay

another).Infact,obtainonlyonecardtoavoidmanyproblems.

SUGGESTED INTRODUCTORY STATEMENTS TO CLASS

Asset or Liability–Beginthelecturebytellingstudentsthatcreditcardscaneitherbeafinancialassetorafinancialliability.Asuggestedstatementis:When used and managed properly, credit cards offer us convenience, a sense of security, and allow us to build a healthy credit history. Irresponsible credit card use can result in excessive debt and can produce a poor credit rating and become a long-term financial liability.

Definition of Credit – Askstudentsiftheycandefinecredit.Credit is a system of doing business where you promise to pay at a later date for goods and services received today.

Credit Cards Function as a Loan–Manystudentsdonotunderstandthattheyareborrowingmoneyfromtheirissuerwhentheyuseacreditcard.Emphasizethatcreditcardchargesareunsecuredloansthatmustberepaid.

Budgeting – Iftheclassistobetaughtinonehour,therewillbeinsufficienttimetoconductabudgetingexercise.Hereisasuggestedstatementtostudentstostresstheimportanceofbudgeting.Please turn to page 2 in your primers where you will find a sample budget. Students can benefit immensely from having a clear understanding of their financial needs and spending habits. By creating a realistic budget, an individual has a personal plan for spending and saving money. Giving your financial behavior a structure can provide a sense of comfort and guidance, so if you don’t already have a budget, please take the needed time outside of class to complete this exercise.

PowerPoint – ESSENTIAL FACTS (Slide 2) – Primer Page 3

Makeastatementtotheclassthatcreditcardeducationcanbegroupedintotwomaincategories:• Creditcardscosts,whichincludeshowtowiselychooseacard• Creditcardbehaviors,whichincludeshowtoresponsiblyuseacardThelecturewillbeginwithcreditcardcosts.

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PowerPoint – CREDIT CARD COSTS (Slides 3, 4, 5) – Primer Pages 3 & 4

Annual Fees – Someissuerschargeanannualfeetousetheircard,whichisassessedthesametimeeachyear.Studentsshouldlookforcardswithoutanannualfee,buttheymaybecomemoredifficulttofindduetotheCARDAct.

Interest – Issuerschargecardholdersmonthlyinterestonunpaidcreditcardbalances.InterestratesareexpressedasanAnnualPercentageRate(APR).ThehighertheAPR,themoremoneyonepaysininterest.APRscanbevariableorfixed.AvariablerateAPRisbasedonapublishedindex,liketheprimeinterestrate,plusafewpercentagepointsmore,whichisdeterminedbythecardissuer.TheCARDActincludesmanychangespertainingtocreditcardinterestratecharges.• Interestratescannotbeincreasedonanexistingbalanceduringthefirstyearanaccountisopenunless:

– Youwereofferedanintroductoryrateforalimitedperiodoftimeandtheissuerdisclosedwhatthenewratewouldbeaftertheintroductoryperiodexpires.Promotionalratesmustlastaminimumof6months.

– YouhaveacardwithavariablerateAPRandtheindexchanges.E.g.,ifyourAPRisbasedontheprimerateplus4%adjustedannually,yourratewillchangeiftheprimeratechanges.

– Youaremorethan60daysbehindinpayment.Ifafter6months,youpayatleasttheminimummonthlypaymentsontime,thelowerratewillreturntotheaccount.

– Yourratehadbeenloweredduringatemporaryhardshiparrangementthatiseithercompletedordroppedoutof.

• PertheCARDAct,afterthefirstyear,yourissuercanraiseratesonnew(notexisting)balanceswith45daysnotice.Thistakeseffect2/10.(Asof8/20/09issuersarerequiredtogive45daysnoticeonrateincreasesonexistingbalances.Previously,issuerswereonlyrequiredtogive15daysnotice.)

• Thepracticeofuniversaldefault,whichallowedanissuertoraiseyourAPRifyouweremorethan30dayslateonanypaymenttoanyone,isnolongerallowed.

Becausethismethodoftenresultedinhigherinterestpayments,creditcardissuerswillnolongerbeabletousedouble-cyclebilling.ItislikelymostissuerswillcontinuetousetheAverageDailyBalanceMethodwhichrequiresasimplecalculationasfollows:

• Chargesandpaymentsaretalliedonadailybasistodeterminehowmuchisowedeachday.Thesetotalsarethenaddedanddividedbythenumberofdaysinthestatementperiod.Thisfigurereflectstheaveragedailybalance.

