Individual Financial Planning and Credit Cards

Flashcards covering individual financial planning concepts including credit card interest calculations, Penalty APR rules, and FICO score components.

Young Adult Financial Confidence (Ages 18-25)

8 out of 10 young adults are confident in managing day-to-day expenses ($77\%$), building a budget ($73\%$), and managing debt ($72\%$), but are less confident in maximizing compound interests and investing in stocks and mutual funds.

Penalty APR

Significantly higher interest rates applied to credit card balances when a user fails to make timely payments (minimum payment), has insufficient funds, or exceeds the credit limit.

Highest Penalty APR

$$29.99\%$$

21-Day Rule

By law, banks must provide a minimum of 21 days from the end of the billing cycle to when the payment is due.

45-Day Notice

The federal law requirement for banks to notify a customer at least 45 days before a penalty APR is applied.

60-Day Late Payment Rule

Penalty APR goes into effect only after a cardholder has failed to make a payment for at least 60 days.

Daily Interest Rate Calculation

Annual Percentage Rate divided by 365 days; for example, $\frac{23.95\%}{365} = 0.0656\%$.

Average Daily Balance Calculation

Current amount owed on the credit card divided by the number of days in the billing cycle; for example, $\frac{\$43,572.09}{30} = \$1451.40$.

Interest Charged Formula

$\text{Daily Interest Rate} \times \text{Average Daily Balance} \times \text{Days in Cycle}$.

Five Categories Used to Calculate FICO Score

1. Payment History (listed as %-65), 2. Amount Owed, 3. Length of credit history ($15\%$), 4. Credit Mix ($20\%$), and 5. New Credit.

Credit Utilization Ratio

The percentage of credit used compared to available credit, which is recommended to be less than $30\%$.

Length of Credit History Factors

Includes the age of the oldest account, the age of the newest account, and the average age of all accounts.

Credit Mix Examples

Credit cards, mortgages, car loans, student loans, and lines of credit.

2024 Financial Education Statistics

Parents with children under 18 teach kids about saving money ($56\%$), the value of money ($49\%$), and spending habits ($42\%$).