Credit Card Study Notes

Credit Cards

  • Introduction to Credit Cards
    • Questions to consider:
    • Do you or someone you know have a credit card?
    • What types of purchases should consumers make with a credit card and why?
    • Video discussion: Is credit card debt a threat?

Credit Cards vs. Debit Cards

  • APR (Annual Percentage Rate)

    • Definition: The annual rate charged for borrowing or earned through an investment, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.

  • Using a Credit Card

    • Tips on how to use a credit card effectively while avoiding interest charges.
    • Reasons for obtaining a credit card: Building credit, convenience, rewards, etc.

  • Eligibility

    • At what age can you:
    • Get your own credit card?
    • Become an “authorized user” on a parent’s credit card?

Minimum Payments

  • Minimum Payment Requirement
    • Definition: The “minimum payment” due on your credit card bill each month is usually:
    • 2% of the current balance, or at least $25.
    • Impact of paying the minimum:
    • While it maintains your credit score, analyze if paying more is a better strategy.

Choosing a Credit Card

  • Guidelines to Choose a Credit Card
    • Explore tools like creditcards.com to investigate options.
    • Important questions:
    • Would you qualify for the card you desire?
    • Credit Limit:
    • Definition: The maximum amount of credit that a financial institution extends to a client.
    • Rewards Programs:
    • Explanation: Credit card companies often offer “free money” rewards as incentives for card usage.
    • Types of rewards: Cash back, travel points, dining discounts, etc.
    • Identifying which rewards and features matter most to you.
    • Introductory APR:
    • Temporary lower rate offered when opening an account, often for the first year.

Student Credit Cards

  • Differences from Regular Credit Cards

    • Main distinctions and advantages/disadvantages:
    • Generally easier to obtain, lower credit limits, tailored for students.
    • Evaluation: Determine if you will apply for one and compare pros vs. cons.
    • In-depth investigation of recommended student credit cards with links provided to resources such as Best Colleges and Creditcards.com.

  • Homework Assignment:

    • Analyze the main differences between student credit cards and regular credit cards.
    • Decision-making: Would you prefer a student credit card or becoming an authorized user on a parent's account? Justify your choice.
    • Choose a specific student credit card and cite two specific reasons for your choice.

Checking Your Credit Report

  • Importance of Credit Reports
    • Content of a credit report: Overview of data included, such as payment history, outstanding debts, credit inquiries, etc.
    • Reasons for checking: Monitoring for accuracy, preventing identity theft, enhancing credit score.
    • Regulations:
    • The Fair Credit Reporting Act: Mandates that credit bureaus must provide one free credit report per year.
    • Link to access free reports via AnnualCreditReport.com.
    • Websites offering free credit scores: Credit Karma, Experian, etc.

Credit Reporting Agencies

  • Overview of Major Credit Reporting Agencies

    • Introduction to the three main agencies: Experian, TransUnion, Equifax.

  • Credit Reports and Scores

    • Definition of a credit score: A numerical expression based on a level analysis of a person’s credit files, representing their creditworthiness.
    • Usage: Credit scores are utilized by lenders, landlords, and sometimes employers to evaluate risk.
    • State law implications: Legally, in some states, landlords and employers may have access to your credit score.

Building a High Credit Score

  • Establishing Your Credit Score

    • Inquiry: How long it typically takes to establish your first credit score.
    • Factors to prioritize in building a high credit score: Payment history, credit utilization, length of credit history, types of credit in use, new credit inquiries.
    • Controllable vs. uncontrollable factors: Some aspects, like payment history, can be directly managed while others, like credit age, cannot.

  • Types of Credit

    • Differences between revolving credit (credit cards that allow for a balance to be carried) and installment credit (loans paid off in fixed installments).

Age and Credit Scores

  • Relationship Between Age and Credit Scores
    • Discussion on how age may correlate with credit scores: Older individuals often have higher scores due to longer credit histories.
    • Factors influencing this relationship: Length of credit history and financial experience.

Understanding Credit Reports

  • Components of a Sample Credit Report (Experian)
    • Types of credit accounts: Revolving accounts (credit cards), installment loans (student loans, mortgages), and open accounts.
    • Tracking: Which loans have been paid off, outstanding balances, and payment errors reflected.
    • Additional information: Notable items such as account inquiries and credit limit history.
    • Glossary of terms typically appearing in credit reports.

Advertisements on Credit Cards

  • Analyzing Credit Card Advertisements
    • Examination of features heavily promoted in various advertisements, e.g., promotional rates, rewards, benefits.

Actions to Take When a Card is Lost or Stolen

  • Steps to Follow:
    • Immediate actions if either your credit card or debit card is lost or stolen.
    • Procedures to follow in case of errors found on your credit report or bank statement.
    • Best practices for minimizing risk and protecting oneself from identity theft.