1. Credit Cards

2. The basics http://www.creditcards.com/credit-card-news/video-credit- card-basics-1264.php http://www.creditcards.com/credit-card-news/video-credit- card-basics-1264.php http://www.creditcards.com/credit-card-news/video-credit- card-basics-1264.php http://www.creditcards.com/credit-card-news/video-credit- card-basics-1264.php Credit - derived from Latin “credo” meaning “I believe” Credit - derived from Latin “credo” meaning “I believe”

3. Credit Credit- when good or service is received in exchange for a promise to pay a definite sum of money at a future date Credit- when good or service is received in exchange for a promise to pay a definite sum of money at a future date Lender- Person or Organization that provides the loan. Bank, Credit Lender- Person or Organization that provides the loan. Bank, Credit Borrower- Person who get the money on as a loan Borrower- Person who get the money on as a loan Creditworthiness- ability and willingness to pay money back Creditworthiness- ability and willingness to pay money back Principal- The amount of money you borrow ($1,000) Principal- The amount of money you borrow ($1,000) Interest- The price a lender charges you to borrow money (20%) Interest- The price a lender charges you to borrow money (20%)

4. Closed-Ended Credit Closed Ended Credit- Borrower must repay in specified number of payments. 5 years for a car, 30 years for house Closed Ended Credit- Borrower must repay in specified number of payments. 5 years for a car, 30 years for house Agreement between borrower and lender with terms that end after principal is repaid Agreement between borrower and lender with terms that end after principal is repaid Installment credit (closed ended)- # of payments (5 years 60 months) + Interest (APR or rate) Installment credit (closed ended)- # of payments (5 years 60 months) + Interest (APR or rate) Examples of closed ended credit- College Loans, Auto, Home Examples of closed ended credit- College Loans, Auto, Home Can extra pay off principal to cut years off by paying extra payments Can extra pay off principal to cut years off by paying extra payments

5. Installment Principal Total amount to pay back with interest Interest over 10 years

6. Open Ended Credit Revolving Credit (Open Ended)- extended as a line of credit in advance so borrower doesn’t have to apply for credit each time it is desired Revolving Credit (Open Ended)- extended as a line of credit in advance so borrower doesn’t have to apply for credit each time it is desired Can be repaid in one month or over many Can be repaid in one month or over many Borrower chooses how much to repay each month Borrower chooses how much to repay each month Minimum payment- lender requests a small fee per month Minimum payment- lender requests a small fee per month Unpaid balance is revolved into next month Unpaid balance is revolved into next month

7. How do I obtain a credit card? Credit application- complete application Credit application- complete application What do they look at? Earnings, Savings, Job, Credit Worthiness What do they look at? Earnings, Savings, Job, Credit Worthiness Pre-approved- you passed initial check but doesn’t mean anything Pre-approved- you passed initial check but doesn’t mean anything Credit Investigation- lenders compare your information and study your credit history Credit Investigation- lenders compare your information and study your credit history Denial- You can be denied based on your credit history after investigation Denial- You can be denied based on your credit history after investigation

8. CARD ACT 2009 Must be: 18 years old, show income or have co-signer Must be: 18 years old, show income or have co-signer Raise APR only after 60 days Raise APR only after 60 days Statement must be sent 21 days prior to due date Statement must be sent 21 days prior to due date Due Dates always the same Due Dates always the same Cardholder must be notified of changes Cardholder must be notified of changes

9. Truth in Lending Act Limits your liability to $50 for unauthorized use of your card. Limits your liability to $50 for unauthorized use of your card. Must submit within 60 days of unauthorized use Must submit within 60 days of unauthorized use If card number is used but not card individual is protected fully. If card number is used but not card individual is protected fully. Card must be reported or can cost $50 Card must be reported or can cost $50

10. SAFETY TIPS Sign your credit card - Please see ID Sign your credit card - Please see ID People that work register will ask for a photo ID to prove it is you People that work register will ask for a photo ID to prove it is you Close unwanted or unused cards- if you lose wallet thief can use Close unwanted or unused cards- if you lose wallet thief can use Never give out credit number unless purchasing something Never give out credit number unless purchasing something Report lost or stolen immediately Report lost or stolen immediately Shred unwanted pre-approvals - people can steal garbage Shred unwanted pre-approvals - people can steal garbage Personally: My Father in law email hacked into his & wife’s card number was stolen ($1,600 in purchases) Personally: My Father in law email hacked into his & wife’s card number was stolen ($1,600 in purchases)

