the different types of credit cards.
Know what determines your credit
card worthiness and how to secure a credit card.Manage your credit cards and open credit.
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Chapter 6
Содержание
- 1. Chapter 6
- 2. Learning ObjectivesKnow how credit cards work.Understand the
- 3. A First Look at Credit Cards and
- 4. Interest Rates The main determinant of the
- 5. Interest Rates Variable Rate CardsAre tied to
- 6. Calculating the Balance OwedThe method of determining
- 7. Calculating the Balance Owed3 ways to determine
- 8. Calculating the Balance OwedAverage Daily Balance MethodThe
- 9. Calculating the Balance OwedPrevious Balance MethodInterest payments
- 10. Calculating the Balance OwedAdjusted Balance MethodInterest is
- 11. Buying Money: The Cash AdvanceCash advances at
- 12. Grace PeriodGrace period of 20-25 days is
- 13. Annual FeeSome issuers impose an annual fee
- 14. Pros and Cons of Credit CardsAdvantagesNecessary part
- 15. Bank Credit CardsCredit card issued by a
- 16. Bank Card VariationsThere are several different card
- 17. Bank Card VariationsAffinity cardCredit card issued in
- 18. Travel and Entertainment CardsTravel and entertainment cards
- 19. Single-Purpose CardsA single-purpose card can be used
- 20. Traditional Charge AccountA traditional charge account is
- 21. Getting a Credit CardShould a student get
- 22. Credit Evaluation: The Five C’s of CreditCreditworthiness
- 23. Your Credit ScoreA credit bureau is a
- 24. Determining CreditworthinessYour credit information translates into a
- 25. How Your Credit Score is ComputedA credit
- 26. How Your Credit Score is ComputedWhat is
- 27. What’s in Your Credit Report?Identifying Information: Name,
- 28. What’s in Your Credit Report?Inquiries: Lists everyone
- 29. Factors That Determine Your ScoreYour Payment History
- 30. Factors That Determine Your ScoreYour Payment HistoryLenders
- 31. Factors That Determine Your ScoreLength of Credit
- 32. Factors That Determine Your ScoreNew Credit New
- 33. Monitoring Your Credit ScoreMonitor your score to
- 34. The Credit Bureau and Your RightsCongress passed
- 35. The Credit Bureau and Your RightsYou have
- 36. If Your Credit Card Application is RejectedIf
- 37. Скачать презентанцию
Learning ObjectivesKnow how credit cards work.Understand the costs of credit.Describe the different types of credit cards.Know what determines your credit card worthiness and how to secure a credit card.Manage your credit
Слайды и текст этой презентации
Слайд 2Learning Objectives
Know how credit cards work.
Understand the costs of credit.
Describe
the different types of credit cards.
card worthiness and how to secure a credit card.Manage your credit cards and open credit.
Слайд 3A First Look at Credit Cards
and Open Credit
Credit involves receiving
cash, goods, or services with an obligation to pay later.
Open credit (revolving credit) is a line of credit extended before the purchase.
Pay back debt at whatever pace you like, paying a specified minimum balance each month.
Unpaid balance plus interest carries over to next month.
Слайд 4Interest Rates
The main determinant of the cost of a
line of credit is the annual percentage rate (APR). This
is the true simple interest rate paid over the life of the loan.APR is calculated the same way by all lenders, but there can be a difference in what is included.
The Truth in Lending Act requires disclosure of APR in bold print for all consumer loans.
Слайд 5Interest Rates
Variable Rate Cards
Are tied to another interest rate,
usually the prime rate.
Charge prime plus a percentage.
In 2005, the
national average APR was 13.4%.Fixed Rate Cards
The interest rate may change once the card company notifies the cardholder.
In 2005, the national average APR was 12.9%.
Слайд 6Calculating the Balance Owed
The method of determining the balance (balance
calculation method) varies from one credit account to another.
Remember: If
you pay off your outstanding balance each month and don’t carry a balance, there is no interest charge.
