Andrea Morgan, Gary Moore, Melissa GreensladeProgram Coordinators University of Arkansas, Office of Financial Aid

BUDGETING FOR COLLEGE:

Credit Cards & Credit Reports

What is Credit?

Credit the extent to which someone, usually a bank, is willing to loan you money and trusts that you will pay it back in the future.

Benefits and Rewards of Using Credit

Can be helpful in emergency situations Can be safer for online purchases or

travel Safer than carrying cash Establish good credit history

Risks of Credit Cards

Easy to make impulse purchases Interest rates (APR) and fees can add

up and increase the amount you owe Could damage your credit report

Establish Healthy Credit

Having a good credit history is important! To qualify to borrow more and at a lower interest

rate on future purchases, like buying a car or a house

Types of Credit: Revolving Accounts: Credit Cards

Secured, Store, Standard (Retail) Installment Loans Mortgage Loans Student Loans

Don’t use over 15-20% of your net income for non-mortgage debt payments

Types of Credit:

Secured Credit: something of value is presented to the lender as collateral in case you default on the loan. Examples: Vehicle or House Loans – if you

don’t pay, the lender can take back your car or house.

Unsecured Credit: a loan that does not have collateral securing the loan. If you stop paying, there is nothing for the lender to take back. Examples: Credit Cards, Student Loans,

Personal Loans

Dangerous Credit!

Payday Loans Cash Advance on your Credit Card Rent to Own

Credit Card Rules for Those Under 21 Anyone under 21 will need a co-signer

for a credit card and/or to prove ability to pay

The co-signer must agree in writing to any credit limit increase

Consumers under 21 can sign up for a secured credit card.

Evaluating Credit Card Offers www.federalreserve.gov/creditcard When evaluating a credit card offer

consider: APR (Annual Percentage Rate) Grace Period and Fees

(sample credit card offer handout)

APR

Annual Percentage Rate: the actual cost of borrowing money, expressed in the form of a yearly measure (monthly interest = APR)

Can be Fixed or Variable Fixed stays the same throughout the loan Variable rates can change annually,

monthly or quarterly Average Credit Card Interest Rate:

14.97%(#1-6 and 12 on sample credit card offer handout)

Credit Card Grace Period

The Grace Period is the number of days you have before you’ll be charged interest on your purchase amount, usually between 20 days and 1 month.

(#5 on sample credit card offer handout)

Credit Card Fees

Annual Fees – between $25 and $60 Cash Advance Fees Balance Transfer Fees Late Fees – average $29 Over the Limit Fee - $25 per purchase

(#7, 8, 9 on sample credit card offer handout)

What to Look for in a Credit Card Offer

Look for the lowest APR, no annual fees, a grace period, and rewards you might be interested in getting (cash back, airline miles, etc.)

Good credit sources will be able to offer lower interest rates, provide repayment assistance, and remedy errors and correct billing statements www.cardratings.com (credit cards

tab)

Reading Your Credit Card Statement

www.federalreserve.gov/creditcard1. Summary of Account Activity2. Payment Information3. Late Payment Warning4. Minimum Payment Warning5. Notice of Changes to Your Interest Rate6. Other Changes to Your Account Terms7. Transactions8. Fees and Interest Charges9. Year-to-date Totals10. Interest Charge Calculation

(sample credit card account statement handout)

Repayment Example

Credit Card Balance = $1000 APR 15% $20 minimum payment How long to pay off loan at minimum payment?

7 years! How much interest will be charged during that

time? $580!

Credit Card Repayment Calculator: www.federalreserve.gov/creditcardcalculator

Credit Reports and Credit Scores A credit report is a collection of information

about you and your credit history Includes personal information, account

information, some public record information, inquiries into your credit, and creditor information list

Free credit reports available annually at www.annualcreditreport.com

A credit score is a number predicting how risky it may be to lend you money. Fair Isaac Score (FICO) or VantageScore

What Makes Up Your Credit Scores

Payment History- 35% Outstanding Balances-

30% Length of Credit

History- 15% New Credit- 10% Credit Mix- 10%

Best: 850 Good: 720 Worst: 300

Payment History- 32% Utilization- 23% Outstanding

Balances- 15% Depth of Credit- 13% Recent Credit- 10% Available Credit- 7%

Best: 900-990 Worst: 501-599

FICO Score VantageScore

Why are Credit Reports and Credit Scores Important?

Lenders usually look at your credit history to help determine whether they will extend you credit, how much, and at what interest rate

Employers and Service Providers may also look at your credit history

Making late payments, having too many credit cards, or being up to your credit limit can have a negative impact on your credit score

Negative information can stay on your credit report for 7-10 years

Be a Good Credit Consumer

Wisely consider the types of debt you have Only borrow for purchases that help you make

money, grow your wealth, or satisfy basic needs Use credit cards sparingly; keep debt balance low Stop charging the moment you know you can’t

pay the entire balance Pay off credit cards in full and on time each

month, or at least pay more than the minimum amount

Know your budget and live within your means

What if you Are in Over Your Head?

Set a budget and stick to it! Pay more than the minimum payment amount Call your credit card company to see if they can

work with you on a payment plan Pay off debt with the highest interest rate first

or pay off debt smallest balance first Find a reputable credit counselor Use savings or assets to pay off debt Maintain a good payment history for 6

months and then petition to lower your interest rate

The Long and Short of It…

College Credit for Lifehttp://www.youtube.com/watch?v=dKzrfy0iVLs

Before you go…

Please complete and submit your evaluation forms

PowerPoint presentation and handouts will be posted on our website

Thank You!

Contact Information: Office of Financial Aid; Andrea, Gary, and

Melissa Campus location: 114 Silas Hunt Hall Phone: 479-575-3806 Fax: 479-575-7790 Website: http://finaid.uark.edu/ And find us on Facebook at University of

Arkansas Financial Aid!