Credit and Debit Quiz

Difference between Credit and Debit

Debit card deducts your existing funds from a checking account for a purchase

Credit card deducts the amount of a purchase from your line of credit


Credit

Accreditation

Credible

Credibility

Credential

Credo

Discredit

Incredible


What is financial credit?

Credit score 

A measure of how believable it is that you will pay them back


High credit scores:

  • Pay bills on time

  • Uses credit responsibly

Low credit scores:

  • Late paying bills

  • Missed payments

  • Defaulted on a loan

  • Often gets charged more interest or given less

Line of credit:

What is credit?

  • Where does your credit come from?

    • When you borrow money from a bank or a credit card company, you’re borrowing and payments get reported to three bureaus: TransUnion, Experian, and Equifax

    • They use an algorithm which comes from a company called FICO (fair isaac corporation) that gives you a score from 300 to 850

When is it checked besides by loaners?

  • Landlords may check credit score to decide whether to rent an apartment to you

  • Employers may check your credit score as part of a background check

  • Utility companies may check your credit score to decide whether to require a deposit from you when you sign up for service


How to start building credit?

  • Be interested

  • Use budgeting/planning as a tool to live within your means

  • Have in interest in spending wisely

  • Know the basics of money management

  • Control impulse and be satisfied with delayed gratification

  • Start before 18 years old with a secured credit card

    • You’re not responsible for it; parents are

    • Don’t even need to use…just be listed as an authorized user

  • Being 18 and applying for a credit card or loan

    • Having a job helps

    • Having parents cosign a loan (car?) helps

    • Credit-building or Alternative Credit cards

  • Building Credit

    • Credit history

    • Credit score

      • Factors which affect credit

        • Payment history

        • Credit utilization 

        • Pay on time, don’t carry a balance

        • Use less than 30% of your line of credit 


Using both credit and debit cards – good practices

  • Have both and use each at the right time

    • Don't use debit cards day to day

    • Use debit cards only for ATM cash withdrawals

      • Only use ATMs that you know and trust

    • Some vendors don’t take cc’s for small transactions

      • Bigger transactions yield smaller fees

      • High interest rates on credit cards at ATMs

    • Pay credit card in full - no interest

      • Interest rates are like 20%

      • Deregulation of banking 

    • Decline overdraft protection on Debit

      • $35 fee as opposed to transaction being blocked

      • Multiple fees can happen per day

      • Congress enforced the option of declining overdraft protection

    • Consider needs and spending habits 

      • If you are carrying a credit balance other than $0, use your debit card (if not paid off in full, don’t use it)

      • If you have a $0 balance on last statement, use credit

    • Compare credit cards

      • Annual fee

      • Purchase APR (percentage rates)

      • Balance transfer APR

      • Rewards programs

      • Fees (foreign transactions, late payment, etc.)

      • Customer service ratings

    • Monitor your credit score

      • Be empowered as a consumer

      •  Credit card issuers use credit score to determine whether or not to approve you

    • Pre-qualify for credit cards

    • Apply for a credit card

  • Using credit cards: pros and cons

    • Pros:

      • Extra time to pay for pay for purchases

      • Makes large purchases easier

      • Convenient for emergencies

      • Credit cards offer rewards and extended warranties

    • Cons

      • If not used mindfully, it’s easy to get into a debt trap

  • Using debit cards: pros and cons

    • Pros:

      • Avoid increasing debt

      • Pay now rather than getting a bill later

      • Easy access to cash (ATM)

    • Cons:

      • No protection for a purchases


  • Factors which affect credit:

    • Payment history: 35%

    • Amounts owed; use less than 30% of your line of credit: 30% 

    • Length of credit history: 15%

      • The longer your credit history, the higher your credit score

    • Credit mix/types of credit: 10%

    • New credit: 10%