How to Use Credit Cards to
Help You
• Pay credit card balance every month
• Pay credit card bills on time
• Apply for credit only when needed
• Keep track of all charges- keep receipts
Minimum Payment CC
• http://www.consumer.gov//articles/1010-using-credit#!what-to-know
How credit can hurt you!
• Making late payments- could trigger higher rates and hurt credit score
• Paying only the minimum- costs you money in interest in the long run
• Do not Exceed the card's limit- triggers a penalty fee • Do not Charge items that cannot be paid off in the
foreseeable future
Your credit history describes how you use
money
• If you have a credit card or a loan from a bank, you have a credit history. Companies collect information about your loans and credit cards. Do you pay your bills on time? How many loans do you have? How
many credit cards do you have? What is the balance on each?
• Companies also collect information about how you
pay your bills. They put this information in one place:
Credit / FICO Score
• FICO- Fair Isaac Company
• Range between 300 & 850
• U.S. Median: 723 in 2014
• < 620 = sub prime (means company can charge above standard interest rates)
• Everyone is allowed one free credit REPORT per
year. However, a credit report does NOT have a credit score. This is a number and it is based on your credit history but it does not come with your free credit
report- you must pay for it.
• A high credit score means you have good credit. A low credit score means you have bad or questionable
credit. Different companies have different scores. Low scores are around 300. High scores are around 700-850.
© 2006 Consumer
Jungle
The Cost of Borrowing
Your Credit score: Your interest rate: Your monthly payment:
760 - 850 6.13% $1,313 700 - 759 6.35% $1,344 680 - 699 6.53% $1,369 660 - 679 6.74% $1,400 640 - 659 7.17% $1,462 620 - 639 7.72% $1,543
35% Payment History
•
Late payments
have the greatest negative
impact on your credit score.
•
You prove if you are good or bad!
30% Outstanding Balances
•
FICO- Looks at
Total balance vs. total available
credit
•
Are you overextended? Can you go further into
debt?
15% Length of Credit History
•
FICO measures:
Number of years you’ve used
credit.
•
It is important that you start using credit early
and use it wisely.
•
The longer you’ve had credit the better
•
Length of time since you’ve used certain
10% New Credit
•
FICO Tracks:
Number of new accounts you
open
•
If you opened multiple new accounts at one time
makes it look like you plan on going into debt
© 2006 Consumer
Jungle
10% Types of Credit
• FICO wants a Mix of:
• Open/Revolving Credit
• Credit cards
• & Installment Credits
• Car loan
How to Improve Your Score
• Pay all bills on time.
• Pay any delinquent bills.
• Lower your total credit card debt.
• Close unused credit cards.
• Do not open up new credit cards to increase available
Do I have Credit???
•
If you do not have:
•
a credit card
•
never had a loan from a bank or credit union
•
Without a credit history, it can be harder to get
a job, an apartment, or even a credit card.
How to Get Your Credit
Report
• 1 Free Report each year by each credit bureau:
• TransUnion
• Experian
• Equifax
• Order once from all three companies (or)
Duration of Info on Report
• Trade: Sears, Macy’s
• 7 years from last activity
• Judgments or liens
• 7 years from filing.
• Chapter 7 Bankruptcy
• 10 years
Shopping for a Credit Card
• Comparison shop for credit cards
• Don’t take the first offer that comes to you: • Pre-approval
• Means nothing
Shopping for card…
• Know the Annual Percentage Rate (APR)• Is rate F (Fixed) rate- 15% always • Is rate V (variable) rate 12-20%
• Prime + ___
• Know the Introductory rate
• Length of introductory- use 0% but pay off before the interest kicks in.
Shopping…
• Know Grace Period- Interest-free time between
transaction time and bill due date. Statement ends the 30th, bill due by 21st of next month.
• Usually 20 – 30 days
• No grace period if:
• Carry a balance
Shopping
• Know Credit Limit- The maximum amount you can charge on a credit account.
• Actual credit limit is based on credit score
• Customer gets denied if you go over limit and you try to purchase something.
• Recommended limit
Shopping…
•
Know the
Defaults
•
A designation that indicates a person has not
paid
a debt that was owed.
