Shopping for a Credit Card. Shopping for A Credit Card Comparison shop credit cards Don’t take the...
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Transcript of Shopping for a Credit Card. Shopping for A Credit Card Comparison shop credit cards Don’t take the...
Shopping for a
Credit Card
Shopping for A Credit Card
• Comparison shop credit cards
• Don’t take the first offer that comes to you:– Pre-approval
• Means nothing• No special rates
Card Holder Agreement
• Written statement that gives the terms and conditions of a credit card account. – Look here for all info
before signing up– Required by Federal
Reserve– Card issuers can
change terms at any time with 15 days notice
Billing Statement
• The monthly bill sent by a credit card issuer to the customer.
• It gives a summary of activity on an account.
• Important changes to a credit card account are included in small-print fliers that are sent with the statement.– Schumer box: Important to
look here once you’ve selected a card.
Annual Percentage Rate (APR)
• Annual Percentage Rate (APR)• Interest• F (Fixed) rate• V (variable) rate
– Prime + ___– Libor + ___– Won’t go below floor
• Introductory rate– How long?– What will the rate
“go to” afterwards?
Grace Period
• Interest-free time between:– Transaction date– Billing date
• Usually 20 – 30 days• No grace period if:
– Carry a balance– No stated grace period
Billing Methods: Average Daily Balance
• Determined by:– Adding each day’s balance
– Dividing by total number of days in the billing cycle.
– Multiplying by monthly periodic rate (APR/12)
• Example– Day 1: Charge $100– Day 2: Charge $200– Avg. Daily Bal $150
– 30 days in billing cycle = – $5 average daily balance
– Card with 15% APR has a 1.25% monthly periodic rate (15% / 12 months)
– $5 daily balance =
$6.25 finance charge
Billing Methods: Two-cycle Billing
• If you don’t pay your balance off it:– Charges you interest
based off of the current and previous month
– Interest starts the day you make the purchase.
Credit Limit
• The maximum amount you can charge on a credit account.
• You're approved up to $25,000!– “Up to” is the key phrase– Enticement offer– Actual credit limit based on
credit score
• Recommended limit– 20% of net income
Default and Universal Default
• Default– 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.
Payment Allocation
• How your payments will be applied when you have differing rates
• Matters when you:– Use card during and after
promotional period– Purchases and cash
advances
• Payments will pay off lower rate first– Costs you money. Makes
the bank money.
Annual Fees on Reward Cards
• Paying for the privilege of using a credit card
• Many cards offer rewards without an annual fee
• Weigh cost of annual fee to value of reward– Mileage
• Avoid annual fees
Late-Payment Fee
• Charge imposed for not paying on time
• Know your payment due date & time– 9 a.m.– 12 noon– 5 p.m.– 11:59 p.m.?
• Pay via U.S. mail, phone, online, automatic bill pay, etc.
Over-the-Credit-Limit Fee
• You can exceed your credit limit but it will cost you– Fee– Higher interest rate
Currency-Exchange Fee
• Credit Cards have replaced traveler's checks.
• Fee will be– Flat amount– Percentage of
withdrawal
• Important only if you travel internationally frequently
Cash-Advance Fee & Interest
• Don’t take cash advances• Fee
– Flat amount– Percentage of withdrawal
• Cash advance interest rate is always higher and has no grace period
• Payments are applied to lower-interest balance first
Balance-Transfer Fee
• Balance Transfer– The process of moving
an unpaid credit card debt from one issuer to another
• Cards charge to transfer balance to or from one card to another.
Returned-Check Fee
• Your check “bounces” at the bank because:– Not enough money in
your account– You don’t have a cash-
advance line at the bank to cover the check
Minimum Finance Charge
• Also called “No Balance Fee”
• Fee charged for using the credit card even when you pay off the balance in full every month.
• Don’t select this card– $1.50 * 12 = $18– Similar to an annual
fee