Warmup

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Warm-up

• Be prepared to discuss
• 1. What is one factoid about credit cards that
  stuck in your mind from last class?
• 2. Is there something you still want me to
  address about credit cards?
• 3. Do you think you could handle being a
  convenience user if you were to get a credit
  card today? Why or why not?

2
Agenda

• Review of Competition
• AMEX Warm up
• Credit Card Video and being
• credit card intelligent.
• Credit Card Application Analysis.

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Perfect Competition

• Exists when a large number of buyers and sellers
  exchange identical products under five
  conditions
• 1. There should be a large number of buyers and
  sellers
• 2. The products should be identical
• 3. Buyers and sellers act independently
• 4. Buyers and sellers should be well-informed
• 5. Buyers and sellers should be free to enter,
  conduct, or get out of business

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Monopolistic Competition

• Monopolistic competition meets all the conditions
  except for
• identical products
• Monopolistic competitors use product
  differentiation
• Think about the Coke Vs. Pepsi examples
• What did they do to differentiate their product?

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Oligopoly

• Oligopoly is a market structure in which a few
  very large sellers dominate the industry
• Typically they prefer non-price competition
  because price reduction reduces profit
• Oligopolists may all agree formally to set
  prices, called collusion, which is illegal
  (because it restricts trade)

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Monopoly

• A market structure with only one seller of a
  particular product
• The US has few monopolies because Americans
  prefer competitive trade, and technology competes
  with existing monopolies

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American Express 1 Example

• What happens if you charge something for 1 and
  then do nothing and dont pay it off?
• Lets take a look
• American Express Blue Card
• APR- 13.24
• Default APR- 21.24
• Serious Default APR- 30.24
• Late Payment Fee- 19 if less than 400
  outstanding, 38 if over 400 outstanding

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American Express 1 Example

• Month 1- 20.50
• APR goes to Default APR, Minimum Finance Charge
  of .50 applies because interest calculates to
  only .21, Late Payment fee of 19
• Month 2- 45.70
• Default APR goes to Serious Default APR
• Month 3- 78.52
• Month 4- 121.26
• Month 5- 176.93
• Month 6- 249.43

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American Express 1 Example

• Month 7- 343.86
• Month 8- 485.84
• Late Payment Fee increases to 38 because
  outstanding balance is now over 400
• Month 9- 670.76
• Month 10- 911.60
• Month 11- 1225.27
• Month 12- 1633.79

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Announcements

• We will be in the library for one class next week
• You will need access to the librarys computers
• BRING YOUR STUDENT ID!!!
• Test
• Wednesday, April 8th (A Day) or Thursday, April
  9th (B Day)
• Will cover
• Market Structures
• Credit Cards
• NO TEST CORRECTIONS
• Review sheet available NEXT CLASS
• Index card is permitted as usual

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Announcements

• Test Corrections
• Friday at 800am
• Monday at 800am
• Monday during 4th period
• Monday at 420pm
• Tuesday at 800am
• Tuesday at 420pm
• Wednesday during 4th period
• Wednesday at 420pm

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Credit Cards

• Thin Plastic Card Pure Evil

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Why Should You Care?

• Credit cards are a necessary evil that allows our
  economy and global economies to operate smoothly
• Being ignorant to the dangers of credit card use
  could stop you from
• Renting an apartment
• Buying a new car
• Getting loans for school
• Buying a home
• Securing a job

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Debit Vs. Credit

• Debit Cards Money is transferred directly from
  your bank account to a merchant.
• Credit Cards A separate institution (usually a
  bank) pays the merchant, and bills you later.
• Credit or Debit? Changes what system the
  transaction is processed through.

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Two Kinds of Credit Card Users

• Convenience User
• Convenience users pay their credit card balances
  in full each month and pay no interest on their
  purchases since they are able to take advantage
  of their issuers grace period
• Revolver
• Revolvers keep a revolving balance on their
  credit card account and pay interest on all their
  purchases. They are also known for engaging in
  the credit card shuffle by paying off one
  credit card balance with another credit card

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Finance Charges Grace Periods

• The grace period is the number of days you have
  to pay your bill in full without triggering a
  finance charge.
• For example, the credit card company may say that
  you have 25 days from the statement date,
  provided you paid your previous balance in full
  by the due date. The statement date is given on
  the bill.
• The grace period usually applies only to new
  purchases. Most credit cards do not give a grace
  period for cash advances and balance transfers.
  Instead, interest charges start right away.
• If you carried over any part of your balance from
  the preceding month, you may not have a grace
  period for new purchases. Instead, you may be
  charged interest as soon as you make a purchase
  (in addition to being charged interest on the
  earlier balance you have not paid off).

