7.4.2.G1
Understanding Your Credit Card
Essentials Advanced Level
The Essentials to Take Charge of
Your Finances
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
What is Credit?
Why would a person want to use credit? Brainstorm
!
Credit- when goods, services or money is received in exchange for a promise to pay a definite sum of money
at a future date
Credit is derived from the Latin word “credo”
meaning “I believe”
7.4.2.G1
Credit Process
• Wants to acquire an item
• Does not have enough money and wants to borrow from a lender
Borrower
• Person or organization with resources to provide a loan
• Credit card company, depository institution, etc.
Lender • If approved by
the lender, receives credit
• Pays the lender interest for the privilege of borrowing
Borrower
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Installment Credit
A one %me loan that is repaid in a specified number of equal
payments
Auto Loans, Mortgages, & Student Loans
May require a co-‐signer
Second signer who will pay for the loan if the first party
defaults
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Non-Installment Credit
Credit is extended in advance with a specific
credit limit
Credit Limit Maximum dollar amount loaned
Varies among individuals based
upon Creditworthiness
Borrower pays interest if credit is not paid back in full each month
Examples are Credit Cards & Department Store Cards
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Advantages & Disadvantages to using
Credit Cards
• Convenient payment tool • Can be used for
emergencies • Able to purchase “big
ticket” items and spread out payments
• Protection against fraud • Opportunity to establish a
positive credit history • Possibility of receiving
bonuses
• Interest can be costly when a balance is revolved
• Additional penalty fees may apply
• Tempting to overspend • Risk of identity theft • Responsible for lost/stolen
cards • Applying for multiple accounts
in a short period of time can lower your credit score
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Creditworthiness
Credit card approval
depends on the borrower’s perceived
creditworthiness according to the
lender
Lenders assess an individual’s
creditworthiness based upon their credit report and/
or credit score
How a person uses a credit
card affects their creditworthiness
Creditworthiness
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Positive Credit Card Use
• Examples of positive credit card behaviors: – Paying credit card balances in full every
month – Paying credit card bills on time – Applying for only credit cards that are needed – Keeping track of all charges by keeping
receipts and using a check register – Checking the monthly credit card statement
for errors
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Negative Credit Card use
• Examples of negative credit card behaviors: – Making late credit card payments – Paying only the minimum payment – Exceeding the card’s credit limit (usually
triggers a penalty fee) – Charging items that can’t be paid off
immediately – Owning too many credit cards
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Credit Card Offers
Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read
box format
This is called the Schumer box
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Obtaining A Credit Card
1. Comparison shop for a credit card
Compare credit card offers and determine which card to apply for
2. Complete a credit application
A form requesting information about a person’s ability to repay
3. Lenders conduct a credit investigation
A comparison of information on credit application to information on a credit report
4. Approval?
Applicant may or may not be approved for the card they apply for (depends on creditworthiness)
Credit card companies send pre-approved credit card applications in the mail when the individual has passed their initial credit check
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Truth in Lending Act
Limits liability for unauthorized credit card charges to $50.00 per card
Must write a letter within 60 days of the first bill containing the error
If a credit card number is used fraudulently but the card itself was not used, the individual has no personal liability
7.4.2.G1
© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Understanding Your Credit Card Essentials – Slide # 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Credit Card Safety Tips
Sign card with a signature and “Please
see ID”
Do not leave cards lying around, and
report lost or stolen cards promptly
Close unwanted accounts by writing and phone, then cut
up the card
Do not give out account numbers unless making a
purchase
Keep a list of all cards, account numbers, and phone lists separate
from cards
Shred all pre-approved credit card offers, applications, or
solicitations
What are safety tips for using a credit card? Brainstorm
!