Presentation Transcript

1. Charge It Right FDIC Money Smart for Young Adults Building: Knowledge, Security, Confidence
2. What is the first thing you think of when you see the words… CREDIT CARD
3. Cash, Credit, or Don’t Buy?
4. Corkboard ME… Copy the address on the SMART board and post two things you know about credit cards… Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!
5. What is Credit? Opportunity to obtain money, goods or services without having cash in exchange for promise to pay in future. Credit 101 Quiz
6. History of Credit According to Encyclopedia Britannica "the use of credit cards originated in United States during 1920s, when individual firms, such as oil companies and hotel chains, began issuing them to customers." However, references made as far back 1890 in Europe. Around 1938, companies started accepting each other's cards. Today, credit cards allow you to make purchases with countless third parties.
7. Credit Card Characteristics Convenient form of borrowing 1959: Bank of America introduced 1strevolving credit card Make unlimited number purchases up to pre-approved amount When pay, amount goes back up to limit Require a minimum payment each month Percentage of balance
8. Debit Card & Prepaid Card Characteristics Debit Card: Introduced 1984 Tied to checking account Immediately withdrawn Prepaid Card: Put money on card Pay as you go until 0 value Reload card with more money
9. Activity 2: Which Card is This? Credit cards Debit cards PrePaid cards Load card with money and pay as you go PrePaid Card Tied to checking account Debit Card Has a spending limit and can be paid back over time? Credit Card
10. Secured and Unsecured Cards Secured Cards (most credit cards are this type) Require collateral or deposit to obtain credit $500 limit and $500 in savings Can get secured credit with no credit history or negative history
11. Secured and Unsecured Cards(cont’d.) Unsecured Cards Do not require collateral or deposit to obtain credit Usually need good credit history
12. Student Credit Cards Low (or no) introductory interest rates Average interest rate: 14.99% Cash back bonuses Some offer no income requirements and no co-signer needed Typically low credit limit Often no annual fee
13. Rewards Cards Are offered by hotels, airlines, and/or your credit card company directly Earn points for amounts charged on card toward free or discounted travel, hotel, or other goods and services Usually charge annual fee May give cash rebates Average Interest Rate: 14.48%
14. Some Quick Statistics Average credit card debt: $15,799 18-24 year olds declaring bankruptcy 96% increasein the last decade In 2011: = 1,571,183 Bankruptcy Filings
15. More Statistics Missouri: 22,220 bankruptcy filings in 2011 77 percent of the adult population of the U.S. has credit card Most Americans have four or more credit cards About 60% consumers pay off bill in full each month 2009: $20.5 billion in penalty fees Average undergrad has $2,200 in credit card 56% of undergrad obtained first credit card at age 18 Additional facts
16. Pre-Approved Card Offers Offers from creditors that you might be able to get advertised interest rate and limit based on viewing your credit report Actual terms depend on income, employment and credit history National Average Interest Rate: 14.89% (2011) Bad Credit Interest Rate: 27.99% (2011)
17. Pre-Approved Offers “Pre-approved” but must still qualify for card Read agreement carefully Shop around! Don’t always take first offer May be hidden costs such as transfer fees There are NO Guarantees!
18. Before Applying… Decide what use for Not free money Loan and must pay back with INTEREST Find out interest rates and credit limit Opt out prescreened offers Call 888-5-OPTOUT www.optoutprescreen.com Shred unwanted applications
19. Where can you find credit card offers? Email Direct mail Online ads/pop-ups Retail store check out lines Magazines Newspaper Booths at sporting events, theme parks Booths or tents at colleges Malls
20. How do credit card companies sell you to get their card? Low or 0% introductory rates Cash back bonus No annual fees Personalized or stylized cards Free products Hats, t-shirts, reduced air fare tickets
21. Shopping for the Best Deal Hand out Sample Credit Card Forms
22. The Fair Credit & Charge Card Disclosure Act Requires lenders to disclose APR, cash advances, and annual fees Must include box describing key features and costs and disclose terms in writing Schumer Box More Info…
23. APR (Annual Percentage Rate) Cost of borrowing money Low Introductory rates Teaser Rates Must state how long introductory APR lasts APRs are fixed or variable Charge different rates for different types of transactions
24. APR (Annual Percentage Rate) (cont’d.) Penalty APR Increase in APR if payment is made late or exceeds credit limit Penalty APRs are about 52% higher than regular APRs Universal Default If you are late paying other loans (such as house, car, phone, APR rate will increase on card policy, even if credit card payment was not late No longer effective: July, 2010
25. Fees Annual fees Late fees Over-the-limit fees Balance transfer fees Cash advance fees
26. Grace Period Specified number of days to pay your balance before credit card company starts charging interest and fees Free 25 days Grace Period Costing you money!
27. Balance Computation Method States how interest is determined Most common is average daily balance method
28. Cash Advance
29. Balance Transfer Moving unpaid debt (amount of money you owe)from one card to another Encouraged by some companies using low rates on transferred balances Be weary of transfer fees!
