Financial Literacy Education III: Credit and Credit Cards Fall 2010 Online Version for Program Course Credit

Page 2 Goals for This Meeting  Budgeting  Credit Basics  Credit Scores  Credit Reports  Credit Cards  Credit Problems

Page 3 Group Agreements  Commitment to Glow Foundation’s program  Be prompt and prepared for all Glow sessions (including HW items)  Reach out for help when needed  Respond promptly to s or phone calls  Share the information learned with family and peers  Be respectful (one mic)/confidentiality  Accountable for myself and the group success

Page 4 Credit Terminology __ Annual Fee a) A company that gathers information on consumers who use credit. __ Annual Percentageb) A document issued by an independent credit Rate (APR)agency that contains information concerning a loan applicant’s credit history and current credit standing. __ Credit Bureau c) An amount a credit card company charges a credit card holder to use the card for a year. __ Credit Reportd) A rating system that indicates a person’s creditworthiness based on a number of criteria. __ Credit Scoree) The total amount of money borrowed not including interest or service charges. __ Principalf) A rate used to compare different loans which takes into account the loan’s interest rate, term, and fees.

Page 5 Credit Defined FIRST, let’s come up with a group definition for credit:

Page 6 Credit How can you start to build good credit? Good Credit Signs Paying at least the minimum balance Paying on time Making all payments Staying within your credit limit Bad Credit Signs Paying less than the minimum balance Paying late Missing payments Exceeding your credit limit What are signs of bad credit? Establishing credit is important for borrowing money later. No credit is not the same as good credit!

Page 7 How Credit Impacts You Establishing good credit history is important! Credit can affect various aspects of your life:  Lenders: Determine whether you can get a loan and the loan terms (good credit = better interest rate)  Insurance Companies: Determine if you can get insurance and the rates you pay  Employers: Can affect you ability to get a job  Landlords: Determines whether you can rent an apartment  Telephone and other utility companies can use this to determine whether to provide services to you.

Page 8 Credit Score Credit Score: A number between that indicates your creditworthiness. The higher the number, the stronger your score. Points are earned based on factors like your payment history, the length of your credit history, and account balances.

Page 9 Credit Report What is a credit report? A document issued by an independent credit agency that contains information concerning a loan applicant’s credit history and current credit standing. Review your credit report: 1.Annually 2.Before making a big purchase People/Companies Review Your Credit Report When You: 1.Complete a credit card application 2.Complete a rental application 3.Apply for a loan

Page 10 Credit Cards vs. Debit Cards Credit cards allow you to purchase something TODAY and pay it off over time. Credit cards are NOT the same as debit cards Credit CardsDebit Cards PaymentPay LaterPay NOW Interest Charges Interest is charged on the remaining balance No Pros Potential to build your credit history and get freebies/points Prevent major debt ConsAdditional fees; risk of overspending and hurting your credit history Fees if you overdraw

Page 11 Before Getting a Credit Card… SHOP AROUND!! Know: 1.Are there annual fees or other regular charges? 2.What is the credit limit? 3.What is the interest rate? Is it fixed or variable? 4.What is the Annual Percentage Rate or APR (Measurement that takes into account the interest rate, term, and fees) 5.Are there benefits to getting this card (points, freebies, etc)?

Page 12 Paying Your Credit Card Original Balance APR Monthly Payments Number of Monthly Payments Term (Years) Total Amount Paid $100018%Minimum877 $1,516 $100018% Minimum + $ $1,187 $100018%Minimum + $50 161$1,119 TAKEAWAY: Pay as much of the balance as possible to reduce the term and amount of interest paid. Whenever possible, pay off your bill in full!

Page 13 Tips for Managing Your Credit Card 1.Use cash or debit cards for daily expenses 2.Know how you are going to pay for your credit card purchases before you start spending 3.Get a card with low interest and pay as much of the balance as possible 4.Pay on time 5.Don’t spend more than you have. Stay within your budget. 6.Don’t exceed your credit limit 7.Others?

Page 14 Recap  Budgeting  Credit Basics  Credit Scores  Credit Reports  Credit Cards  Credit Problems