Credit Cards Chapter 6.

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Presentation transcript:

Credit Cards Chapter 6

Credit Credit Card Credit Limit Charge Interest Rate Payment Due Date Outstanding Balance Finance Charge Grace Period Late Fee Annual Fee Cash Advance Cash Advance Limit New Purchases/charges Previous payments Daily finance charge Annual percentage rate Minimum payment Average daily balance

Credit The ability to make purchases with the promise that the money will be repaid later Can be a wonderful thing: allows you to purchase homes, cars and other items needed for daily life quickly and easily Credit can turn into a nightmare for those who either do not use it wisely or use it as method for living beyond their means

5 C’s of credit Character—will you repay the loan Capacity—can you repay the loan Capital—what are your assets and net worth Collateral—what if you do not repay the loan Credit history—what is your credit history

credit Loans Credit cards

Credit cards have both positive and negative aspects

Credit card basics Issued by a bank, retail store or business that allows the card holder to repeatedly purchase products and services on credit Offer fast, convenient way to make purchases Promise to pay later—essentially a loan made to you by the card issuer

CVC Code three- or four- digit number on the back of your card

Credit limit The maximum amount of money that a credit card issuer will allow you to charge

charge Monies borrowed using a credit card

Interest rate The percentage you pay on the money you have charged

Credit card statement Each month you will receive a credit card statement Payment due date Outstanding balance Finance charge Grace period Late fee Annual fee Cash advance and limit Annual fee Cash advance and limit New purchases/charges Previous payments Daily finance charge Annual percentage rate

Practice You purchase a new gaming system and some new games using your credit card. You paid $325 for the system and games. Interest rate is 22% annually. How long will it take you to pay off the balances assuming you make the minimum payments of 3.5% or $10 (whichever is greater). What is the actual cost of the purchase? How much interest do you pay? What would happen if you made $50 payments each month?