Students will identify key terms associated with credit.
Students will identify how credit cards work and understand the impact of interest.
Students will understand how credit decisions affect future decisions.
TYPES OF CARDS A credit card is a system of payment named after the small plastic card issued to users of the system where the issuer lends money to the consumer/user to be paid later to the merchant. There are different types of cards: Credit Card Secured Credit Cards Prepaid Credit Cards Charge Card DID YOU KNOW? The credit card was first referred to in the 1880s…but not a reality until the 1920s…the first type of card used to pay multiple merchants came about in the 1950s (Diners Club, Carte Blanche, and American Express)
TELL ME WHAT YOU KNOW ABOUT CREDIT CARDS!
Card Issuing Bank—The financial institution that bills the consumer for repayment and accepts risk for fraudulent activity.
Interest is a fee charged by the creditor, calculated monthly or annually.
Interest Expenses—The profit the banks make by charging interest. Banks actually receive their money at a lower rates; therefore; making money. As interest rates climb, the less they make…therefore, they increase their rates to you…
CREDIT REPORT—A history of how you’ve paid your bills, how much open credit you have, and anything else that affects credit worthiness
CREDIT SCORE—A Three digit score that tells a lender a prediction with some accuracy how likely a borrower is to repay a loan and make payments on time (range from 300-850)
CREDIT SCORE (cont)—35 percent is based on payment history; 30 percent is based on outstanding debt; 15 percent is based on the length of time you have had credit; 10 percent is based on new credit (opening new credit accounts will negatively affect your score for a short term—EVERYTIME YOU APPLY FOR CREDIT AND ARE APPROVED OR DENIED…IT IMPACTS YOUR CREDIT)
WATCH THE FOLLOWING VIDEO AND IDENTIFY SOME OF THE ISSUES INVOLVING CREDIT! MONEY
WHAT DID WE SEE IN THE VIDEO?
Credit Choices now impact future decisions.
Money decisions now could impact future partner/spouse.
Decisions regarding credit affect ability to get exactly what you want.
Identity theft and Credit
PROBLEMS WITH CREDIT CARDS
CREDIT CARD FRAUD
DIFFERENT TYPES OF FEES NOT ALWAYS CLEAR
CREDIT CARD DEBT
IMPACT ON PERSONAL CREDIT
CREDIT CARD FRAUD
STOLEN CREDIT CARD NUMBERS
Taken from retailers who have security holes.
Websites that don’t encrypt numbers
Anywhere that card details become human-readable before being processed.
Some card companies will refund some or all of the charges that the customer has received for things they did not buy (this becomes expensive to the merchant with eventually affects costs to receive the service, etc.)
Keep a list of all card numbers and contact numbers (in a secure place) in the event that they are lost or stolen so you can report in a timely manner.
CREDIT CARD FEES Late Fees Over the Limit Credit Fees Interest Rates Returned Check Fees/Payment Processing Fee Cash Advance Fees Membership Fees (annual/Monthly) And Others…
CREDIT CARD DEBT
Credit card debt has soared, particularly among young people. Since the late 1990s, lawmakers, consumer advocacy groups, college officials and other higher education affiliates have become increasingly concerned about the rising use of credit cards among college students. The major credit card companies have been accused of targeting a younger audience, in particular college students, many of whom are already in debt with college tuition fees and college loans and who typically are less experienced at managing their own finances.
GOOD DEBT VS. BAD DEBT
Good debt—debt that is an investment that will grow in value or generate long term incoming (student loans are good debts with low interest rates) Another example: a mortgage, automobile, and other low interest debt.
Bad debt—debt incurred to purchase things that quickly lose their value and don’t generate long-term income. Typically has high interest rates (or rates that will increase significantly over time…if you can’t afford it, you don’t need it! Payday loans, cash advance loans are some of the worse.
GETTING RID OF DEBT
Always be aware of all fees
Cash advances can be trouble
Look for cards with lower interest rates
Making the minimum payment doesn’t help offset interest fees (you will save money on interest in the long run if you pay more than the minimum…but if that’s all you have, pay it and on time.)
RAISING YOUR CREDIT SCORE
1. ALWAYS PAY YOUR BILLS ON TIME
2. KEEP YOUR CARD BALANCES TO AT LEAST 25% OR LOWER OF THE CREDIT LIMIT.
3. HARD INQUIRIES AFFECT YOUR CREDIT
4. YOU SHOULD MONITOR YOUR CREDIT SCORE ANNUALLY.
EFFECTING YOUR FUTURE Getting a car or home… It is more difficult today to get credit (and that’s with good credit…imagine having bad credit…)…this is affecting Parent/Student Loans, etc. If you choose to get married, you will also gain debt of your spouse. Why?
Always sign the back of your card…
Don’t leave receipts behind (ATM, etc.)
Don’t ever give credit card number over the phone unless you’ve initiated the call (and not over cordless or cell phones)
Ignore credit cards that require you to pay money up front
Get your card back after each purchase
Check your monthly statement
If you get into financial troubles, seek help! Don’t just ignore the credit collectors…negotiate…and do it ahead of time…don’t just wait until they get a hold of you.
Create a budget based on your monthly income, determine how much you spend each month, figuring in fixed costs such as rent or car payments and add in variable a expenses, such as groceries. Then, calculate your bottom line by adding all expenses and subtracting total expenses from your effective monthly income. Once you have your bottom line, determine if you are spending too much. These simple steps will help make credit cards manageable and reduce the risk of debt.
Set goals for saving
WORDS OF WISDOM!
Credit cards are centered on the idea of taking responsibility for your own actions. As college students, this is the time to take control of your own personal finances and begin to build good credit. Start by being responsible with your credit card usage. Although credit cards give a feeling of power, they do not, in fact, give you more money. They only change the way you pay. The more you understand this concept, the easier it will be to avoid dept and plan for financial success.