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USE CREDIT WISELY

USE CREDIT WISELY. Consumer Action created this project in partnership with. Advantages of Credit. What can credit do for you? Help you through a financial emergency Enable you to pay for a purchase over time Provide a short, interest-free loan Enable you to rent a car, hotel room, etc.

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USE CREDIT WISELY

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  1. USE CREDIT WISELY Consumer Action created this project in partnership with

  2. Advantages of Credit • What can credit do for you? • Help you through a financial emergency • Enable you to pay for a purchase over time • Provide a short, interest-free loan • Enable you to rent a car, hotel room, etc. • Offer convenience, security when shopping • Rebates or rewards • Allow you to avoid carrying cash • Allow you establish credit/build good credit

  3. Types of Credit Installment Credit • Fixed number of monthly payments • Car loans, mortgages Revolving Credit • Short-term, open-ended • Assigned credit limit • Available credit fluctuates as you make purchases & payments • Option to make full or partial payment • HELOCs, credit cards

  4. Card Types Credit, charge & debit cards • Visa, MasterCard, Discover • Affinity cards • Rewards cards • Secured cards • Retail and gas cards • Stored value (prepaid) cards • Charge cards • Debit cards

  5. Credit Card Terms • Credit limit • Method of computing the balance • Minimum payment • Payment due date • Grace period • Interest rate • Fees

  6. Credit Card Terms: Interest • The lender’s fee for allowing you to use its money • Expressed as a percentage of the credit • Fixed vs variable interest rate • Annual percentage rate (APR) • Periodic interest rate • Different rates for a single card: • Teaser • Cash advance • Purchase • Penalty/Default • Balance transfer • Effective interest

  7. Credit Card Fees • Application fee • Annual fee • Balance transfer fee • Cash advance fee • Currency conversion fee • Late fee • Overlimit fee • Bounced check/returned item fee • Miscellaneous fees

  8. Activity: Credit Card Jeopardy • Break into three groups • Choose one person on your team to “buzz” in when you think you have the correct “question” to the answer • A correct answer earns the point. An incorrect answer loses a point and allows another team to “steal” the point. • Remember to phrase your answer in the form of a question.

  9. Credit Card Billing Statements • Opening/closing date • Past due amount • New balance • Minimum payment due • Due date • Account summary • Transactions • Rewards information • Explanation of finance charges • Effective APR

  10. Food for Thought • In 2007, credit card customers who revolved their debt (didn’t pay the balance in full each month) paid $18.1 billion in penalty fees to credit card companies. Source: “Don’t Get Clobbered By Credit Cards,” by Gary Weiss

  11. Comparing Credit Cards • Credit limit • Purchase APR • Balance transfer APR • Cash advance APR • Promotional APRs • Penalty APR • Variable-rate info • Grace period • Annual fee • Transaction fees • Penalty fees • Balance computation method • Minimum finance charge • Rewards

  12. Obtaining Credit • Pre-approved offers • Invitations to apply • Instant credit • Consumer-initiated application • Banks, credit unions, retailers, card companies, and other institutions • Compare offerings, terms • www.consumer-action.org • www.bankrate.com • www.cardtrak.com • www.cardratings.com

  13. Using Credit Wisely • Know your credit limit and don’t exceed it • Charge only as much as you can repay • Pay more than the minimum, if possible • Pay by your due date (and time!) • Use a debit card, not a credit card, to get cash • Don’t accumulate too much debt • Avoid penalty fees and rates • Consider optional fee-based services carefully • Contact a credit counselor (www.nfcc.org or www.aiccca.org)

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