11. PaymentLength Total Interest paid Total Amount paid Full Payment $1500 1 month $0$1,500 Partial$135 1 year $125$1,625 Minimum$30 11 years $1,413$2,913 Sample $1,500 purchase on revolving Credit

12. Credit/Debt Facts 18-24 yr. olds spend 30% of their income on debt repayment. Avg. Student loan $32,000 18-24 yr. olds spend 30% of their income on debt repayment. Avg. Student loan $32,000 Avg. House in U.S. has $15,607 in credit card debt Avg. House in U.S. has $15,607 in credit card debt In the U.S. More people file for bankruptcy than graduate from college. In the U.S. More people file for bankruptcy than graduate from college. I have seen this first hand, I have friends and family that are having a tough time at 30 yrs old. I have seen this first hand, I have friends and family that are having a tough time at 30 yrs old.

13. Credit/Debt Avg. college loans is over $32,000 Avg. college loans is over $32,000 Avg. Mortgage- $153,000 Avg. Mortgage- $153,000 Friends have 80,000 in debt- they pay more than my house payment in college loans, 6% interest on Stafford Loan (10 years) Friends have 80,000 in debt- they pay more than my house payment in college loans, 6% interest on Stafford Loan (10 years) Debt rose 6%, salaries only rose 3% for graduates Debt rose 6%, salaries only rose 3% for graduates

14. APR Interest Rate- Is charge to borrow the money known as (APR) Annual Percentage Rate Interest Rate- Is charge to borrow the money known as (APR) Annual Percentage Rate Very High for Credit Cards 20% and going up, some all the way up to 30% Very High for Credit Cards 20% and going up, some all the way up to 30% National Average is 14.9% National Average is 14.9% 24% means 2% per month for each purchase that you don’t pay off- for annual % of 24. 24% means 2% per month for each purchase that you don’t pay off- for annual % of 24.

15. APR - Interest Rates APR - only matters if you do not pay off your balance APR - only matters if you do not pay off your balance I.E. - Charge 2,000 and pay it off before due date- no APR is ever assessed, no charges to you I.E. - Charge 2,000 and pay it off before due date- no APR is ever assessed, no charges to you I.E.- Charge 2,000 and pay off $50. The $1950 will be charged at your APR. 24% APR will put 2% on at end of month due to 24% Annual Percentage/12 months=2% every month or 24% for the year. I.E.- Charge 2,000 and pay off $50. The $1950 will be charged at your APR. 24% APR will put 2% on at end of month due to 24% Annual Percentage/12 months=2% every month or 24% for the year.

16. Understanding Credit Cards 1. Knowing Your Limit 2. Don’t get in over your head. 3. A credit card is a loan Anything not paid back in full is assessed an interest charge. Anything not paid back in full is assessed an interest charge. 4. There’s a pre-determined credit limit and money spent can be paid back in full or in installments. 4. There’s a pre-determined credit limit and money spent can be paid back in full or in installments.

17. Advantages 1. Convenient 2. Emergencies useful 3 Required for reservations 4. Big purchases can be spread out 5. Positive credit rating 6. Bonuses and Rewards 7. Immediate purchasing power 8. No need for cash 9. Bills can be consolidated 10. Zero liability on fraud

18. Disadvantages 1. It’s a loan 1. It’s a loan 2. Interest makes more purchases more expensive 3. Identity theft threats 4. Multiple accounts lower credit score 5. Interest rate may go up 6. May include additional fees 6. May include additional fees 7. Can be easy to overspend 7. Can be easy to overspend 8. Can promote impulse buying

19. Benefits The advantages of credit show best when used with responsible forethought Disadvantages show up when you don’t use your credit wisely Disadvantages show up when you don’t use your credit wisely Bottom line, don’t sign up for credit you can’t afford Bottom line, don’t sign up for credit you can’t afford

20. The Debit Card Looks just like a credit card but not a loan, you pay no interest it is money you already have Backed only by the checking account behind it. Widely accepted, can be a good budgeting tool. Does not help credit score.

