credit cards and credit-fin lit

Annual fee

A yearly fee that may be charged for having a credit card

Annual Percentage Rate (APR)

The cost of credit expressed as a yearly interest rate

Balance transfers

The act of transferring debt from one credit card account to another

Credit Card

A plastic card that you can use to access a line of credit that has been established in advance

Credit limit

The maximum dollar amount that can be borrowed

Introductory rate

The APR charged during the credit card's introductory period after a credit card account is opened

Late payment fee

Fee charged when a credit card holder does not make the minimum monthly payment by the due date

Over-the-limit fee

Fee charged if the credit card account balance goes over the set credit limit

Penalty APR

The interest rate charged on the new transactions if the penalty terms in the credit card contract are triggered

Pre-approved

When someone has passed an initial credit history check

Returned payment fee

Fee charged if the cardholder makes a payment but does not have enough money in that account to cover the payment

Schumer Box

Terms and fees of a credit card in an easy to read box on all credit card applications and solicitations

Variable-rate APR

An APR (annual percentage rate) that may change depending on other factors

credit

a loan - when goods, services, or money is received in exchange for a promise to pay a definite sum of money at a future date

borrower

the person/organization receiving the loan

lender

the person/organization who has the resources to provide the borrower with the loan

creditworthiness

an individual's ability and willingness to pay the money back (must have an income)

interest

the charge in the form of a percentage for the use of a loan. (the lower the rate the better)

closed-end credit

a one-time loan with a specified number of equal payments (based on months to pay loan); the purpose is specific and the amount is agreed upon-ex: educational loans

open-end credit

a credit extended in advance that can be paid back in one payment or multiple; the purpose is non-specific and the amount may be increased (interest is added monthly)ex: credit cards

minimum payment

the required payment per month; usually a small percentage of the total balance due

advantages of using a credit card

• convenient payment tool

• useful for emergencies

• often required to hold a reservation (hotel)

• ability to purchase "big ticket" items and spread out payments

• protection against fraud

• opportunity to establish a positive credit history

• online shopping is safer than using a debit card

disadvantages of using a credit card

• 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 can lower your credit score

credit score

a number that summarizes and individual's credit record and history; a numeric "grade" of a consumer's financial reliability

examples of positive credit card use:

• paying credit card balances in full every month (if not, pay more than the minimum

• paying credit card bills on time

• only applying for credit cards that are needed

• keeping track of all charges by keeping receipts

• checking the monthly credit card statement for errors

examples of negative credit card use

• making late credit card payments (penalty fees, higher interest rate, damaged score)

• paying only the minimum payment

• exceeding the card's credit limit, triggering a penalty fee

• charging items that can't be paid off immediately

• owning too many credit cards

personal benefits to using credit cards

• cash rebates

• warranties for items purchased with the card

• travel accident insurance

• products and services (frequent flyer miles)

• less fees

four steps to receiving a credit card

1. compare different credit card offers and determine which to apply for

2. complete a credit application, a form requesting information about a person's ability to repay, and the applicant's age

3. the lenders conduct a credit investigation (all financial data

4. either approved or denied

payment information

the total new balance, the minimum payment amount, and the date payment is due

transactions

a list of all the transactions that have occurred since the last statement

safety tips for protecting credit cards & information

• sign the back with your signature

• do not give out account numbers

• keep a list of all cards

300, 850

Credit scores range from ______ to ______.

Pawn loan

Loans made in exchange for property held by lender until repayment is made

Payday Loan

a relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next paycheck.

Refund anticipation loan

a short-term loan based on the expected amount of a tax refund.

Rent-to-own Agreement

a contract in which a portion of the rent payment is applied toward the purchase price of the rented item

Title loan

The borrower gives the lender his/her automobile title in exchange for a set amount of cash. The lender holds the title until the loan is repaid. If the loan is not repaid as agreed, the lender keeps title to the item.

How old do you need to be to get a credit card?

How can a consumer avoid paying interest on a credit card?

Develop a good credit scorePay bills on time
Maintain a good credit score
Be conscious about how you're spending your money
Pay the annual fees

What happens if a cardholder makes a late credit card payment?

Intrerest rate goes up.

Additional fees.

Credit score goes down.

A trend of bad credit history can start.

Examples of Closed Ended Credit

1. Mortgage

2. Automobile Loan

3. Student Loan

Example of Open Ended Credit

Credit Card