1. MoneyCounts: A Financial Literacy Series
Credit Cards
11-A Grange Building
University Park, PA 16802
financialliteracy.psu.edu

2. Description
A credit card is a powerful financial tool, especially for building your credit history.
Though, it should be managed very carefully because it may cause you to spend more than what is allowed in your budget.
It is necessary to learn how to manage your credit cards wisely.

3. Learning Outcome List types, pros & cons of Credit Cards
Review a credit card billing statement
Analyze relationships between credit card, credit report, credit history and credit score (FICO)
Recognize credit card debt signs

4. Have a credit card bill statement handy!
Reminder!
Have a credit card bill statement handy!

5. Advantages of using credit cards
Building credit history
Quick source of funds in an “absolute” emergency
Ability to obtain “needed” items
No extra charge if bill is paid on time and in full each month
Consumer protection ($50.00)

6. Disadvantages of using credit cards
Credit worthiness needed
Possibility of impulse purchases
High interest rates if not paid on time
Annual fees for some cards
Fee for late payment
Possibility of negative effect on credit history when used improperly

7. Types of credit cards Bank Cards Store Cards Travel Cards
Visa, MasterCard, Discover (Issuer)
Store Cards
Macy’s, Chevron
Travel Cards
American Express (charge cards)

8. Cost and features Annual Percentage Rate (APR) – Fixed vs. Variable
Transaction fees – Low teaser rates
Credit limit – Decreased for riskier cardholders
Grace period – Minimum 21 days
Services, rewards, and features – Ask all the questions
Annual Fees – Making it come back
How widely the card is accepted – strict approvals
Balancing computations method for finance charges – Date of transaction not from the last cut off period
Minimum age is now 21 (without a co-signer, without a proof of income)
Fixed rate cards are slowly disappearing
Variable APR tied to the Prime interest rate

9. What is in a billing statement?

10. Summary of account activity1
Summary of account activity 2 1 2
Payment information 3 4 3
Late payment warning 4
Minimum payment warning 5 5
Notice for changes of on your interest rates 6 6
Other changes of your account terms

11. Fees and interest charges7
Transactions 7 8
Fees and interest charges
Year‐to‐date totals 9 8 10
Interest charge calculation 9 10

12. Summary of account activity1
Summary of account activity
Includes your payments, credits, purchases, balance transfer, cash advances, fees, interest charges, amounts past due, new balance, available credit, the last day of the billing period 2
Payment information
Your total new balance, the minimum payment amount (the least amount you should pay), and the date your payment is due (5 PM) 3
Late payment warning
Additional fee (usually $25-35) and a higher interest rate that may be charged if your payment is late

13. Minimum payment warning4
An estimate of how long it can take to pay off your credit card balance if you make only the minimum payment each month
An estimate of how much you likely will pay, including interest, in order to pay off your bill in three years 5
Notice for changes of on your interest rates
If you trigger the penalty rate, your credit card company may notify you that your rates will be increasing (at least 45 days before) 6
Other changes of your account terms
Your credit card company must notify you any increase of interest or changes at least 45 days before the changes take effect

14. Fees and interest charges7
Transactions
A list of all the transactions since your last statement (purchases, payments, credits, cash advances, and balance transfers)
Review the list carefully to make sure that you recognize all of them 8
Fees and interest charges
Companies must list fees and interest charges separately on your monthly bill 9
Year‐to‐date totals
The total fees and interest charges you have paid for the current year 10
Interest charge calculation
A summary of the interest rates on the different types of transactions and account balances
The interest charged for each transaction

15. How is FICO SCORE calculated (300-840)?
Annual Credit Report.com
Payment History
35%
Capacity (Capacity is King)
30%
Length of Credit
15%
Search & Acquisition for New Credit
10%
Type of Credit
Total Score
100%

16. What actions will hurt the score?
What does not impact the score?
What actions will hurt the score?
Missing payments
regardless of dollar amounts, it will take 24 months to restore credit with one late payment
Credit cards at capacity
Opening up numerous credit accounts in a short time period
Having more revolving loans in relation to installment loans
Loans at finance companies
Income
Length of residence
Length of employment
Soft inquiries – checking your score

17. Approximate credit weight for each year
Current to 12 months
40%
13-24 months
30%
25-36 months
20%
37+ months
10%
Total
100%

18. How can you improve your FICO Score?
Pay down on credit cards
Do not close credit cards (because capacity will decrease)
Continue to make payments on time 
Slow down on getting new loans
Move from revolving debt (credit cards) to installment debt (car loan, mortgage)

19. What’s in a credit report?
Your identity and financial behavior
List of your accounts (credit cards, retail cards, real estate loans, auto loans, collection accounts, etc.)
Hard inquiries (that added to history, such as applying for a new card) and soft inquiries (that not added to history or FICO, such as checking your own report for errors)
Public records (bankruptcy, tax lien, civil judgments, etc.)
Potential negative items (late payments and delinquencies)
Accounts in good standing

20. 10 tips to control credit card debts
Have an emergency fund (10% of net income)
Charge only what you can afford
Avoid balance transfers
Don't miss credit card payments
Pay your balance in full each month
Avoid cash advances
Understand your credit card terms
Limit the number of credit cards you sign for
Do not lend or lose your credit card
Recognize the signs of getting yourself in debt
Have an emergency fund (10% of net income)
Charge only what you can afford (20/10 rule)
Avoid balance transfers (high interest rate)
Don't miss credit card payments (not to pay late payment)
Pay your balance in full each month (not to pay interest)
Avoid cash advances (high interest rate)
Understand your credit card terms (read between the lines)
Limit the number of credit cards you sign for (control debt)
Do not lend or lose your credit card (control liability)
Recognize the signs of getting yourself in debt (control debt)

21. MoneyCounts: A Financial Literacy Series
Comments and questions
11A Grange Building
University Park, PA 16802
financialliteracy.psu.edu