21. Debit Card Security Need to know PIN to access the money. Need to know PIN to access the money. ATM use ATM use Create a PIN that a smart thief couldn’t figure out. Avoid the obvious like birth dates, names, etc. Create a PIN that a smart thief couldn’t figure out. Avoid the obvious like birth dates, names, etc. Always keep receipts Always keep receipts Record transactions in your check register including fees to avoid overdraft charges Record transactions in your check register including fees to avoid overdraft charges

22. Debit Card ATM Use Make sure to know what bank you have money in Make sure to know what bank you have money in Banks Charge you to use their ATM if not their bank Banks Charge you to use their ATM if not their bank Makes putting in and taking out money easy Makes putting in and taking out money easy

23. Online Shopping Credit is better Online- Debit supposed safe but can take longer and wipe out all available money in between Credit is better Online- Debit supposed safe but can take longer and wipe out all available money in between Disposable credit card is better (Gift Card) Disposable credit card is better (Gift Card) Verify website- https:// & Lock in corner of browser Verify website- https:// & Lock in corner of browser Don’t shop at public computers- good hackers and spyware could be hacked Don’t shop at public computers- good hackers and spyware could be hacked Don’t store information on your computer- if company is hacked your information would be stolen or if computer is stolen people could access Don’t store information on your computer- if company is hacked your information would be stolen or if computer is stolen people could access

24. Bad Credit can cost you FICO or credit score rates you and determines the following: FICO or credit score rates you and determines the following: Credit Card Issuers & Lenders check to… Credit Card Issuers & Lenders check to… Determine APR per month- higher bad credit or don’t offer you credit Determine APR per month- higher bad credit or don’t offer you credit Auto Insurers Auto Insurers Determine Premium- bad credit higher premium Determine Premium- bad credit higher premium Employers Employers Are you a worthy hire? Some jobs don’t allow to hire bad credit employees Are you a worthy hire? Some jobs don’t allow to hire bad credit employees Landlords Landlords Are you a reliable tenant? Would you rent to someone with bad credit? Are you a reliable tenant? Would you rent to someone with bad credit?

25. The Three Cs of Credit Character: The way you handle money and have repaid debt in the past. Character: The way you handle money and have repaid debt in the past. Capacity: Your ability to pay the debt after considering other monthly expenses. Capacity: Your ability to pay the debt after considering other monthly expenses. Capital: The value of your assets or what you own. Capital: The value of your assets or what you own.

26. Learning Boosts Earning Education Average Annual Income Professional$71,258 Doctorate$60,729 Master's$48,772 Bachelor's$40,387 Associate$26,536 Some college, no degree $20,998 High school graduate only $18,571 Not a high school graduate $10,839

27. Your Paycheck 50% of U.S. young adults work 50% of U.S. young adults work Earn a minimum wage Earn a minimum wage Work an average of 20 hours / week Work an average of 20 hours / week $560 - Monthly $560 - Monthly $6,700 - Annual $6,700 - Annual

28. Where Does All the Money Go? Food, Snacks & Beverages Food, Snacks & Beverages Movies Movies School Events School Events Music, CDs, Concerts Music, CDs, Concerts Clothing, Cosmetics & Shoes Clothing, Cosmetics & Shoes Cars, Gas & Insurance Cars, Gas & Insurance Cell Phones Cell Phones

29. Credit Cards – The Perceived Great Equalizer Credit lets you buy more than they can afford. Credit lets you buy more than they can afford. Current World Problem Current World Problem Most people cannot differentiate between wants and needs. Most people cannot differentiate between wants and needs.

