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Understanding Your Credit Card

Essentials Advanced Level

The Essentials to Take Charge of

Your Finances

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© 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”

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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

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© 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  

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© 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  

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© 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

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© 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

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© 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

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© 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

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© 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

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© 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

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© 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

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© 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

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© 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

!