• Todeterminethe“dailyperiodicrate,”theAPRisdividedby365.• Theaveragedailybalanceismultipliedbythedailyperiodicrateandthenmultipliedbythenumber

ofdaysinthestatementperiodtoobtainmonthlyinterestcharges.

Cash Advances – Thesearecashloansonecangetwithacreditcard.Becausetheyareexpensive,studentsshouldavoidcashadvancesunlessfacedwithanemergency.Mostcashadvanceshaveanup-frontfeeassessed(transactionfee),whichisoften3%oftheadvanceoraminimumof$5to$10,theyusuallyhaveahigherAPRandtheyareofferednograceperiod.

Convenience Checks –Thesearepre-printedcheckslinkedtoacreditcardaccountthataretypicallyattachedtoone’screditcardstatement.Theyfunctionlikecashadvances(up-frontfee,nograceperiod,andhigherAPR)andshouldbeavoidedunlessitisanemergency.Conveniencechecksshouldbeshreddedbeforetheyareplacedinthetrash.

Payment Allocation –IfanaccounthasdifferentAPRs(e.g.,oneapplyingtopurchasesandtheotherapplyingtocashadvances)anypaymentinexcessoftheminimummonthlypaymentandfinancechargesmustfirstbecreditedtothebalancewiththehighestinterestrate.(Beforethepassageofthe

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CARDAct,itwascommonpracticeforissuerstoapplythesepaymentstothebalancewiththelowestinterestrate.)

Default Rates – AdefaultrateisahighAPR.Traditionallythesehighrateshavebeenappliedwhenacardholderwentoveracreditlimit,bouncedapaymentcheck,missedapaymentormadealatepayment.DuetotheCARDAct,issuerswillnotbeabletoapplyadefaultrateonanexistingbalanceunlessthecardholderismorethan60daysbehindinpayment.Ifafter6months,thecardholderpaysatleasttheminimummonthlypaymentsontime,thelowerratewillbereturnedtotheaccount.

Introductory Rates – Alowinterestintroductoryrate(promotionalrate)offersalowAPRandmustbeofatleast6months’duration.Issuersarerequiredtodiscloseintheinitialcreditcardofferingtheratethatwilloccurattheendofthefirstsixmonths.

Balance Transfers – Creditcardissuerssolicitnewcustomersbyofferinglowintroductoryratestoindividualswhotransfertheirbalancefromonecardtothenewprogram.First,determineifthereisabalancetransferfee.Second,determinehowlongthelowratewillbeineffectandtheAPRthatwillreplaceitwhenthetimelimitiscomplete.(Therearesomebalancetransferoffersthatarenottimelimited.)Third,determineifthenewrateappliestoboththetransferredbalanceaswellasnewpurchases.Chooseabalancetransferofferthathasnobalancetransferfeeandalong-term,lowAPRthatappliestoboththetransferredbalanceandnewpurchases.

Late Fees – Whenacreditcardpaymentisreceivedaftertheduedate,alatefeewillbeassessed.Thepaymentduedate,datealatefeewillbechargedandamountofthelatefeemustbedisclosedinaconspicuouslocationonthebillingstatement.Ifaduedatefallsonaweekendorholiday,anissuercannotcountone’spaymentlateifitisreceivedthenextbusinessday.PertheCARDAct,asof8/20/09,issuersmustmailstatementsnolaterthan21daysbeforetheduedateratherthan14days,previouslyallowed.Cardholderswillnowbeabletopayatanylocalbranchwiththepaymentcreditedthatsameday.Itusedtobecommonpracticeforissuerstorequire24hoursbeforeprocessingapaymentmadeinabranchoffice.Itiscommonforissuerstochargeatieredfeebasedontheamountoftheoutstandingbalance.Feestypicallyrangefrom$15to$39.Lateandmissedpaymentswillcontinuetobereportedtothecreditreportingagencies,negativelyaffectingone’screditscore.

Over-Credit Limit Fees – Issuersarenolongerallowedtoautomaticallyapproveapurchasethattakesyouoveryourcreditlimit,resultingintheassessmentofmonthlyover-credit-limitfeesuntilthebalanceoftheaccountisbroughtunderitscreditlimit.Anissuercanchargeyouanover-limitfee,however,ifyouhavegiventhempermissiontogooveryourlimit.Notethatissuersarenotrequiredtoauthorizesuchpurchases;theyarefreetodeclinethem.Mostissuerschargeaflatfeeof$29to$39.Somechargeatieredfeebasedontheamountofthebalance.Issuerswon’tbeabletochargeaccountholdersmorethanoneover-limitfeeduringeachbillingcycleandifyouonlygooverthelimitonce,youcannotbechargedover-limitfeesmorethanthreemonthsinarowevenifyourminimummonthlypaymentsdon’tbringyoubackunderthelimit.Yourissuerisnotabletochargeanover-the-limitfeeifyougooverthelimitjustbecauseofinterestchargesorfees.