30. Card Facts 77% have a card 77% have a card $15,000= average card debt per house $15,000= average card debt per house College avg. $800 College avg. $800 39% carry a balance 39% carry a balance Avg. 1.96 per person Avg. 1.96 per person

31. Poor Use of Credit 1.6 million bankruptcies were filed in 2004 1.6 million bankruptcies were filed in 2004 Americans are declaring bankruptcy at 10x the rate they were during the depression Americans are declaring bankruptcy at 10x the rate they were during the depression

32. Personal Savings Rate Declining 1974 to 1984 1974 to 1984 10% 10% 1985-1994 1985-1994 Fell to 4.8% Fell to 4.8% 2004 2004 1.8% 1.8% 2005 2005 -0.5% -0.5% 2006 2006 -0.7% -0.7% 2014 2014 5.4% 5.4% Negative only during the depression Negative only during the depression

33. Saving for the Future Government Recommends Save 10% of every monthly check Government Recommends Save 10% of every monthly check Use savings for: Use savings for: Emergencies Emergencies Big purchases Big purchases Trip with friends Trip with friends Car Car Down payment on a home Down payment on a home Retirement Retirement

34. Use Credit Wisely You should use credit to buy: You should use credit to buy: House House Car Car Education (student loan) Education (student loan)

35. Credit Advice 1.Pay off balance at the end of each month to avoid late fees. Avoids Late Fees Avoids Late Fees Avoids Paying Interest - Easiest way to make money is to save money. Don’t waste Avoids Paying Interest - Easiest way to make money is to save money. Don’t waste 2.Maintain a good credit score Late payments have the biggest negative impact. Late payments have the biggest negative impact.

36. Credit Advice cont… Limit the number of cards you have and apply for Limit the number of cards you have and apply for Average American has 8 cards Average American has 8 cards Know your budget Know your budget Know yourself and buying habits Know yourself and buying habits Choose a card with a low interest rate- 0% has a catch Choose a card with a low interest rate- 0% has a catch

37. Credit Advice cont… 1.Pay more than the minimum - If you have a credit card balance: Make a plan to pay as much as you can every month Make a plan to pay as much as you can every month Start with the credit card with the highest interest rate Start with the credit card with the highest interest rate Pay off the credit cards as quickly as you can Pay off the credit cards as quickly as you can

38. Payday Loans, Cash Advance & Check Cashing Stay Away! Stay Away! What is it? What is it? Cash Loan Cash Loan Extremely High Interest Extremely High Interest Short-term (14 – 45 days) Short-term (14 – 45 days)

39. How Do They Work? You postdate a check You postdate a check They give you a loan They give you a loan Loan last for 2 weeks Loan last for 2 weeks They charge you a fee for borrowing the money—equivalent APR can be over 300%. They charge you a fee for borrowing the money—equivalent APR can be over 300%.

40. Why Students Use Credit Cards An increase in college costs and a decrease in families’ liquid savings leads to a dependence on loans & credit cards. An increase in college costs and a decrease in families’ liquid savings leads to a dependence on loans & credit cards. Students have a cognitive disconnect between the: Students have a cognitive disconnect between the: their current incomes vs. an affordable lifestyle their current incomes vs. an affordable lifestyle

41. More Reasons Why Students Use Credit Cards Students want their parents’ lifestyle BUT don’t have the same financial resources. They depend on: Students want their parents’ lifestyle BUT don’t have the same financial resources. They depend on: Financial Aid Financial Aid Families Families Part-time work Part-time work Credit Cards Credit Cards

42. Consumption and Credit Students don’t embrace “old school” financial values Students don’t embrace “old school” financial values Consumption pressured society Consumption pressured society Easy access to credit Easy access to credit Increased social acceptance of debt Increased social acceptance of debt

43. Long-term Effects of Credit Graduate with: Graduate with: Student loans Student loans Credit card debt Credit card debt Affect credit score Affect credit score Harder to get: Harder to get: Car loan or insurance Car loan or insurance Apartment lease Apartment lease Mortgage loan Mortgage loan Job Job

44. College Students’ Money Problems

45. Credit Card Use by Year

46. High Credit Card Debt??? Students with high credit card debt are more likely to: Students with high credit card debt are more likely to: Earn poorer grades Earn poorer grades Drop out of school Drop out of school Suffer from depression Suffer from depression File for bankruptcy File for bankruptcy Work more hours to pay bills Work more hours to pay bills

47. Preparing for Managing Credit on Your Own Work income Work income Allowance income Allowance income Live on a budget at home Live on a budget at home Food Food Entertainment Entertainment Clothing Clothing