Good
BAD
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Paying the Minimum

• Credit cards require you to make a minimum
  payment every month. Usually this is the interest
  from the previous month plus 2 of your balance.
• Paying the Minimum

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Annual Percentage Rate (APR)

• The way of stating the interest rate you will pay
  if you carry over a balance, take out a cash
  advance, or transfer a balance from another card.
  The APR states the interest rate as a yearly
  rate.
• Average credit card interest rates are 11-23

IF
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Multiple APRs

• A single credit card may have several APRs
• One APR for purchases, another for cash advances,
  and yet another for balance transfers. The APRs
  for cash advances and balance transfers often are
  higher than the APR for purchases (for example,
  14 for purchases, 18 for cash advances, and 19
  for balance transfers).
• Tiered APRs. Different rates are applied to
  different levels of the outstanding balance (for
  example, 16 on balances of 1-500 and 17 on
  balances above 500).
• A penalty APR. The APR may increase if you are
  late in making payments. For example, your card
  agreement may say, "If your payment arrives more
  than ten days late two times within a six-month
  period, the penalty rate will apply."

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Multiple APRs

• An introductory APR. A different rate will apply
  after the introductory rate expires.
• A delayed APR. A different rate will apply in the
  future. For example, a card may advertise that
  there is "no interest until next March." Look for
  the APR that will be in effect after March.

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Fees

• Most credit cards charge fees under certain
  circumstances
• Annual fee (sometimes billed monthly). Charged
  for having the card
• Cash advance fee. Charged when you use the card
  for a cash advance may be a flat fee (ex 3.00)
  or a percentage of the cash advance (for example,
  3)
• Balance-transfer fee. Charged when you transfer a
  balance from another credit card (Your credit
  card company may send you checks to pay off the
  other card. The balance is transferred when you
  use one of these checks to pay the amount due on
  the other card.)
• Late-payment fee. Charged if your payment is
  received after the due date
• Over-the-credit-limit fee. Charged if you go over
  your credit limit

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More Fees

• Credit-limit-increase fee. Charged if you ask for
  an increase in your credit limit
• Set-up fee. Charged when a new credit card
  account is opened
• Return-item fee. Charged if you pay your bill by
  check and the check is returned for
  non-sufficient funds (that is, your check
  bounces)
• Other fees. Some credit card companies charge a
  fee if you pay by telephone (that is, if you
  arrange by phone for payment to be transferred
  from your bank to the company) or to cover the
  costs of reporting to credit bureaus, reviewing
  your account, or providing other customer
  services. Read the information in your credit
  card agreement to see if there are other fees and
  charges.

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Cash Advances

• These are cash loans one can get with a credit
  card. Theyre expensive, and unless its an
  emergency, they should be avoided for the
  following reasons
• They typically have an up-front fee applied when
  the money is issued which is often 3 of the
  advance or a minimum of 5 to 10.
• They usually have a higher APR.
• They typically are afforded no grace period and
  one is charged interest from the moment the
  advance is received.

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Convenience Checks

• These are pre-printed checks linked to your
  credit card account that are mailed to your home.
  
• They function like cash advances (up-front fee,
  no grace period, higher APR, and subject to the
  same payoff schedule) and should be avoided
  unless it is an emergency.
• Convenience checks should be destroyed before
  they are placed in the trash.

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Incentives and Special Features

• Many credit card companies offer incentives to
  use the card and other special features
• Rebates (money back) on the purchases you make
• Frequent flier miles or phone-call minutes
• Additional warranty coverage for the items you
  purchase
• Car rental insurance
• Travel accident insurance or travel-related
  discounts
• Credit card registration, to help if your wallet
  or purse is lost or stolen and you need to report
  that all your credit cards are missing

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Credit Score

• http//www.youtube.com/watch?vm8Dgu--CzGw
• Cute, but evil
• www.annualcreditreport.com
• Free credit report required by the government

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Understanding a Credit Card Application The
Schumer Box

• Named after Senator Charles Schumer (D- NY)
• Legislation enacted in 2000 which required the
  terms of credit cards be clearly visible to the
  consumer
• Requires that certain information be clearly
  visible in at least 18-point font
• Some important information is not required by law
  to be clearly visible
• This information is generally found buried deep
  within the fine print
• Ex Universal Default Clause

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Credit Card Application Analysis

• What Are You Really Getting Yourself Into?