Bounced Check Fees –Issuerswillchargeafee(typically$29to$39)ifacreditcardpaymentisreturnedduetoinsufficientfunds.Thisinformationwilllikelybegiventothecreditreportingagencies,negativelyaffectingone’screditscore.

Currency Conversion Fees–Issuerschargeacurrencyconversionfeeof3%onforeignpurchases.

Payment Fees –TheCARDActprohibitsissuersfromchargingafeeforphoneorInternetpayments.(Paybyphonefeesofapproximately$15pertransactionhavebeencommon.)

Transaction Fees – Atransactionfeeisanup-frontfeeoftenassessedwhenmakingabalancetransfer,usingaconveniencecheckortakingoutacashadvance.

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PowerPoint – HOW TO WISELY CHOOSE & RESPONSIBLY USE A CREDIT CARD (Slides 6, 7, 8) – Primer Page 5

Advisestudentsthatnotallcreditcardsareequalsincecreditcardissuersarefreetoofferthetermsandconditionstheydesire.TheymaywanttocheckoutInternetsitessuchaswww.bankrate.comorwww.CardRatings.comforthebestoffers.Studentsshouldalsounderstandthatcardsobtainedoncampusmightnothavethebestrates.

When Choosing a Credit Card Look for …• ALow,FixedAnnualPercentageRate(APR)• NoAnnualFee• ALongGracePeriod…atleast20days.Agraceperiodisthelengthoftimebetweentheprevious

month’sclosingdateandthenextmonth’sduedatewhenyoucanavoidfinancechargesonnewpurchasesifyoupayyourtotalnewbalanceinfull.

• InterestCalculatedUsingtheAverageDailyBalanceMethod.AsofFebruary2010,issuerswillnolongerbeallowedtouseanyofthetwocyclebillingmethods.

• LowPenaltyFees

Convenience Users–Convenienceuserspaytheircreditcardbalancesinfulleachmonthandpaynointerestontheirpurchasessincetheyareabletotakeadvantageoftheirissuer’sgraceperiod(definedabove).Convenienceusersespeciallyarelookingforacardwithalonggraceperiod.Thismethodofpaymentisthemostcosteffective.

Evenifastudentplanstobeaconvenienceuser,theyshouldstilllookforacreditcardwithalowAPRjustincasetheycan’tpaytheirbalanceinfullonemonth.Ifonedoesn’tpaytheirbalanceinfullonemonth,theywillnotbegrantedagraceperiodforthefollowingmonthandwillpayinterestonalltheircreditcardpurchases.

“Revolvers” –Revolverskeeparevolvingbalanceontheircreditcardaccountandpayinterestonalltheirpurchases.Theydonotbenefitfromagraceperiod.Ifastudentplanstokeeparevolvingbalanceonanaccount,theyshouldbeespeciallycarefultochooseacardwithalowAPRsotheycanminimizetheamountofinteresttheypay.RevolversmustlearntoALWAYS PAY MORE THAN THE MINIMUM MONTHLY PAYMENT (MMP). MakingjusttheMMPisthemostcostlywaytopayoffcreditcarddebt.Directstudentstothebottomofpage5oftheprimerandreviewthisexample:

If you had a credit card balance of $2,000, an 18% APR, stopped using your card, made on-time payments, and made only the minimum monthly payment based on 1% of the outstanding balance plus accrued monthly interest or a payment of $20, whichever was greater, it would take 12.8 years to pay off your debt and your total payout would be $4,231.

Directstudentstothetablesontheinsidecoveroftheirprimer.UsedifferentexamplestoteachtheimportanceofpayingmorethantheMMP.Importantly,theCARDActrequiresissuerstodisplayonmonthlystatementsawarningindicatingthatmakingonlytheMMPwillincreasetheamountofinterestpaidandtimerequiredtorepayone’sbalance.Thisinformationistoincludethenumberofmonthsandthetotalcosttotheconsumer,includinginterestandprincipalpayments,topaythebalanceinfullifonlytheMMPismade.Thisassumesnofurtherchargesaremadeontheaccount.

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Similarinformationtopayoffthedebtin36monthswillalsoberequired.Atollfreenumbertoobtaininformationoncreditcounselinganddebtmanagementserviceswillalsobecompulsory.