48. Marketing You are a market these companies are targeting You are a market these companies are targeting Credit Companies will prey on the youth Credit Companies will prey on the youth Usually you are not good with credit and they can keep you as a customer Usually you are not good with credit and they can keep you as a customer

49. Managing Money in College Don't spend more money than you have Don't spend more money than you have Divide spending into: Divide spending into: Needs - Food Needs - Food Wants - $1,800 for a spring break trip to Florida Wants - $1,800 for a spring break trip to Florida Don't pay for the wants unless you can cover the needs Don't pay for the wants unless you can cover the needs

50. Advice Get one credit card Get one credit card Be an Authorized user on parents’ card Be an Authorized user on parents’ card Ask parent to cosign card Ask parent to cosign card Secured Card Secured Card Pay off the balance every month Pay off the balance every month Be aware of intro APRs vs. annual APRs. Be aware of intro APRs vs. annual APRs. Don’t take cash advances Don’t take cash advances

51. Authorized User Primary cardholder, not authorized user, is legally responsible for the bill Primary cardholder, not authorized user, is legally responsible for the bill Your credit score and report will reflect the primary cardholder’s actions to your: Your credit score and report will reflect the primary cardholder’s actions to your: Benefit Benefit Detriment Detriment

52. Co-signer Legally responsible to pay consumer debt if borrower defaults Legally responsible to pay consumer debt if borrower defaults Co-signer: An individual with assets who agrees to repay a loan or consumer debt if the borrower defaults. Your credit score and report will reflect the co-signers actions to your: Your credit score and report will reflect the co-signers actions to your: Benefit Benefit Detriment Detriment

53. How to Use Credit Cards to Help You Pay credit card balance every month Pay credit card balance every month pay credit card bills on time pay credit card bills on time Apply for credit only when needed Apply for credit only when needed Keep track of all charges- keep receipts Keep track of all charges- keep receipts Check monthly credit card statements Check monthly credit card statements

54. Minimum Payment CC Read thru this website and be familiar with information: Read thru this website and be familiar with information: http://www.consumer.gov//articles/1010-using- credit#!what-to-know http://www.consumer.gov//articles/1010-using- credit#!what-to-know http://www.consumer.gov//articles/1010-using- credit#!what-to-know http://www.consumer.gov//articles/1010-using- credit#!what-to-know

55. How credit could hurt you? Making late payments- could trigger higher rates and hurt credit score Making late payments- could trigger higher rates and hurt credit score Paying only the minimum- costs you money in interest in the long run Paying only the minimum- costs you money in interest in the long run Don’t Exceed the cards limit- triggers a penalty fee Don’t Exceed the cards limit- triggers a penalty fee Don’t Charge items that cannot be paid off in foreseeable future Don’t Charge items that cannot be paid off in foreseeable future Don’t Own too many credit cards Don’t Own too many credit cards

56. Your credit history describes how you use money If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards. Do you pay your bills on time? How many loans do you have? How many credit cards do you have? If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards. Do you pay your bills on time? How many loans do you have? How many credit cards do you have? Companies also collect information about how you pay your bills. They put this information in one place: your credit report. Companies also collect information about how you pay your bills. They put this information in one place: your credit report.

57. Credit / FICO Score FICO- Fair Isaac Company FICO- Fair Isaac Company Range between 300 & 850 Range between 300 & 850 U.S. Median: 723 in 2014 U.S. Median: 723 in 2014 < 620 = sub prime < 620 = sub prime > 760 = best rates > 760 = best rates

58. A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it. A credit score is a number. It is based on your credit history. But it does not come with your free credit report unless you pay for it. A high credit score means you have good credit. A low credit score means you have bad credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850. A high credit score means you have good credit. A low credit score means you have bad credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850.

59. The Cost of Borrowing Your Credit score: Your interest rate: Your monthly payment: 760 - 850 6.13%$1,313 700 - 759 6.35%$1,344 680 - 699 6.53%$1,369 660 - 679 6.74%$1,400 640 - 659 7.17%$1,462 620 - 639 7.72%$1,543

61. End of Material for Quiz We will stop there in preparation for your knowledge of Credit Cards! Quiz tomorrow over the above slides! Make sure you visit the website listed on slide 54.