Download - USE CREDIT WISELY
Consumer Action: Use Credit Wisely
Consumer Action created this project in partnership with
USE CREDIT WISELY
Consumer Action: Use Credit Wisely
Advantages of Credit
What can credit do for you? Help you through a financial emergency Enable you to pay for a purchase over time Provide a short, interest-free loan Enable you to rent a car, hotel room, etc. Offer convenience, security when shopping Rebates or rewards Allow you to avoid carrying cash Allow you establish credit/build good credit
Consumer Action: Use Credit Wisely
Types of Credit
Installment Credit
Fixed number of monthly payments
Car loans, mortgages
Revolving Credit Short-term, open-
ended Assigned credit limit Available credit
fluctuates as you make purchases & payments
Option to make full or partial payment
HELOCs, credit cards
Consumer Action: Use Credit Wisely
Card Types
Credit, charge & debit cards Visa, MasterCard, Discover
Affinity cards Rewards cards Secured cards
Retail and gas cards Stored value (prepaid) cards Charge cards Debit cards
Consumer Action: Use Credit Wisely
Credit Card Terms
Credit limit Method of computing the balance Minimum payment Payment due date Grace period Interest rate Fees
Consumer Action: Use Credit Wisely
Credit Card Terms: Interest
The lender’s fee for allowing you to use its money
Expressed as a percentage of the credit
Fixed vs variable interest rate
Annual percentage rate (APR)
Periodic interest rate Different rates for a
single card: Teaser Cash advance Purchase Penalty/Default Balance transfer Effective interest
Consumer Action: Use Credit Wisely
Credit Card Fees
Application fee Annual fee Balance transfer fee Cash advance fee Currency conversion fee Late fee Overlimit fee Bounced check/returned item fee Miscellaneous fees
Consumer Action: Use Credit Wisely
Activity: Credit Card Jeopardy Break into three groups Choose one person on your team to “buzz” in
when you think you have the correct “question” to the answer
A correct answer earns the point. An incorrect answer loses a point and allows another team to “steal” the point.
Remember to phrase your answer in the form of a question.
Consumer Action: Use Credit Wisely
Credit Card Billing Statements Opening/closing date Past due amount New balance Minimum payment
due Due date Account summary
Transactions Rewards information Explanation of
finance charges Effective APR
Consumer Action: Use Credit Wisely
Food for Thought
In 2007, credit card customers who revolved their debt (didn’t pay the balance in full each month) paid $18.1 billion in penalty fees to credit card companies.
Source: “Don’t Get Clobbered By Credit Cards,” by Gary Weiss
Consumer Action: Use Credit Wisely
Comparing Credit Cards
Credit limit Purchase APR Balance transfer APR Cash advance APR Promotional APRs Penalty APR Variable-rate info Grace period
Annual fee Transaction fees Penalty fees Balance computation
method Minimum finance
charge Rewards
Consumer Action: Use Credit Wisely
Obtaining Credit
Pre-approved offers Invitations to apply Instant credit Consumer-initiated application
Banks, credit unions, retailers, card companies, and other institutions
Compare offerings, terms www.consumer-action.org www.bankrate.com www.cardtrak.com www.cardratings.com
Consumer Action: Use Credit Wisely
Using Credit Wisely
Know your credit limit and don’t exceed it Charge only as much as you can repay Pay more than the minimum, if possible Pay by your due date (and time!) Use a debit card, not a credit card, to get cash Don’t accumulate too much debt Avoid penalty fees and rates Consider optional fee-based services carefully Contact a credit counselor (www.nfcc.org or
www.aiccca.org)