Financial Lit Credit Cards

When goods, services or money is received in exchange for a promise to pay a definite sum of money at a future date. What is this?

Credit

a person or organization that is receiving money. What is this?

Borrower

person or organization who has the resources to provide the borrower money (often referred to as YOUR __**creditor**__)

Lender

an individual’s ability and willingness to pay the money back (often measures your credit score, also known as your __**FICO score) What is this?**__

creditworthiness

What is the FICO score range?

300-850 (Fico is made up of credit card payments)

What is the price paid for borrowing money?

Interest

When borrowing on credit or with a credit card, the borrower normally pays back in…

monthly payments

When borrowing on credit, how much should you pay back?

ALWAYS pay back MORE than the original amount of the purchase (12-18% more)

Known as loans, one time loan with specified purpose, ex includes car loan and mortgage, had number of specified equal payments, loan amount agreed upon during loan process. What type of credit is this?

Closed-End-Credit

Known as credit cards, credit is extended in advance, variety of equal purposes, usually paid in a series of equal or non equal payments, has credit limit, limit can change based on credit history and worthiness, these can promote overspending. \*\*\*\*Credit cards, interest rates, and limits can chance on one card if you default on another card

Open end credit

A pre approved credit which can be used for the purchases of goods and services BUY NOW, PAY LATER

credit card

How are credit cards issued? How are the typical logos?

Issued through banks; Visa, Mastercard, Discover and those companies process the payments to the bank

You can continues to borrow as long as….

credit limit is not exceeded

What portion of the credit card credit limit should you not exceed? Exceeding will make the consumer look desperate, reliant on credit, a credit risk, and irresponsible

1/3

What causes credit limit to vary?

cardholder’s perceived creditworthiness

What is the rate at which interest is charged? And what is the average?

APR; 19.49%

What is a trap to many because of its small owed percentage? What is typically owed? What should you do?

Minimum payment; 2.5-5% of owed amount; much more than the min.

What are the advantages of credit cards?

\-establish credit for larger purchases

\-helpful in emergencies

\-purchase big-ticket items and spread out payments

What are credit card disadvantages?

\-creates debt and overspending

\-obligates future income

\-interest rates are ridiculous and high

What is credit card approval based on?

\-The borrower’s creditworthiness which is based on the credit report and credit score.

A record of a consumer’s credit history that includes information about credit card use as well as the use of other types of credit?

Credit score

Positive credit history, report, and higher credit score is due to…

proper credit cared use

If you have a higher credit score, what can you expect?

__**Lower interest rates on both loans and credit cards, easier approvals, better rates on insurance, greater employability, opportunity to shop around for credit**__

Negative credit history, report, and a low credit score is due to…

Improper credit card use

If you have a low credit score, what can you expect?

\n \n __**Difficulty getting loans, much** **higher interest rates, difficulty renting, or ng higher insurance, difficulty getting a** **job, viewed as high risk**__

What are the positives of using credit cards?

•**Pay credit card bills in full**

•**Pay credit card bills on time**

•**Apply for minimum number of credit cards (1-2)**

What is the negative to credit card use?

•**Paying only the minimum payment**

•**Paying bills late**

•**Exceeding credit card limit**

Is having NO credit a good or bad thing?

__**-BAD!!!**__ 

\-no credit is just as bad as having bad credit

-Any creditor will evaluate if you are a credit risk

\-Having no credit tells creditors nothing w no basis if you are a credit risk

\-No credit will usually result in credit refusals.

Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format…

Schumer box

What is a fixed rate?

APR doesn’t change

What is a variable rate?

The APR rate changes based on economic conditions OR your credit

Is a variable or fixed rate better?

Fixed is better. (Know what to expect, payment amt for longevity of loan)

What is an introductory rate?

\-APR that may be charged after a credit card is opened (often called a __**teaser rate**__)

\*\*Rates increase when introductory rate is over

\*\*if terms say 0% for a stated period of time and  you don’t pay off within that stated period of time, you are usually charged back interest for the entire purchase (this is expensive)

\*\*introductory rate can be reversed if contract terms not met

\*\*not all cards offer an intro rate

What is balance transfer?

transfer debt from one card to another

When you withdraw cash against the credit cared limit?

cash advance

What is penalty APR?

__**Interest rate charged on new transactions if the penalty terms in contract are not met**__

What is the time between the due date and the billing date in which no interest is charged? How long is it typically? Why is this time period nice?

Grace period; 21 days after deadline (this is when you can pay off your credit card without paying interest)

What is is a yearly fee charged for having the credit card?

Annual fee

\
\-Most cards have this and this fee is deducted during your first payment/credit limit. 

\-So if the annual fee is $50 and your credit limit is $300, you have $250 available credit and that $50 has to be paid upfront.  Many cards have annual fees even if you don’t use them!

What is an interest rate?

Percentage paid to a lender for the use of borrowed money (in debt); percentage earned on invested principle (in investing/saving)

What is charged when a cardholder does not make the minimum monthly payment by the due date ? Usually how much?

late payment fee; $30

What is charged if the account balance goes over the preestablished credit limit?

over the limit fee

What do credit card companies send in the mail when the individual has passed their initial credit check?  Most people receive TONS of them regularly. How should they be discarded?

__**-pre-approved**__ credit card applications

\-They should be shredded!

What is a is a monthly statement you receive that outlines important information and transactions on your credit card?

credit card statement

What are the 6 most important credit card tips?

1\. Write please see id after signature.  This helps with ID theft.

2\. Don’t leave cards lying around and report lost/stolen if needed

3\. Close unwanted accounts and cut up the cards

4\. Don’t give out account #s carelessly

5\. Keep a list of all cards, account #s, and phone #s

6\. Shred all pre-approved offers and applications

Summarize the Truth in Lending Act:

__**US federal law designed to promote informed use of consumer credit by disclosing terms and costs**__

Summarize the Fair Credit Billing Act: 

__**US federal law that lays out consumer rights to dispute charges**__

When reviewing a credit card statement, What is the past due amount?

the min payment due not paid by the due date

WHat are two specific types of credit not open and closed?

what is the largest component of your credit score?

how much more do you spend w credit than in cash?