Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Selecting a Credit Card

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman What is a Credit Card? Pre-approved credit Used for purchase of items now Payment of items later

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman 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:

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Why Use a Credit Card? 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

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Why Use a Credit Card? 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

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Types of Credit Cards Bank Credit Cards Flexible account Accepted anywhere Available from a financial institution (commercial bank, credit union) with a service provider (Visa, MasterCard) –Electronic network Retail Credit Cards Purchases allowed at a particular retailer –i.e. The Buckle or Old Navy Can work with bank to offer a bank credit card with the retailer’s logo

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Types of Credit Cards cont. 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 Prestige Cards High status accounts Higher credit qualifications Special benefits –i.e. Free travelers checks, higher credit limits

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Types of Credit Cards cont. Affinity Cards Accounts through financial institutions Logo of sponsoring organization –Example: Mothers Against Drunk Driving Financial institution donates percentage of charges to organization

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Schumer Box Fair Truth in Lending Act Information required by law to inform consumer of all costs associated with use of a credit card Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Annual Percentage Rate Annual Percentage Rate (APR) – Interest rate charged for amount borrowed in terms of per dollar per year Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Grace Period Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29 Grace Period – Amount of time allowed before finance charges are applied

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Minimum Finance Charges Minimum Finance Charge – Minimum amount charged for card use Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Balance Calculation Method Balance Calculation Method – Method used to determine balance for finance charges Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Balance Calculation Method cont. Balance Calculation Method  Average daily balance excluding new purchases – Interest is only paid on the previous balance, not on purchases made since the last payment  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 charged

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Balance Calculation Method cont. Balance Calculation Method  Average daily balance including new purchases with no grace period – Regardless of the previous month’s balance, interest is applied to new purchases as they are made  Two-cycle average daily balance including new purchases – This method should be avoided by consumers, as it is the least- beneficial. The average daily balance is determined on 60 days, rather than 30 days, so finance charges are doubled. A zero balance must be held for two months in order to avoid charges

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Annual Fees Annual Fees – Yearly charge for credit card ownership Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Cash Advances Cash Advance Transaction Fees – Cash withdrawal fees Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Late Payment Fees Late Payment Fees – Penalty fee for payments not made by the due date Annual Percentage Rate for Purchases Grace Period for Purchases Minimum Finance Charges Balance Calculation Method for Purchases Annual FeesTransaction Fees for Cash Advances Late Payment Fees 19.9% Not less than 25 days $.50 when a finance charge at a periodic rate is charged Average daily balance method (including new purchases) $20 per year 2% with a minimum fee of $3 $29

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman 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 6.Applicant accepts or refuses credit terms

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman 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 month’s 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

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Understanding the Bill cont. 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

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman 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

Family Economics & Financial Education G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman 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 separate from cards Report lost or stolen cards promptly