Chapter 6

1
Chapter 6 Credit Cards

• Extremely important but deceptively expensive
• Revolving borrow, repay then reborrow
• Minimum repayment and maximum outstandings
• Cost factors
• Interest rates, balance calculation, grace
  periods, annual fees and other fees and penalties
• APR must be disclosed fixed or floating rates

2
Credit Card Definition

• A means for buying something you dont need at a
  price you cannot afford with money you dont
  have.

3
Credit Card Fees

• Annual membership fee Missed payments
• Cash advance Bounced checks
• Over limit fees Merchant fees
• Problem hard to find fees
• Often buried in statement stuffers
• Grace period 20 to 25 days but .

4
Cash Advances and ATM's

• If charge ATM transaction against credit card
  Cash Advance Loan
• Debit transaction money comes from checking
  account
• Cash Advances interest rates higher than on
  purchases interest starts immediately

5
When to Use, When to Avoid

• Pros Cons
• Convenience Loss of spending control
• Emergency Very high cost
• Online purchases

6
Who Likes What
7
(No Transcript)
8
Types of Cards

• Bank and other cards Visa and Master Card
• Franchised provide authorization, accounting,
  statements, advertising
• Credit extended by issuing banks
• Variations Premium/prestige (platinum),
  affinity (Sierra Club), secured, TE
  (non-revolving) and single purpose (stores)

9
Credit Bureaus

• Organizations maintaining credit records
• Does not make credit decisions provides info
• Creditworthiness Do you get credit? Cost?
• Understand credit scoring -required reading
• You also need to obtain your credit report and
  score for this class see instructions.

10
Credit Scoring

• Credit file and score used to make decisions
  about loans, interest rates, sometimes
  employment.
• FICO score (Fair Isaac) between 300 to 850
• Inaccurate info can hurt so verify
• Activity you did not initiate may indicate
  identity theft

11
(No Transcript)
12
Score Based On

• Payment history most important
• Amounts owed
• Length of credit history
• New credit requests
• Types of credit used

13
FICO Scores Loan Rates

• 500- 560- 620-
  675- 700- 720-
• 559 619 674 699 719
  850
• 30 Year
• Mortgage 9.3 8.5 7.4 6.3 5.7
  5.6
• 48 Month
• New Car 15.9 14.7 10.5 8.0
  5.9 5.1
• Monthly payment on 500,000 Mortgage
• _at_ 9.3 4,132 _at_5.6 2,870
• Lifetime savings 454,178

14
Credit More than a ScoreDiffers by Lender and
Loan Type

• Ability to pay
• Income, time employed, other debt
• Assets and Liabilities
• Personal info age, schooling, history
• The Five Cs
• Character, Capacity, Capital (assets and
  investments), Collateral and Conditions

15
(No Transcript)
16
Identity Theft

• When someone steals your identity and
  impersonates you to open credit accounts
• One of the fastest growing crimes
• Dont know when this happens until collector
  calls or you review your credit report
• Devastating financially and emotionally

17
Credit Bureaus and Your Rights

• Fair Credit Reporting Act (1971)
• To ensure accuracy
• 70 have negative remarks 50 inaccurate
• You should check every two years
• If inaccurate, bureau must correct

18
Rejected ?

• Find out why just have to ask
• Worth the effort. If records inaccurate must
  correct.
• Credit repair services too often fraudulent
• Billing errors
• Must notify creditor within 60 days of statement
  lender must resolve within 90 days

19
Consumer Credit LawsSomething You Should Know

• Truth in Lending Acts (3)
• Fair Credit Billing Act
• Fair Debt Collection Practices
• Fair Credit Reporting
• Equal Credit Opportunity Acts (2)

20
Controlling and Managing Credit

• Reduce balances how long to pay off?
• Protect against fraud
• Report loss immediately
• Not responsible if loss reported before use
  otherwise 50
• Don't make account number available
• Trouble signs - see page 187
• Use card responsibly so it doesn't get out of hand

21
(No Transcript)
22
(No Transcript)