This document provides information on selecting and using credit cards responsibly. It defines different types of credit cards and fees, explains how to read a credit card statement, and provides tips for using a credit card safely. Key points covered include the importance of only charging what can be paid off each month to avoid interest, recording all expenses and paying balances in full and on time.

1. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Selecting
a Credit
Card

2. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
What is a Credit Card?
• Pre-approved credit
• Used for purchase of
items now
• Payment of items later

3. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Statistics
• 92% of college students have a credit card by their
sophomore year
• 1 out of every 5 college students owes between
$3,000 and $7,000 in credit card debt
• Almost half (47%) of all college students carry four
or more credit cards
(Source: http://www.fcs.iastate.edu/financial)

4. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Why Use a Credit Card?
• Advantages
• Convenient
• Useful for emergencies
• Often required to hold a reservation
• Purchase ‘big ticket’ items earlier
• Easy form of debt consolidation
• Protection against rip-offs and fraud
• Establish a good credit rating

5. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Why Use a Credit Card?
• Disadvantages
• Interest is costly
• Additional fees are common
• Tempting to overspend
• Privacy is an increasing concern
• Personally responsible for lost/stolen cards
• Identity theft easier
• Can lose financial freedom from overspending

6. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Types of Credit Cards
• Bank Credit Cards
• Flexible account
• Accepted anywhere
• Available from a financial institution (commercial bank, credit
union) with a service provider (Visa, MasterCard)
– Electronic network
• Retail Credit Cards
• Purchases allowed at a particular retailer
– i.e. The Buckle or Old Navy
• Can work with bank to offer a bank credit card with the
retailer’s logo

7. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Types of Credit Cards
cont.
• Travel and Entertainment Cards
• Similar to bank credit cards
– Can make purchases at a number of businesses
• Entire balance must be repaid in 30 days
• Prestige Cards
• High status accounts
• Higher credit qualifications
• Special benefits
– i.e. Free travelers checks, higher credit limits

8. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Types of Credit Cards
cont.
• Affinity Cards
• Accounts through financial institutions
• Logo of sponsoring organization
– Example: Mothers Against Drunk Driving
• Financial institution donates percentage of charges to
organization

9. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Schumer Box
• Fair Truth in Lending Act
• Information required by law to inform consumer of
all costs associated with use of a credit card
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge
at a periodic
rate is charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

10. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Annual Percentage Rate
• Annual Percentage Rate (APR) – Interest
rate charged for amount borrowed in terms of per
dollar per year
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

11. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Grace Period
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29
• Grace Period – Amount of time allowed before
finance charges are applied

12. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Minimum Finance
Charges
• Minimum Finance Charge – Minimum
amount charged for card use
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge
at a periodic
rate is charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

13. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Balance Calculation
Method
• Balance Calculation Method – Method used
to determine balance for finance charges
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance
method
(including
new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

14. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Balance Calculation Method
cont.
• Balance Calculation Method
 Average daily balance excluding new purchases –
Interest is only paid on the previous balance, not on purchases
made since the last payment
 Average daily balance including new purchases with a
grace period – If the balance is not zero, interest is applied to
new purchases when they are made, if the balance is zero, a grace
period is allowed before interest is charged

15. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Balance Calculation Method
cont.
• Balance Calculation Method
 Average daily balance including new purchases with
no grace period – Regardless of the previous month’s balance,
interest is applied to new purchases as they are made
 Two-cycle average daily balance including new
purchases – This method should be avoided by consumers, as it
is the least-beneficial. The average daily balance is determined on
60 days, rather than 30 days, so finance charges are doubled. A
zero balance must be held for two months in order to avoid
charges

16. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Annual Fees
• Annual Fees – Yearly charge for credit card
ownership
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

17. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Cash Advances
• Cash Advance Transaction Fees – Cash
withdrawal fees
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee
of $3
$29

18. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Late Payment Fees
• Late Payment Fees – Penalty fee for payments
not made by the due date
Annual
Percentage
Rate for
Purchases
Grace Period
for Purchases
Minimum
Finance
Charges
Balance
Calculation
Method for
Purchases
Annual Fees Transaction
Fees for Cash
Advances
Late Payment
Fees
19.9%
Not less than
25 days
$.50 when a
finance charge at
a periodic rate is
charged
Average daily
balance method
(including new
purchases)
$20 per year
2% with a
minimum fee of
$3
$29

19. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Opening a Credit
Account
1. Applicant completes a credit application
2. Lender conducts a credit investigation
3. Applicant is given a credit rating
4. Lender accepts or denies the credit request
5. If accepted, applicant evaluates the credit card
details
6. Applicant accepts or refuses credit terms

20. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Understanding the Bill
• Minimum Payment Due – The minimum amount to
be paid
 If this amount is paid and a balance is left on the account,
additional finance charges will be included in the following
month’s balance
• Past Due Amount – The required amount not paid
before the due date
• Due Date – The day by which the company requires a
payment to be made
• New Balance – The total amount owed on a credit card

21. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Understanding the Bill
cont.
• Credit Line – The maximum amount of charges
allowed to an account
• Closing Date – Last day for transactions to be
reported on the statement
• Charges, Payments, and Credits – The
transactions which occur with the use of a credit
card
• Finance Charge – Charges assessed for credit
card use

22. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Using a Credit Card Properly
• Only use a card when there is no doubt about
ability to pay off the charges at the end of the
billing cycle
• Record all expenses and keep receipts
• Check credit statement for errors
• Always pay off balance completely and timely

23. © Family Economics & Financial Education – Revised October 2004 – Credit
Unit – Selecting a Credit Card
Family Economics & Financial Education 1.4.1.G1
Safety Tips
• Sign card with signature and “Please See ID”
• Do not leave cards lying around
• Close unused accounts in writing and by phone,
then cut up the card
• Do not give out account number unless making
purchases
• Keep a list of all cards, account numbers, and
phone numbers separate from cards
• Report lost or stolen cards promptly