1. Selecting a Credit Card
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2. Used for purchase of items now Payment of items later
What is a Credit Card?
Pre-approved credit
Used for purchase of items now
Payment of items later
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

3. (Source: http://www.fcs.iastate.edu/financial)
Statistics
92% of college students have a credit card by their sophomore year
1 out of every 5 college students owes between $3,000 and $7,000 in credit card debt
Almost half (47%) of all college students carry four or more credit cards
(Source:
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

4. Advantages Why Use a Credit Card? Convenient Useful for emergencies
Often required to hold a reservation
Purchase ‘big ticket’ items earlier
Easy form of debt consolidation
Protection against rip-offs and fraud
Establish a good credit rating
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

5. Disadvantages Why Use a Credit Card? Interest is costly
Additional fees are common
Tempting to overspend
Privacy is an increasing concern
Personally responsible for lost/stolen cards
Identity theft easier
Can lose financial freedom from overspending
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

6. Types of Credit Cards Bank Credit Cards Retail Credit Cards
Flexible account
Accepted anywhere
Available from a financial institution (commercial bank, credit union) with a service provider (Visa, MasterCard)
Electronic network
Retail Credit Cards
Purchases allowed at a particular retailer
i.e. The Buckle or Old Navy
Can work with bank to offer a bank credit card with the retailer’s logo
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7. Types of Credit Cards cont.
Travel and Entertainment Cards
Similar to bank credit cards
Can make purchases at a number of businesses
Entire balance must be repaid in 30 days
Prestige Cards
High status accounts
Higher credit qualifications
Special benefits
i.e. Free travelers checks, higher credit limits
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

8. Types of Credit Cards cont.
Affinity Cards
Accounts through financial institutions
Logo of sponsoring organization
Example: Mothers Against Drunk Driving
Financial institution donates percentage of charges to organization
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

9. Fair Truth in Lending Act
Schumer Box
Fair Truth in Lending Act
Information required by law to inform consumer of all costs associated with use of a credit card
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

10. Annual Percentage Rate
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Annual Percentage Rate (APR) – Interest rate charged for amount borrowed in terms of per dollar per year
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

11. Grace Period
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Grace Period – Amount of time allowed before finance charges are applied
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

12. Minimum Finance Charges
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Minimum Finance Charge – Minimum amount charged for card use
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

13. Balance Calculation Method
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Balance Calculation Method – Method used to determine balance for finance charges
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

14. Balance Calculation Method cont.
Average daily balance excluding new purchases – Interest is only paid on the previous balance, not on purchases made since the last payment
Average daily balance including new purchases with a grace period – If the balance is not zero, interest is applied to new purchases when they are made, if the balance is zero, a grace period is allowed before interest is charged
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

15. Balance Calculation Method cont.
Average daily balance including new purchases with no grace period – Regardless of the previous month’s balance, interest is applied to new purchases as they are made
Two-cycle average daily balance including new purchases – This method should be avoided by consumers, as it is the least-beneficial. The average daily balance is determined on 60 days, rather than 30 days, so finance charges are doubled. A zero balance must be held for two months in order to avoid charges
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

16. Annual Fees – Yearly charge for credit card ownership
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Annual Fees – Yearly charge for credit card ownership
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

17. Cash Advance Transaction Fees – Cash withdrawal fees
Cash Advances
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Cash Advance Transaction Fees – Cash withdrawal fees
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

18. Late Payment Fees – Penalty fee for payments not made by the due date
Annual Percentage Rate for Purchases
Grace Period for Purchases
Minimum Finance Charges
Balance Calculation Method for Purchases
Annual Fees
Transaction Fees for Cash Advances
Late Payment Fees
19.9%
Not less than
25 days
$.50 when a finance charge at a periodic rate is charged
Average daily balance method (including new purchases)
$20 per year
2% with a minimum fee of $3
$29
Late Payment Fees – Penalty fee for payments not made by the due date
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

19. Opening a Credit Account
Applicant completes a credit application
Lender conducts a credit investigation
Applicant is given a credit rating
Lender accepts or denies the credit request
If accepted, applicant evaluates the credit card details
Applicant accepts or refuses credit terms
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

20. Understanding the Bill
Minimum Payment Due – The minimum amount to be paid
If this amount is paid and a balance is left on the account, additional finance charges will be included in the following month’s balance
Past Due Amount – The required amount not paid before the due date
Due Date – The day by which the company requires a payment to be made
New Balance – The total amount owed on a credit card
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

21. Understanding the Bill cont.
Credit Line – The maximum amount of charges allowed to an account
Closing Date – Last day for transactions to be reported on the statement
Charges, Payments, and Credits – The transactions which occur with the use of a credit card
Finance Charge – Charges assessed for credit card use
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

22. Using a Credit Card Properly
Only use a card when there is no doubt about ability to pay off the charges at the end of the billing cycle
Record all expenses and keep receipts
Check credit statement for errors
Always pay off balance completely and timely
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

23. Safety Tips Sign card with signature and “Please See ID”
Do not leave cards lying around
Close unused accounts in writing and by phone, then cut up the card
Do not give out account number unless making purchases
Keep a list of all cards, account numbers, and phone numbers separate from cards
Report lost or stolen cards promptly
© Family Economics & Financial Education – Revised October 2004 – Credit Unit – Selecting a Credit Card
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona