Credit Cards

88 million American households have credit cards Average credit card debt is $9,600 per household

Credit Credit – the ability to make purchases with the promise that the money will be repaid later Don’t try to live above your means

Credit Cards Credit Cards – allows the card holder to repeatedly purchase products and services on credit Can be issued by:  Banks  Retail stores  Businesses

Credit Cards To use, scan card in the electronic card reader In person, Signature usually required to complete transaction For online purchases, enter your:  Card Number  Expiration Date  CVC – Card Verification Code – 3 or 4 digit code on back of card  Billing Address

Credit Cards Transactions are mini loans made to you by a financial institutions that must be repaid plus interest  Interest rate is a percentage previously agreed upon  Card issuer is required to clearly explain and document given interest rate Responsibilities are attached to the privilege of being issued a credit card

Credit Cards You cannot exceed your Credit Limit  The maximum amount of money that a card issuer will allow you to charge Charge – Money borrowed using a credit card  Purchases  Cash Advances – cash obtained through an ATM or bank

Credit Card Statement Statement sent by the card issuer that shows account transactions and balances Can be sent to you by:  Mail  – called an E-statement

Credit Card Statement Items included are:  Payment due date  Outstanding Balance  Interest Charge  Grace Period  Late Fee  Annual Fee  Cash Advance  Cash Advance Limit  New purchases/charges  Previous Payments  Minimum Payment required  Annual Percentage Rate

Credit Card Statement Payment Due Date  Date the card company must receive payment Outstanding Balance  The amount of money you need to repay Interest Charge  The interest payment Grace period  days before the card company starts charging late fees Late Fee  Penalty charged for not making minimum payment by due date

Credit Card Statement New purchases/charges  Transaction history since last statement Previous Payments  Money paid on the outstanding bill Minimum Payment  Lowest amount you can pay on the outstanding balance to keep account in good standing  A pre-set amount or percentage of what you owe

Credit Card Statement Cash Advance Limit Annual Percentage Rate  The yearly interest paid on the account balance

Credit Card Calculations On your last statement, you had an outstanding balance of $390. During the current billing cycle, you made purchases totaling $230. You made a payment of $180. What is the outstanding balance?

Credit Card Calculations $390 - Previous Outstanding Balance +$230 - Additional Purchases -$180 - Payment made $440 - Current Outstanding Balance

Credit Card Calculations Lets assume the minimum payment due is 2% of the Outstanding Balance which is $440 What is the Minimum Payment required?

Credit Card Calculations $440 x 2% $440 x.02 = $8.80

Credit Card Calculations Interest Charge Interest you must pay for using Credit Card Credit Card interest is calculated on a daily basis 365 days in a year

Credit Card Calculations To find the Interest Charge, follow these steps: 1. Find the Average Daily Balance = Ending Balance / Number of Days in Billing Cycle (30) 2. Find the Daily Interest Rate = Annual Percentage Rate / 365 (Number of Days in Year) 3. Calculate the Interest Charge = Average Daily Balance x Daily Interest Rate x Number of Days in Billing Cycle (30)

Credit Card Calculations Average Daily Balance = $15,000 / 30  $500 Daily Average Interest Rate = 12% / 365 .0328% = Interest Charge = $500 x x 30  $4.92

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