•
Universal default
•
If you are more than 30 days late on a payment
to anyone, your credit card company
can raise
your interest rate.
Shopping cont…
•
Choose a rewards card
- a card that gives you
rewards and works for you.
•
For Example:
1.5 airline miles for $1 charged.
Then use airline miles for plane ticket
purchase.
Rewards cont...
•
Pick a rewards card that benefits you
•Mileage, cash back, gas, etc...
•
Pay off card at end of month and you get the
rewards without costing anything. You can make
money off the credit card.
Shopping cont…
•
"
Little or no annual fee for young students"
- Try
to have no or small annual fee or you are paying
for it. You can use the card for your benefit!!!
•
Paying for the privilege of using a credit card
•
Weigh cost of annual fee against value of reward
•Mileage
•
Cash Back
•Gas etc...
Shopping cont…
• Know the Late-Payment Fee- Charge imposed for not paying on time
• Know your payment due date and time
• Know how you can make Payments - U.S. mail, phone, online, automatic bill pay, etc.
Shopping cont…
•
Know the
Over-the Credit Limit Fee
- You can
exceed your credit limit but it will cost you-
Higher Fee? Higher interest rate?
Shopping cont…
• Know Currency Exchange Rate if traveling outside the US- Credit Cards have replaced traveler's checks.
• Fee will be a:
• Flat amount
• Percentage of withdrawal
Shopping cont…
•
Know
Balance Transfer
•
The process of moving an unpaid credit
card debt from one issuer to another
Ideal Card
•
Consumer Reports on what the Top 10 cards should
have:
•
No universal default
•
No two-cycle billing
•
No balance transfer fees
•
Grace period of at least 25 days
•
No annual Fees
Top 10 Consumer-Friendly
Cards
Card Issuing bank Intro APR Go-to APR Cash advance fee Late-payment fee Over-limit fee Currency-exchange fee
Platinum MasterCard Town North none v 7.99% 2% $15 $15 none
Visa Platinum First Tennessee f 3.90% v 8.40 $3 $35 $35 3%
Visa Gold Pulaski f 0.00 f 8.50 none $35 $29 none
Visa Platinum Rewards Simmons First National none f 8.95 $3 $29 $29 $2
Target Visa Target National none f 9.90 $3 $35 none $1
Visa Platinum BB&T f 1.90 f 9.90 $3 $35 $29 $2
Platinum MasterCard
Franklin Templeton Bank
& Trust none v 9.99 $3 $29 $29 $2
Visa Platinum RBC Centura f 2.90 v 9.99 $4 $29 $29 $1
Visa Platinum Commerce f 2.99 v 10.49 none none none $2
Online Banking
• All cards Allow you to manage your account online or on phones
• Allows you to see monthly statement
• Pay online- no stamp costs
• Track rewards
Do You Recognize this Ad?
• Dinner: $30
• Movie: $17
• Dessert: $10
• Second date with the right girl? Priceless
• Is any of that really priceless- Mastercard wants you to keep charging!!!
Is it Priceless? The Power of
Compounding Interest
Scenario: 10 dates & you would owe $570 Interest Rate: 18% Minimum Monthly Payment: 2.5% or $14
It will take you 8 years and 1 month to pay for
those 10 dates. In that time, you will pay $470.32
in interest.
The True Cost of Paying the
Minimum Payment
Payment Schedule: It will take you 8 years and 1 month to be rid of your debt.
In that time, you will pay $470.32 in interest.
Month Minimum Payment Interest Paid Principal Paid Remaining Balance
1 $14.25 $8.55 $5.70 $564.30 2 $14.11 $8.46 $5.64 $558.66 3 $13.97 $8.38 $5.59 $553.07 4 $13.83 $8.30 $5.53 $547.54 5 $13.69 $8.21 $5.48 $542.06 6 $13.55 $8.13 $5.42 $536.64
The Credit Card Industry
•
60% of all transactions are now paid with DEBIT AND
CREDIT CARDS
•
$890+ billion in credit card balances already on the
books in the US
• $156+ billion in revenue in 2014