PowerPoint –THE SCHUMER BOX – (Slides 9 & 10) – Primer Page 6

TheSchumerBoxwasintroducedbySenatorChuckSchumertomakeiteasiertocomparecreditcardoffers.Havestudentsturntopage6intheirprimerandreviewwiththemtheinformationcontainedinthechart.Emphasizethatimportantcardtermsandconditionsarealsoprintedbeneaththebox.NotethattheCreditCARDActof2009requiresissuerstopostontheInternetcardholderagreements.

PowerPoint – DOs & DON’Ts (Slides 11, 12, 13, 14) – Primer Pages 7 & 8

The“DosandDon’ts”sectionmovesthelecturefromthe“creditcardcosts”categoryto“creditcardbehaviors.”

Students Should Limit Themselves to One Card – This“Do”statementisbasedontheconceptoftemptation.Simplyput,themorecreditonehas,themoretemptingitcanbetooverspend.Asyoungadultsbecomemorefamiliarwithcredit,theycanobtainasecondcard.

Student Loans, Not Credit Cards, Should be Used for Tuition – StudentloansarefarmorecosteffectivefortuitionsincetheytypicallyofferalowerAPRthantheaveragecreditcard.Anotherbenefitisthatpaymentusuallystartssixmonthsaftergraduation.Advisestudentsthatitiswellworththetimeandtroubletocompletetheapplicationprocessforastudentloan.

Wants DO NOT EQUAL Needs–Studentsneedtostopandthink,“IsthissomethingIwantorsomethingIreallyneed?”“CanIdowithoutthispurchase?”Manyyoungadultssaddledwithexcessivecreditcarddebtreportthattheyhavenothingofsubstancetoshowfortheirlargebalance(s)!Plasticcanmakeiteasytooverspend.

Credit Cards Offer Convenience –Althoughcreditcardsofferusmanyadvantages,theydonotchangeoursocioeconomicstatus.Studentsshouldbuyonlywhattheyknowtheycanaffordtorepay.

Pay More than the Minimum Monthly Payment –Severalitemslistedunder“DosandDon’ts”havepreviouslybeendiscussedunder“CreditCardCosts.”Whenthisisthecase,taketheopportunitytoaskstudentstoexplainwhytheyshouldadoptacertainbehavior.Forexample,studentshavepreviouslybeenadvisedwhytheyshouldbestrivingtopayofftheircreditcardbalanceinfulleachmonthortoatleastmakemorethantheMMP.Instructorsshouldask,“…Now why should we pay more than the minimum monthly payment?” Makingjusttheminimummonthlypaymentisthemostcostlyformofcreditcardpaymentandshouldbeavoided.

Manage a Credit Card Account like a Checking Account –Studentsneedtoactivelymanagetheircreditcardaccounts,justliketheymanagetheircheckingaccounts.Forexample,theyshouldwritedownpurchasessotheyknowhowmuchthey’vechargedforthemonth.Theyshouldalsoknowhowclosetheyaretotheircreditlimitsotheydon’tgoover.Emphasizethatmoneyshouldalwaysbebudgetedandavailabletomakeone’screditcardpayment.

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Don’t Skip Payments –Sometimesacreditcardissuerwilldeclarethatapaymentisnotrequiredthatmonth.Instructstudentsthatpaymentsshouldnotbeskippedeveniftheirissuersaysit’sokay.Stresstostudentsthattheywillowemorethenextmontheveniftheydon’tusetheircreditcardbecauseofthecontinuedaccrualofinterest.

Pay Bills on Time –Askstudents,“Why should we always pay our credit card bills on time?”Aspreviouslydiscussed,creditcardissuersassesslatefeeswhenapaymentisreceivedafteritsduedate.UndertheCARDActof2009,issuerscanretroactivelyraiseone’sAPRifthecardholderismorethan60daysbehindinpayment.(Iftheymakeon-timepaymentsforthenextsixmonths,thelowerAPRwillbereappliedtotheaccount.)Also,latepaymentscanbereportedtothecreditreportingagencies,loweringone’screditscore.Thisisfurtherdetailedunder“CreditReports&CreditScores.”

Don’t Exceed Your Credit Limit – Askstudents,“Why should we be careful to avoid exceeding our credit limit?”Althoughcreditorscannolongerautomaticallyapprovepurchasestakingoneovertheircreditlimitandtriggeringmonthlyover-credit-limitfees,individualscanstillopttogoovertheirlimits.(Issuersarefreetodeclinesuchrequests.)Iftheygoovertheirlimitjustonce,theywillbechargedover-credit-limitfeesforamaximumofthreemonthsiftheaccountisnotbroughtunderitslimit.Manyissuerschargeaflatfeeof$29to$39;somechargeatieredfeebasedontheamountofthebalance.Youwillnotbechargedanover-limitfeeresultingfrominterestchargesorfees.Emphasizethatifstudentsactivelymanagetheircreditcardaccount(s)theywon’tbeputinthisdilemma.

