Consumer Action: Use Credit Wisely

Consumer Action created this project in partnership with

USE CREDIT WISELY

Consumer Action: Use Credit Wisely

Advantages of Credit

What can credit do for you? Help you through a financial emergency Enable you to pay for a purchase over time Provide a short, interest-free loan Enable you to rent a car, hotel room, etc. Offer convenience, security when shopping Rebates or rewards Allow you to avoid carrying cash Allow you establish credit/build good credit

Consumer Action: Use Credit Wisely

Types of Credit

Installment Credit

Fixed number of monthly payments

Car loans, mortgages

Revolving Credit Short-term, open-

ended Assigned credit limit Available credit

fluctuates as you make purchases & payments

Option to make full or partial payment

HELOCs, credit cards

Consumer Action: Use Credit Wisely

Card Types

Credit, charge & debit cards Visa, MasterCard, Discover

Affinity cards Rewards cards Secured cards

Retail and gas cards Stored value (prepaid) cards Charge cards Debit cards

Consumer Action: Use Credit Wisely

Credit Card Terms

Credit limit Method of computing the balance Minimum payment Payment due date Grace period Interest rate Fees

Consumer Action: Use Credit Wisely

Credit Card Terms: Interest

The lender’s fee for allowing you to use its money

Expressed as a percentage of the credit

Fixed vs variable interest rate

Annual percentage rate (APR)

Periodic interest rate Different rates for a

single card: Teaser Cash advance Purchase Penalty/Default Balance transfer Effective interest

Consumer Action: Use Credit Wisely

Credit Card Fees

Application fee Annual fee Balance transfer fee Cash advance fee Currency conversion fee Late fee Overlimit fee Bounced check/returned item fee Miscellaneous fees

Consumer Action: Use Credit Wisely

Activity: Credit Card Jeopardy Break into three groups Choose one person on your team to “buzz” in

when you think you have the correct “question” to the answer

A correct answer earns the point. An incorrect answer loses a point and allows another team to “steal” the point.

Remember to phrase your answer in the form of a question.

Consumer Action: Use Credit Wisely

Credit Card Billing Statements Opening/closing date Past due amount New balance Minimum payment

due Due date Account summary

Transactions Rewards information Explanation of

finance charges Effective APR

Consumer Action: Use Credit Wisely

Food for Thought

In 2007, credit card customers who revolved their debt (didn’t pay the balance in full each month) paid $18.1 billion in penalty fees to credit card companies.

Source: “Don’t Get Clobbered By Credit Cards,” by Gary Weiss

Consumer Action: Use Credit Wisely

Comparing Credit Cards

Credit limit Purchase APR Balance transfer APR Cash advance APR Promotional APRs Penalty APR Variable-rate info Grace period

Annual fee Transaction fees Penalty fees Balance computation

method Minimum finance

charge Rewards

Consumer Action: Use Credit Wisely

Obtaining Credit

Pre-approved offers Invitations to apply Instant credit Consumer-initiated application

Banks, credit unions, retailers, card companies, and other institutions

Compare offerings, terms www.consumer-action.org www.bankrate.com www.cardtrak.com www.cardratings.com

Consumer Action: Use Credit Wisely

Using Credit Wisely

Know your credit limit and don’t exceed it Charge only as much as you can repay Pay more than the minimum, if possible Pay by your due date (and time!) Use a debit card, not a credit card, to get cash Don’t accumulate too much debt Avoid penalty fees and rates Consider optional fee-based services carefully Contact a credit counselor (www.nfcc.org or

www.aiccca.org)