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Credit Card Application Analysis

• APR
• Introductory
• Regular APR
• Fixed or Variable
• Cash Advance APR
• Balance Transfer APR
• Defaulted Account APR
• Grace Period
• Annual Fee
• Minimum Finance Charge
• Other Fees
• Late Payment Fee
• Over Credit Limit Fee
• Balance Transfer Fee
• Cash Advance Fee

Which credit card would you choose for yourself,
and give two reasons why. What do you still want
to know about credit cards and credit?
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Building good credit

• 1. Apply for a card!
• 2. Keep your balance low, and pay it off every
  month.
• 3. Keep balances to a small amount of your total
  borrowing ability.
• 4. Never, Ever, miss a payment.

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Dont Forget The Videos Mr. Man!!!
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Problems with Credit Card Use

• Credit cards arent problem-solvers, theyre
  problem-creators!

I guess I blacked-out! I knew I shouldve stopped
at Starbucks!
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Problems Faced With Credit Card Use

• Impulse Buying
• Overspending
• Identity Theft
• Bankruptcy

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Impulse Buying

• Remember that there is a difference between wants
  and needs
• Check monthly statements and see what you could
  cut out of your budget
• Fast food
• Shopping sprees
• Ex Mr. G at Wendys
• Just because youre not having to pay for it at
  the point of purchase does not mean its free

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Overspending

• Do not spend more than you know you have
• Do not take future income into account when
  figuring what money is at your disposal
• Something could always happen and stop you from
  being able to rely on that money
• Ex Car accident stops you from making it to work
• Ex Off-the-job injury stops your ability to
  carry out your job responsibilities

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Identity Theft

• If your credit card is lost or stolen--and then
  is used by someone without your permission--you
  do not have to pay more than 50 of those
  charges.
• This protection is provided by the Federal Truth
  in Lending Act. You do not need to buy credit
  card insurance to cover amounts over 50.
• If you discover that your card is lost or stolen,
  report it immediately to your credit card
  company. Call the toll-free number listed on your
  monthly statement. The company will cancel the
  card so that new purchases cannot be made with
  it. The company will also send you a new card.
• Make a list of your account numbers and the
  companies phone numbers. Keep the list in a safe
  place. If your wallet or purse is lost or stolen,
  youll have all the numbers in one place. Take
  the list of phone numbers--not the account
  numbers--with you when you travel, just in case a
  card is lost or stolen.

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Bankruptcy Chapter 7 13

• Chapter 13
• Requires federal financial reorganization by a
  federal bankruptcy court
• Debtor proposes a plan to pay creditors over a 3
  to 5 year period
• Creditors cannot attempt to collect on the
  individual's previously incurred debt except
  through the bankruptcy court
• Generally, the individual gets to keep his
  property, and his creditors end up with less
  money than they are owed
• Stays on credit report for up to 10 yrs
• 20,260 Ch. 13 filings in the first 9 months of
  2007

• Chapter 7
• Most common form in the US
• Cancellation of debt through liquidation of
  assets
• Funds from liquidation returned to creditors owed
• Stays on credit report for up to 10 yrs
• Certain property is exempt from liquidation
• 603,139 Ch. 7 filings in the first 9 months of
  2007

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Debt Management

• Always pay more than the minimum monthly
• Paying the minimum monthly payment only is the
  most costly way to pay off credit card debt
• Ex
• 1,000 debt _at_ 18 APR with Minimum paid Payout
  time of 7.8 years with payout of 1,862
• 1,000 debt _at_ 18 APR with Minimum paid 10
  Payout time of 3.9 years with payout of 1,397

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Choosing the right card

• What kind of card is appropriate for a student?

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What Should You Look For?

• Low APR
• No annual fee
• Long grace period
• Low penalty rates

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How to Use the Right Card

• Dont Skip Payments
• Pay on Time
• Dont Exceed Your Credit Limit
• Just Say No To Cash Advances
• Trash All Convenience Checks
• Be Wary of Teaser Rates

NO!
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Library Assignment

• Group of no more than 3
• One chart needs to be completed per group
• You may work individually
• Analyze the Schumer Box for 3 credit cards
• Answer the provided questions as a group