Avoid Cash Advances – Askstudents,“Why should we avoid cash advances unless it is an emergency?” Cashadvancesoftenhaveanupfrontfeeof3%oftheadvance(withaminimum$5or$10charge),ahigherAPR,andoffernograceperiod.Instructorsmayalsowanttoaskstudents,“What constitutes an emergency?”

Avoid Convenience Checks –Askstudents,“Why should we avoid convenience checks unless it’s an emergency?” Conveniencechecksareverysimilartocashadvanceswhichtypicallyhaveanup-frontfeeof3%ofthecheck(withaminimum$5or$10charge),ahigherAPR,andnograceperiod.TheCreditCARDActof2009requiresbalanceswiththehighestAPRbepaiddownfirst,soacardholdernolongerfacestheproblemofbeingunabletopaydownacashadvanceorconveniencecheckbalancewhilekeepingarevolvingbalancewhichincludesapurchasesbalancewithalowAPR.

Introductory Rates – Askstudents“What do we need to know before we accept an introductory rate?” Introductoryratesmustnowbeaminimumsixmonths’duration.Itisimportanttoknowwhatthenewratewillbeaftertheinitialsixmonthshaspassed.

Avoid the “Credit Card Shuffle” –Whenshortonfunds,somestudentswillresorttotakingoutacashadvanceononecardtomakeaminimummonthlypaymentonanothercard(calledthe“CreditCardShuffle”).Thisactionsimplycreatesmoredebtandshouldbeavoided.Studentsshouldusesavings,responsiblyborrowmoneytomakeapaymentoradvisetheirissuerthatthey’rehavingtroublemeetingtheirobligationandaskforassistance.Someissuerswillofferanalternatepaymentscheduleunderthesecircumstances.Instructorsshouldstressthatthisproblemcouldbeavoidedifonehasonlyonecard!

Keep a Low Credit Limit–Sometimesanissuerwillraiseastudent’screditlimitaftertheydemonstratethattheypaytheirbillsontimeandarealowcreditrisk.Itisrecommendedthatstudentsadvisetheirissuerthattheyprefertoremainwiththeirlowercreditlimituntiltheybecomemorefamiliarwithcredit.Again,thisstatementisbasedontheconceptoftemptation…thelesscreditonehas,thelesstempingitistooverspend.Ifthestudentisundertheageof21andrequireda

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co-signertoopentheaccount,thelimitmaynotbeincreasedunlesstheco-signerapprovestheincreaseinwritingandassumesjointliabilityfortheincrease.

Quickly Mail Payments on Credit Card Accounts with a Revolving Balance–Ifastudentkeepsarevolvingbalanceontheircreditcardaccount,theyshouldmaketheirpaymentassoonaspossibleandnotwaitforthe“duedate”tomailtheircheck.Byimmediatelymailingapayment,onereducestheaveragedailybalanceontheaccountandthereforereducestheinterestpaidontheaccount.

Credit Card Receipts Should be Saved–Receiptsshouldbesavedandcomparedtothechargesappearingonone’smonthlycreditcardstatement.Afteraccuracyhasbeenverified,allbutimportantreceiptsshouldbeshreddedbeforeplacingtheminthetrash.Ifanerrorexists,theissuershouldimmediatelybenotified.Theywillprovideforms,whicharetobecompletedinwritingandreturnedtotheissuer.

Credit Card Issuers Should be Advised of a Change of Address–Collegestudentsarenotoriousformakingfrequentresidencechanges.Theyshouldnotdependonachangeofaddressfiledwiththeirlocalpostofficeand,instead,shoulddirectlyadvisetheircreditcardissueroftheirnewaddress.Manystudentsneedlesslypaylatefeesandfacetheotherconsequencesofalatepaymentsimplybecausetheircreditcardissuerwasnotadvisedoftheirmoveandtheyreceivedtheircreditcardstatementtoolatetomakeatimelypayment.

Immediately Advise Your Credit Card Issuer if a Card is Lost or Stolen –Ifalostorstolencardisreportedbeforeithasbeenused,thecardholderisnotliableforanyunauthorizedcharges.Ifthecardisreportedafterithasbeenused,thecardholdermaybeliableforupto$50percard.Individualsarenotliableiftheaccountnumber,butnotthecarditself,isusedillegally.

