1. Credit Cards How to Use Them, But Not Abuse Them Developed by Melissa King

2. Agenda n Credit Cards: The Basics n Credit Reports n Positives and Disadvantages of Credit Cards n The Do’s and Don’ts of Credit Cards

3. n What is credit? u It is a loan, allowing you to receive goods and services now and pay for them later u It is an agreement that the money borrowed will be paid back u It is a debt, it is NOT income u It comes with fees; interest and other charges Credit Cards: The Basics

4. n Fees, fees, and more fees u Interest rate fees--what you pay for using the $$ F usually 10% - 25% for students (after intro rate) u Annual fee for just having the credit card u Over the limit fees, charged whenever you exceed your credit limit u Late payment fees u Transaction fees u Other miscellaneous fees F read the fine print!!!

5. Plastic Money n Charge Cards u must be paid back every thirty days u provides convenience of not having to pay for purchases with cash, but balance may not be carried over month-to-month n Credit Cards u operate on a credit limit and revolving basis u if not paid-in-full within grace period, interest is charged on the remaining balance

6. Plastic Money n Debit or Check Cards u allow access to checking account via ATMs and point of sale (POS) terminals u amount is deducted from checking account u not a charge card, must have the funds available n “Smart Cards” u these cards store personal information u may be “loaded” with a certain dollar value that can then be spent at POS terminals

7. Students & Credit Cards n Some recent statistics u 76% of undergraduate students (18-24) have credit cards (an 8% decrease from the 83% with cards in 2001) u 56% of final year students have four credit cards or more (up from 27% in 1998 & 32% in 2000) 2005 Nellie Mae Study

8. Credit Card Ownership by Grade Level Year 1 Year 2 Year 3 Year 4/5 Percentage who have credit cards 42728391 Average number of credit cards 2.263.444.05.07 Percentage who have 4 or more cards 15344156

9. Student Credit Card Balances 1998200020012004 Average credit card debt per student $1879$2748$2327$2169 Median credit card debt per student $1222$1236$1770$946 Percentage with balances $3000-$7000 14132116 Percentage with balances over $7000 10967

10. Stats on Credit Card Balances u By senior year, 31% of students have a balance of $3000-$7000 u 1 in 8 students owe $7,000 or more u In the past 10 years, bankruptcy filings by those under 25 have increased by 96%

11. Credit Card Debt – EUP students Spring, 2001

12. Credit Reports n Your financial resume n Shows financial responsibility n Follows you for life - just like your school transcript

13. Credit Reports n What is in a credit report? u personal information u payment history u amount of credit you have access to and are using u inquiries u public records, judgments, liens, bankruptcies

14. Credit Scores Range from 300-850 Components: n Payment history (35%) n Outstanding debt (30%) n Length of credit history (15%) n Number of inquiries on your report (10%) n Types of credit currently (10%)

15. More Info on Credit Scores n Check the Internet www.myfico.com http://money.howstuffworks.comwww.bankrate.com

16. The Positives n majority of students use credit cards responsibly n provide convenience and security n allow students to establish credit histories

17. The Disadvantages n college students are more likely than other types of credit card users to run up debts they cannot pay n many students do not understand the consequences of incurring excessive debt and making payments late F impaired credit rating F more difficult and costly to obtain credit later

18. The Disadvantages ( continued ) n college students (with limited or no credit history and income) are charged higher interest rates n many students pay only the minimum amount due each month, not aware of how much this will cost them in interest and time

19. Credit Card Payment Behavior Pay off all credit card balances on all cards each month 21% Make the minimum monthly payments on all cards every month 12% Pay off some cards in full each month but make only the minimum monthly payment on others 8% Make more than the minimum payment but always carry a balance 44% Make less then the minimum payment on some or all cards each month 11% My parents pay my credit card bills 4%

20. Repayment Interest savings between lowest/highest payment = $1,570; time saved = 75 months or 6.25 years! Table 1. Minimum Repayment Schedule on a $2000 Credit Card Loan at 19 Percent Minimum monthly payment amount Number of months to repay Total Interest Payment $40 100 $1,994 $50 64 $1,193 $75 35 $619 $100 25 $424 Source: Credit Card Minimum Payment Interest Calculator, Daniel C. Peterson www.webwinder.com

21. Credit Cards: Possible Consequences n Between 10 - 20% of students are risking unacceptably high levels of debt n Many students must take on additional jobs to pay their debts n Many cut back on the number of classes or drop out of school all together n Career choices can be limited n Some are forced to file bankruptcy

22. Credit Cards: The Risks n Characteristics of high-risk use u Average credit card balances over $1,000 u Owning four or more credit cards u Carrying a balance each month u Using credit cards to charge tuition or fees

23. Credit Card Don’ts n Don’t use them for cash advances n Don’t use them to pay for basics: rent, groceries, etc. n Don’t charge more than you can pay off in a month n Don’t let banks increase your credit limit Source: USA Funds Life Skills -Module 1

24. Credit Card Do’s n Limit the number of cards you have n Use a debit card instead of a credit card n Use a card that has no annual fee and lower interest rates n Know all of your card’s fees n Pay your full balance each month or at least pay more than the minimum amount due n Pay on time, all the time Source: USA Funds Life Skills -Module 1

25. Questions ? ? ? Student Financial Support and Services can help! Student Financial Support and Services

26. www.youcandealwithit.com

27. Community Resources n Consumer Credit Counseling Service of Western Pennsylvania Inc 4402 Peach St Erie, PA 16509 866-4509