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Warm-up: April 15 (tax day)

Warm-up: April 15 (tax day). What is the purpose of balancing a check book?. Warm-up: April 16 (day 2). Which of the following items includes things that are created by people for use in future production? -Capital -Entrepreneurship -Labor -Land

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Warm-up: April 15 (tax day)

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  1. Warm-up: April 15 (tax day) • What is the purpose of balancing a check book?

  2. Warm-up: April 16 (day 2) • Which of the following items includes things that are created by people for use in future production?-Capital-Entrepreneurship-Labor-Land • If someone steals your credit card and uses it to buy a Segway at the cost of $3,000, how much are you responsible for? • What is the advantage most people like about paying with a credit card?

  3. Warm-up: April 17 (day 3) • What is a Schumer Box? • What does APR stand for? • What is a balance transfer?

  4. Understanding a Credit Card

  5. What is Credit? Credit- when goods, services or money is received in exchange for a promise to pay a definite sum of money at a future date Credit is derived from the Latin word “credo” meaning “I believe”

  6. Obtaining Credit Lender determines whether to grant the borrower credit based on perceived creditworthiness Borrower requests to receive credit from a lender Borrower is in need of credit Lender-person or organization who has the resources to provide the borrower money Creditworthiness- an individual’s ability and willingness to pay the money back Borrower- person or organization that is receiving the money

  7. Paying Back Credit Borrower is usually expected to pay interest in addition to the money borrowed If approved, the borrower will receive money from the lender Borrower pays money back Interest - the price of money

  8. Different Forms of Credit How are these forms of credit different? VS. Open-end Credit Closed-end Credit

  9. Closed-end vs. Open-end Credit A one-time loan Credit extended in advance May be used for a variety of purposes Specified in application

  10. Closed-end vs. Open-end Credit Varies- can be paid in one payment or a series of equal or unequal payments Specified number of equal payments Agreed upon during the application process May be increased Mortgage, automobile, education loans Credit cards

  11. What is a Credit Card? Buy Now, Pay Later Pre-approved credit which can be used for the purchase of goods and services now and payment of them later • May continue to borrow as long as the credit limit (maximum dollar amount loaned) is not exceeded Credit limit varies based upon the cardholder’s perceived creditworthiness

  12. Credit Card Interest Interest is charged each month the balance is not paid in full • Rate at which interest is charged is referred to as: • Annual Percentage Rate (APR) • The cost of credit expressed as • a yearly interest rate

  13. Minimum Payments • Required to make at least a minimum payment each month • Usually only a small percentage (2.5-5%) of the total balance due

  14. Minimum Payments To prepare for her first semester of college, Miranda purchased a new computer for $1000 and textbooks for $500, spending a total of $1500 on her credit card charging 15% APR. How much would Miranda pay in interest if she makes the minimum payment? $0 $1500 1 month $1500 $135 1 year $125 $1625 $30 $2913 11 years $1413

  15. What is a Debit Card? • Plastic card which looks like a credit card but is electronically connected to the cardholder’s bank account • Money is immediately withdrawn from the cardholders checking account What is the difference between a credit card and a debit card?

  16. NO Credit • If an individual has not used credit, they will not have any information in their credit report • Not having a credit report can cause an individual to be denied credit

  17. Credit Card Offers Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format Called the Schumer Box Must direct to the Federal Reserve website (http://www.federalreserve.gov/creditcard/)to obtain more information about credit cards

  18. Credit cards may charge many different types of interest rates • Annual Percentage Rate (APR) for Purchases • Interest rate paid for purchases • Multiple interest rates may be listed - final interest rate may depend on creditworthiness of applicant

  19. Fixed vs. Variable-rate APR • Fixed-rate APR- cannot change during the period of time outlined in a credit card agreement • Variable-rate APR- may change depending on other factors (such as economic conditions) What is the APR for Purchases for this credit card offer? 14.99% Is this a variable-rate APR or a fixed-rate APR? Variable-rate APR

  20. Introductory Rate • Introductory rate- APR that may be charged after a credit card is opened • Will have a different APR (usually higher) after the introductory period ends • Not all credit cards have an introductory rate What is the introductory rate for this credit card offer? The introductory rate depends on the creditworthiness of the applicant, but it will be 12.99%, 13.99%, or 14.99%

  21. APR for Balance Transfers & Cash Advances • Balance transfer - act of transferring debt from one credit card to another • Cash advance includes withdrawing cash from an ATM using a credit card • Balance transfer and cash advance fees may also apply (even if the APR is 0%)

  22. Penalty APR and • When it Applies • Discloses the penalty APR and the penalty terms that trigger it to take effect • Penalty APR - interest rate charged on new transactions if the penalty terms in the contract are triggered What is the Penalty APR for this credit card offer? 28.99%

  23. How To Avoid Paying • Interest on Purchases • Explains how you can avoid interest charges by paying credit card bills in full every month • Minimum Interest Charge • Typically range from $0.50 to $2 per month

  24. Credit cards may charge many different types of fees • Set-up and Maintenance Fees • Any set-up and maintenance fees for the card • Annual fee- a yearly fee that may be charged for having a credit card What is the annual fee for this credit card? $20

  25. Transaction Fees • Discloses any transaction fees for the card • Balance transfer fees • Cash advance fees • May be charged in addition to APR

  26. Penalty Fees • Discloses the penalty fees for the card (in addition to Penalty APR) • Late-payment- charged when a cardholder does not make the minimum monthly payment by the due date • Over-the-limit-charged if the account balance goes over the set credit limit

  27. How we calculate your balance • Credit card companies can use one of several methods to calculate the outstanding balance on a credit card What method is used to calculate the balance on this card? Average daily balance (including new purchases)

  28. Loss of Introductory APR If the card has an introductory rate, this area will list how the lower introductory rate can be lost How can the introductory APR be lost on this card? If the cardholder is more than 60 days late in paying the bill What APR will the cardholder be charged if the introductory rate is lost? The Penalty APR of 28.99%

  29. Credit Card Benefits • Make sure to know all terms and conditions • May charge fees or higher interest rates

  30. How do I obtain a credit card? Credit card companies send pre-approved credit card applications in the mail when the individual has passed their initial credit check

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