30. Truth in Lending Disclosure Mandates disclosure of information about cost of credit Finance charge APR Payments and payment schedule Protects against unauthorized use If lost or stolen, max. amount liable $50
31. Other Factors to Consider Customer service Access to account Information Bill Payment Update personal information Problem resolution Additional protection Lose your job& unable to pay bills Lose card Identity is stolen
32. Tips to Think About When Choosing a Card How and when you will use card Start small Understand terms before accept card Beware of introductory rates Beware of application fees Understand fixed and variable rates Credit Card Simulator
33. Application Requirements Individual credit – based on assets, income, and credit history Joint credit – based on assets, income, and credit history of two people who apply Typically, you must be at least age 21 to apply
34. Credit Report – A record of how you paid your debts…
35. Credit Report – What’s on it? A record of how you paid your debts… Identifying Information Name, current and previous address, SS number, DOB, current and past employers, spouse info Credit Information Accounts with banks, retailers, credit card issuers, utility companies, mortgage, student loan, Date opened, Credit limit, Co-signers Payment pattern over past two years Public Record Information Bankruptcy, tax liens, monetary judgments Recent Inquiries Name of those who obtained copies of your credit report within past year
36. Credit Report – What is it? A record of how you paid your debts…
37. Credit Reporting Agencies Fair Credit Reporting Act Requires each of 3 agencies to provide FREE copy of report Equifax Sample Experian Sample TransUnion www.annualcreditreport.com
38. You may also get FREE copy if… Denied credit, insurance or employment Unemployed and plan to look for job within 60 days Receiving public assistance Report inaccurate b/c of fraud or identify theft
39. Credit Score Determines credit risk Determined by your credit report Two types FICO (Fair Isaac Corp) VantageScore Check your score before applying
40. FICO Score Scores range from 300 to 850 The higher your score, the better
41. VantageScore New as of March 2006 Used by all three reporting agencies Should be the same score from each agency Scores range from 501 to 990 Number score goes with a letter grade Example: 501-600 = F, 901-990 = A
42. Denial Notice Also called an “adverse action” notice Tells why credit is denied: Poor credit history Not at current address or job long enough Income not high enough 60 Days to contact credit bureau to receive free copy of credit report!
43. How long does information stay on my credit report? Suits, judgments, tax liens, arrest records, collection agencies 7 years Bankruptcy 10 years You have right to dispute any incorrect information with credit agency and/or company
44. Using Your Credit Card Responsibly Protect card and account numbers Draw line through blank spaces on charge slips Tear up or shred receipts with numbers on them Keep a record of account information Carry only cards you think will use Avoid having more than two cards! Pay off balance monthly Do not exceed credit limit
45. Need Help with Credit Card Problems? Pay off high interest rate loans first! Pay using cash or check Credit counselor Enroll in DMP (debt mgt program) Regular, timely payments 48 months or more Beware of Debt Consolidation traps
46. Lost or Stolen Credit Card Lost or stolen – Notify credit card company immediately Do not give personal or account information over phone Suspect fraud – Notify credit card company immediately Liable for at most $50 per card if notify immediately If contact before any unauthorized charges made, liable $0
47. Identify Theft Make charges to account without knowing Take years to clear up Be careful providing personal info on-line over phone FTC ID Theft video
48. Paying Your Bill: The Credit Limit Credit Limit: maximum amount creditor is lending you Charged over-the-limit fees May reduce credit score $ Fees $ Credit Limit
49. Minimum Payment Practical Money Skills
50. You need a current newer calculator such as T1 Finance Charge Calculation APR= 18%; 30 days; $200 balance Divide Interest rate by 365/year .18/365 days = .000493151 (daily interest rate) Take the daily interest rate and multiply it by the number of days between billing cycles. .000493151 X 30 days = .014794521 (periodic interest rate) Multiply balance by periodic rate $200 X .014794521 = $2.96 finance charge
51. Try this… APR = 15% Balance = $1500 Finance Charge = APR = 12% Balance = $250 Finance Charge = $18.49 $2.47 30 Days APR = 18% Balance = $500 Finance Charge = APR = 10% Balance = $2800 Finance Charge = $7.40 $23.01
52. Fair Debt Collection Practices Act Prohibits debt collectors from using abusive, unfair, or deceptive practices to collect Debt collector Someone who regularly collects debts owed Collection agencies Lawyers who collect debts on regular basis Companies that buy delinquent debts and try to collect them
53. What types of debts are covered? Personal Family Household debts (personal credit card account, auto loan, medical bill, and mortgage) Can a debt collector contact me any time or any place? No. May not contact at inconvenient times or places, Before 8 am or after 9 pm, unless agree. May not contact at work if they’re told (orally or in writing) that not allowed to get calls there.
54. Credit Card Statement Front – Shows detailed activity that happened for billing cycle Back – Describes terms, how interest is calculated, and contact information Credit card statement video
55. Fair Credit Billing ActErrors on Your Statement Addition to Truth in Lending Act Requires prompt credit for payments and error corrections Dispute billing errors and withhold payment for damaged goods
56. Credit Card Act of 2009 Est. new rules and amend previous Requires changes on disclosures Limits on fees and rate increases Requires consistency in payment dates and times EX: under 21 must demonstrate able to make payment or have a co-signer New Credit Card Laws video
57. To take advantage of the law's consumer protections, you must: Write creditor at address given for "billing inquiries,“ Include name, address, account number and description of billing error Send letter to creditor within 60 days after first bill containing error was mailed Send letter by certified mail, return receipt requested, Proof and include copies (not originals) of sales slips or other documents that support position. Keep a copy of dispute letter. Creditor must acknowledge complaint in writing within 30 days after receiving it, unless problem resolved. Must resolve dispute within two billing cycles (but not more than 90 days) after receiving letter.
58. Keep Good Records Receipts Check for mistakes
59. Corkboard ME… Copy the address on the SMART board and post TWO things you LEARNED about credit cards… (Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!)