PowerPoint – THERE’S ALWAYS A SOLUTION (Slides 15 & 16) – Primer Page 8

Studentswhomayhavealreadyaccumulatedburdensomecreditcarddebtneedtounderstandthatthereisalwaysasolutiontothisproblem.Overwhelmedbytheirpredicament,somestudentstrytodenythataproblemexists.Thisfurtherexacerbatesaserioussituation.

Ifastudentisunabletopayeventheminimummonthlypaymentonacreditcard,skippingapaymentisNOTasolution!First,theyshouldstopusingthecard.Second,thestudentshouldcalltheircreditcardissuerandtellthemthattheyarehavingdifficultymakingeventheminimummonthlypaymentontheiraccount.Afterdescribingtheirpredicament,therepresentativemaybeabletoofferamoremanageablepaymentplan.Ifthisisthecase,itisbesttogettheofferinwriting.Also,itisbesttopaydownhighAPRcreditcardaccountsbeforelowAPRaccounts.

Clearly,astudentwhoisfacedwithexcessivedebtshouldlooktoincreasetheirmonthlyincomewhilereducingtheirexpenses.Ifunemployed,seekingworkisanobvioussolution.Ifalreadyemployed,asecondjobmayberequired.Doingwithoutextrasseemsobvious.Managingexcessivedebtcanbepsychologicallystressful.Studentsshouldbeinformednottoisolatethemselvesandtotalkabouttheirproblem.Theyshouldconsultaschoolcounselor,parent,oratherapistsothattheydon’tfeelaloneastheyresolvetheirfinancialdifficulties.

Ifallelsefails,studentscancontacttheNationalFoundationforCreditCounselingtodiscussenteringadebtconsolidationprogram.Theycanbecontactedat(800)388-2227,orat:www.nfcc.org.Individualswhoenterdebtconsolidationprogramspayofftheirdebtmorequicklysincetheytypicallypaylowerinterestratesontheiroutstandingcreditcardbalances.

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PowerPoint – CREDIT REPORTS & CREDIT SCORES (Slides 17, 18, 19, 20) – Primer Page 9

Sinceourcreditreportsandcreditscoreshavesuchaprofoundeffectonourevery-daylives,studentsshouldbeclearaboutthesetopics.

Credit Reports –Acreditreportisacollectionofinformationobtainedfromone’screditorsreflectingtheextentoftheindividual’screditandtheirpaymenthistory.It’slikeafinancialreportcardorafinancialresumethatshowshowonehandlestheirbills.Lendersbuythesereportstodeterminewhetherornottheywillgrantanindividualcreditandatwhatrate.Thelowertheperceivedrisk,thebettertheinterestrateoffered.

Thethreemajorcredit-reportingagenciesareEquifax,ExperianandTransUnion.Allarelistedinthestudentprimer,alongwithcontactinformation.Expertsrecommendthatwecheckourcreditreportsseveraltimesayear.Lawsapplyingtocreditbureausallowustoobtainafreeannualcreditreportfromeachofthethreemajoragencies.Thiscanbeaccomplishedbycalling877-322-8228orbygoingtowww.annualcreditreport.com.Thisinformationisalsolistedintheprimer.Negativeinformationcanstayonone’screditreportforsevenyears,whilebankruptciescanremainfortenyears.

Credit Scores –Acreditscoreisanumericvaluegiventoanindividualbyacreditreportingagencyoralendinginstitution,whichisobtainedfromacreditreportandreflectsone’scredithistory.ThemostcommonscoringsystemistheFICOscore.FICOscoresrangefrom300to850;thehigherthenumber,thebetterthescore.

FICOscoresarebasedonanumberoffactors:

• 35%–PaymentHistory–Payingbillsontimeisofutmostimportanceandismostheavilyweighted.

• 30%–TotalAmountOwed–Combinedbalancesonallcreditcardsandinstallmentloansarecomparedtothetotalavailablecreditlimitsonallcards.Thisiscalleda“debt-to-credit-limitratioanditshouldbekeptaslowaspossible.Lessthan30%isoptimalandmorethan50%istoohigh.