71% of cardholders ages 25-34 don’t pay off their credit cards every month.
Слайд 7Calculating the Balance Owed
3 ways to determine interest charges on
unpaid balances:
Average daily balance method
Previous balance method
Adjusted balance method
There are
numerous variations on these methods, including a two-cycle average daily balance.
Слайд 8Calculating the Balance Owed
Average Daily Balance Method
The most common method
- used by 95% of bank card issuers.
Sum of
daily balances/number of days in billing period.
Interest payments are based on this balance.
Слайд 9Calculating the Balance Owed
Previous Balance Method
Interest payments are charged against
what was owed at the end of the previous billing
period, with no credit given for the current month’s payments.This method is very simple – but very expensive.
Слайд 10Calculating the Balance Owed
Adjusted Balance Method
Interest is charged against the
previous month’s balance only after subtracting payments.
Results in lower
interest charges than the previous balance method.A favorable variation of the previous balance method.
Слайд 11Buying Money: The Cash Advance
Cash advances at ATMs are just
like taking out a loan.
Begin to pay interest immediately.
Higher interest
rate charged on cash advances and an up-front fee of 2-4% of the amount advanced.May be required to pay down the balances for purchases before paying down the higher interest rate cash advance.
Слайд 12Grace Period
Grace period of 20-25 days is common, interest is
then charged on outstanding balance.
About 25% of credit cards do
not have a grace period.Finance charges may not be assessed against credit card purchases for nearly 2 months.
No grace period with cash advances.
Usually, if previous balance is not paid off, then the grace period does not apply.
Pay interest immediately on new purchases.
Слайд 13Annual Fee
Some issuers impose an annual fee for using the
credit card.
Typical charge of $10-$100, but AmEx charges $300 for
Platinum card.Over 70% of biggest credit card issuers do not charge an annual fee.
Many don’t charge the fee if the card is used at least once a year.
Merchant pays a percentage of the sale, called the “merchant’s discount fee.”
Слайд 14Pros and Cons of Credit Cards
Advantages
Necessary part of today’s society
Convenience
Source
of temporary funds
Use product before paying for it
Bill consolidation
Extended warranties
Disadvantages
Too
easy to spend moneyLose track of spending
Spend more than original amount due to interest
Obligating future income
Less budget flexibility when paying off credit card expenditures
Слайд 15Bank Credit Cards
Credit card issued by a bank or large
corporation.
Visa and MasterCard don’t issue cards themselves.
They are a
franchise.Wide acceptance of bank cards with over 7,000 to choose from.
Co-branded or “rebate” cards have a brand name on the card (GM) and may charge an annual fee.
Discover Card is issued by one bank, no annual fee.
Слайд 16Bank Card Variations
There are several different card classes, referring to
credit levels of cardholder.
Standard – limits $500-$3000
Gold - $5000 and
up, plus incentivesPremium or prestige – as high as $100,000 plus benefits
Слайд 17Bank Card Variations
Affinity card
Credit card issued in conjunction with a
charity or organization.
Card bears sponsor’s name and the sponsor receives
a portion of the annual fee or percent of purchases.Secured credit card
Regular bank card backed by collateral.
Asset lost if you can’t pay off the charges.
Слайд 18Travel and Entertainment Cards
Travel and entertainment cards (T&E)
Initially aimed at
business customers, providing a means of paying for travel and
other business expenses.Do not offer revolving credit, requiring full payment of balance each month.
Have an interest-free grace period.
Issuers receive annual fee, up to $300 per year, and the merchant’s discount fee.
American Express, Diners Club, and Carte Blanche are the primary issuers.
Слайд 19Single-Purpose Cards
A single-purpose card can be used only at a
specific company.
Companies issue these to avoid merchant’s discount fees.
Terms vary
greatly for each issuer, with some offering revolving credit.Typically, they don’t charge an annual fee.
Слайд 20Traditional Charge Account
A traditional charge account is offered by a
business.
Utility companies and doctors provide services to you and bill
you later.This payment system is a type of open credit account – one without cards.
