Credit Cards Rules and Legislation. How does a credit card work?  Purchase Item: Approval: Sign  Merchant sends receipt to bank gets credit for transaction.

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Presentation transcript:

Credit Cards Rules and Legislation

How does a credit card work?  Purchase Item: Approval: Sign  Merchant sends receipt to bank gets credit for transaction  VISA processes and sends money to bank/debts card holder  Electronic notification to card holder  Bills card holder  *companies charged fees but do not usually mind*

Difference Between:  Credit Card  Charge Card  Smart Card

Credit Card Company will issue you  Credit Line  Interest Rate – ignore “teaser” rates  APR – annual percentage rate  Interests compound daily  A lower rate makes a difference!!  Finance charge  Grace Period  Annual Fee – DO NOT WANT ONE!!

Understanding YOUR STATEMENT  NEW BALANCE VERSUS PRINCIPAL  MINIMUM PAYMENT DUE

THREE BIGGEST COSTS OVER LIMIT LATE CHARGES CASH ADVANCES

Biggest Mistakes  CASH ADVANCES…  3-5% BALANCE OR 5-10 FEE PLUS 25% INTEREST RATE  NOT PAYING IN FULL EACH MONTH  Obviously…. Spending more than you can pay each month

What are the challenges of credit card use?  Maintaining your budget  High Interest Rates and Debt  Credit Card Fraud  1/business/ /debt-trap- college-borrowing-catches- up.html?scp=4&sq=debt&st=Search

What are the advantages of having a credit card?  Purchasing Power/ Ease of Purchase  Building a line of credit  Protection of Purchases  Emergencies  Rewards

How does the government protect credit card users?  2003 legislation  Free Credit Report  No credit card numbers on bills  Red Flags  More notification

What is a credit report?  Why does your credit report matter?

What is a credit report?  Your credit report contains your credit history as reported to the credit reporting agency by lenders who have extended credit to you. 3 Cs: 3 Cs:  Capacity: Can you pay us back?  Character: Will you pay us back?  Collateral: Are we covered if you default?

What is specifically on the report?  Includes:  Addresses  Social Security No.  Current/Previous Employers  Estimated Income  Credit History: payments, time, amount  Credit cards  Loans  Collections  Bankruptcy

What’s the magic number? 850  What is your FICO score?  35% payment history  30% amounts owed  15% length of credit history  10% new history  10% types of credit used

How do I get my credit score? Consumer Reporting Agencies  Equifax  TransUnion  Experian Government regulated but NOT government agencies It is estimated that 40% of credit reports are inaccurate!*It is estimated that 40% of credit reports are inaccurate!*

What if there is wrong information?  Tell agency what information you believe is incorrect  Clearly identify each item in your report you dispute.  State the facts and explain why you dispute the information.  Request deletion or correction.