• 15%–LengthofCreditHistory–Thelongeronedisplaysgoodcredithabits,thehigherthescore.• 10%–NewCredit–Thenumberofrecentlyopenedaccountsandnumberofrecentcredit

inquiriesisalsoconsidered.Everytimeabalancetransferismadeoranewaccountisopened,aninquiryisplacedontheindividual’screditreport.Thosewithnumerousinquiriesontheirreportsareperceivedtobeahigherfinancialrisk.Therefore,it’snotwisetoseeklotsofcreditinalimitedperiodoftime.Havingtoomanycardsisalsoundesirable.Tominimizetemptation,moststudentsshouldhaveonlyonecard;havingmorethanthreeorfourcardswillnegativelyaffecttheircreditscore.

• 10%–TypesofCredit–Themixofcreditisevaluated.Higherscoresgotothosewhoshowtheycanmanageseveralcreditcardsalongwithinstallmentloanssuchasacarorstudentloan.

9

Trainer’s Guide

The ABCs of Credit Card Finance

PowerPoint – CONSEQUENCES OF IRRESPONSIBLE CREDIT CARD USE (Slides 21 & 22) – Primer Page 9

Whilereiteratingthatcreditcardsofferusmanyadvantages,studentsshouldhaveaclearunderstandingthatthereareseriousandlong-lastingnegativeconsequencesforthosewhodonotresponsiblyuseandmanagetheircreditcards.

Denial of Credit and High Interest Rates–Studentswithapoorcreditreportandalowcreditscoreriskbeingdeniedcreditastheymoveoutintotheworldaftergraduation.Ifgranted credit,itislikelytheywillbeassignedhighAPRssincetheywillbeconsideredapoorcreditrisk.They,therefore,willbeunabletobenefitfromthelowinterestratesenjoyedbythosewhohavebehavedresponsiblyandconsistentlywiththeirpersonalfinancialmanagement.Emphasizetostudentsthatthiswillprovetobeatremendouslyexpensiveandlonglastingburdenastheyassumeadulthoodandbuytheirfirsthome,automobile,appliances,electronics,andallbigticketpurchases.

Difficulty Renting an Apartment –Studentswithalowcreditscoremayhavedifficultyrentinganapartmentbecausetheyareconsideredtobeapoorcreditrisk.

Denied Employment –Employersandrecruitershaveaccesstoourcreditreports.Studentsmaybedeniedemployment,forwhichtheyareotherwisequalified,onlybecausetheyhaveapoorcreditreportandalowcreditscore.Thisisespeciallytrueforthosewhoareattemptingtofindemploymentwheretheywouldhandlecompanyfunds.

Denied Financial Aid for College & Graduate School –CollegeandgraduateschoolFinancialAidOfficesmaydenyaidrequestsfortheindividualwithapoorcreditscore.

Higher Auto Insurance Premiums –Individualswithapoorcreditreportandlowcreditscoretypicallypayhigherinsurancepremiums.

Cell Phones–Cellularphonecompaniesroutinelycheckacustomer’screditscorebeforeenteringintoacontractwiththeindividual.Customerswithalowcreditscorewillusuallyhavetopayahighsecuritydepositwhereasthosewithahighcreditscorepaynodeposit.

Higher Deposits–Thosewithlowcreditscoresmaypayhigherdepositsforphone,gasandelectric.

Attheendofthislecture,thefollowingstatementissuggested:Students should clearly understand that while credit cards are a great financial tool, they are also a big responsibility, which require maturity, consistency and sound financial management skills so that they can enjoy the benefits of credit while avoiding the pitfalls.

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Trainer’s Guide

The ABCs of Credit Card Finance

PowerPoint – IDENTITY THEFT (Slides 23, 24, 25, 26, 27) – Primer Page 10

Definition of Identity Theft–First,defineIdentityThefttostudents.Identity Theft occurs when an impostor steals personal information such as a social security, driver’s license, bank account or credit card number in order to impersonate someone else. The information is then used to obtain credit, merchandize, and services in the name of the victim or to provide the thief with false credentials. IdentitytheftisthefastestgrowingcrimeintheUnitedStates.

Signs of Identity Theft–SignsofIdentityTheftarelistedinthestudentprimer.Instructorsmaywanttoreviewthelistwithstudents.• Acreditcardorstatementisreceivedforanaccountthatwasn’trequested.• Astatementisnotreceived,suggestingthatanunauthorizedchangeofaddressmayhaveoccurred.• Unauthorizedchargesappearonthecreditcardstatement.• Youaredeniedcreditfornoapparentreason.• Debtcollectorscallandwriteregardingpurchases,servicesandcredityoudidn’tinitiate.