You are expected to pay monthly bill in full.
Слайд 21Getting a Credit Card
Should a student get a credit card?
Yes!
It
can be used for emergencies.
By using it prudently, a student
can build up a solid credit history.
Слайд 22Credit Evaluation: The
Five C’s of Credit
Creditworthiness is determined by 5
C’s:
Character Sense of responsibility
Capacity Current income and borrowing
Capital Size of financial
holdings/investmentsCollateral Assets offered as security
Conditions Impact of economic environment on your ability to repay
Слайд 23Your Credit Score
A credit bureau is a private organization that
maintains credit information on individuals, which it allows subscribers to
access for a fee.Experian, Trans Union, and Equifax are examples.
They compile a credit report on you and assign a credit score.
Your credit information not only impacts whether you get a loan, it affects your interest rate.
Слайд 24Determining Creditworthiness
Your credit information translates into a three digit number
– your credit score – which measures your creditworthiness.
Involves the
numerical evaluation or “scoring” of applicants.Reduces the lender’s uncertainty, enabling the lender to make credit available to good risk customers at lower interest rates.
Слайд 25How Your Credit Score is Computed
A credit score is referred
to as a FICO score.
Based on models developed by Fair
Isaac Corporation.The models begin with information on your report, using it to calculate your score.
Scores range from 300-850, median 723
The majority are between 600 and 800.
They vary from one credit bureau to another.
Visit www.myfico.com/ScoreEstimator.html to get an estimate of your score.
Слайд 26How Your Credit Score is Computed
What is a good score?
The
national average is 678.
This is often the minimum for receiving
credit. A good credit score doesn’t just mean that you’ll get a loan, it also means you’ll pay less for it.
A low FICO score may result in a credit card rate twice that of a high FICO score.
Слайд 27What’s in Your Credit Report?
Identifying Information: Name, address, date of
birth, SS number, and employment information.
Trade Lines or Credit Accounts:
Type of account, balance, date opened, payment history, and current status. 
Слайд 28What’s in Your Credit Report?
Inquiries: Lists everyone who has accessed
your report in the last 2 years.
Public Record and Collection
Items: Bankruptcies, foreclosures, law suits, wage attachments, and liens.
Слайд 29Factors That Determine Your Score
Your Payment History (35%)
Amount You Owe
and Your Available Credit (30%)
Length of Credit History (15%)
Types
of Credit Used (10%)New Credit (10%)
Слайд 30Factors That Determine Your Score
Your Payment History
Lenders want to know
how you have handled credit payments in the past.
Amount
You Owe and Your Available CreditShows the amount you owe on your mortgage, car loan, and all other outstanding debt, along with your total available credit.
Слайд 31Factors That Determine Your Score
Length of Credit History
The longer
the credit accounts have been opened, and the longer you
have had accounts with the same creditor, the higher your credit score.Types of Credit Used
The wider the variety of credit, the higher the score.
Using different types of credit indicates you know how to handle your money.
Слайд 32Factors That Determine Your Score
New Credit
New applications for credit
will lower your score.
Those moving towards bankruptcy take all
available credit to stay afloat.
Слайд 33Monitoring Your Credit Score
Monitor your score to ensure there are
no errors.
The Fair and Accurate Credit Transactions Act (FACT
Act) allows you to request one free copy of your credit report each year.Visit www.annualcreditreport.com to receive information about your free credit report.
Слайд 34The Credit Bureau and
Your Rights
Congress passed the FACT Act in
2003.
Allowing individuals a free credit report annually.
Contact the
bureaus regarding incomplete or inaccurate information in your report.
Слайд 35The Credit Bureau and
Your Rights
You have the right to have
a statement in your file presenting your view.
Bankruptcy information can
only remain in your file for 10 years.
Слайд 36If Your Credit Card Application
is Rejected
If your credit card application
is rejected, you have 2 choices:
Apply for a card with
another financial institution.Find out why you have been rejected.
Set up an appointment with credit card manager.
Address the problem.