Minimizing the Risk of Identity Theft–NoonecantotallyprotecthimselforherselffromIdentityTheft,buttheriskcanbeminimized.Waystominimizetheriskarelistedinthestudentprimerandarereviewedasfollows.• Don’tgiveoutpersonalinformationunlessyouinitiatethecontact.• Trynottouseyoursocialsecuritynumberforidentification.• Leaveyoursocialsecuritycardathomeanddon’tprintthisnumberonchecks.• Carryinawalletonlywhatisneeded.Leaveextracardsathome.• ObtainingaphotoIDcreditcardcanbehelpful.• Becomefamiliarwithbillingcyclesandwhenstatementsshouldarriveinthemail.• Shredallbutthemostimportantcreditcardreceiptsafterconfirmingtheiraccuracyagainstyour

monthlystatement.• Don’tleavemailinthemailboxandusethePostOfficeforoutgoingmail.• Usecreativepasswords.Avoidthelastfourdigitsofyoursocialsecuritynumberoryourmother’s

maidenname.• Onlymakeonlinepurchasesifthewebsiteissecureandprotectedbyanencryptionsystem.• Keeppersonalinformationinasafeplaceathome.• Reviewcreditreportsatleastonceayear.• Placevirusprotectionsoftwareonyourcomputer.

Victims of Identity Theft –VictimsofIdentityTheftcanspendmonthsorevenyearstryingtoclearuptheirgoodname.Listedinthestudentprimer,expertsrecommendthatvictimstakethefollowingstepstostarttheprocess:• First,contactthethreemajorcredit-reportingagenciesandaskthemtoplacea“fraudalert”on

yourfile.Creditorswillthenknowtocontactyoubeforeopeningnewaccounts.• Orderafreecreditreportfromeachoftheagenciesandreviewthereports.• Contactthefrauddepartmentsforcreditorswhoshoweitherafalseaccountoronethathasbeen

tamperedwith.• Closetheseaccountsandfollowupwithaletter.• Fileapolicereportandaskforahardcopy.

ContacttheFederalTradeCommission(FTC).TheymaintaintheIdentityTheftDataClearinghousethatprovideslotsofimportantinformationforidentitytheftvictims.Theycanbereachedat(877)-IDTHEFTorwww.ftc.gov/bcp/edu/microsites/idtheft/consumers/defend.html

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The ABCs of Credit Card FinancePost-Test

1. Acreditcard’sAPRis:a. Mostimportanttoa“revolver”b. Mostimportanttoaconvenienceuserc. Isequallyimportanttoboth“revolvers”andconvenienceusersd. Isnotimportant

2. Whatshouldsomeonenewtocreditlookforinacreditcard?a. AlowAPRb. Noannualfeec. Alonggraceperiodd. Alloftheabove

3. TheCARDActallowsissuerstoraiseyourAPRifyouare30daysbehindinpayment.a. True b.False

4. Failuretoresponsiblymanageyourcreditcardcanresultinthefollowing:a. Youcouldhavedifficultyrentinganapartmentb. Youcouldbechargedmoreforyourcarinsurancec. Youcouldbeturneddownbyanemployerforajobd. Alloftheabove

5. Whichofthefollowingistrue?a. Costsandtermsforafixedratecreditcardcanonlychangeonceayearb. Yourliabilityforunauthorizeduseofyourcreditcardisusuallylimitedto$50c. Themorecreditcardsyouhave,thebetteryourcreditscored. Payingmorethantheminimummonthlypaymentdoesn’tappreciablyreduceyourtotalpayoff

timeandcosts

6. UndertheCARDAct,yourissuercanchargeyouanover-creditlimitfeeforthreemonthsinarowifyouchoosetogooveryourcreditlimitanddon’tbringyourbalanceunderthecard’slimit.a. True b.False

7. Ifyouarehavingdifficultykeepingupwithyourcreditcardpayments,whichofthefollowingistherecommendedcourseofaction?a. Callyourissuer,tellthemyoursituation,andaskiftheycanofferanalternatepaymentplanb. Skipafewpaymentsuntilyouhavethemoneyc. Takeoutacashadvanceonanothercardsoyou’llhavethemoneytomakethepaymentd. Relax…issuersunderstandthatstudentsdon’thavemuchmoneyandthey’llcutyouabreak

8. Whichistheleastcostlywaytopayoffyourcreditcarddebt?a. Alwaysmakeyourminimummonthlypaymentontimeb. Alwaysmakemorethantheminimummonthlypayment,evenifthepaymentislatec. Alwayspayyourcreditcardbalanceontimeandinfulleachmonth

d. Noneoftheabove

Center for Student Credit Card Education, Inc.P. O. Box 18

Burlingame, CA 94011-0018(650) 347-3327

Fax: (650) 585-9477Email: staff@cscce.com

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