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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.
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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
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: Average Daily Balance
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
No on Credit Card Insurance • Life and disability insurance policies will cover credit cards. • Any type of credit card insurance is not as flexible as traditional policies. • You will have to take a policy out on each credit card.
Theft Insurance • If your card is stolen • Federal law limits your liability to $50 • Don’t need theft insurance because you’re already protected • Report missing cards within 24 hours or ASAP
Life & Disability Insurance • Credit life insurance • pays off the debt you owe if you die. • Credit disability insurance • Pays minimum monthly payments, but not for new purchases
Unemployment & Property Insurance • Involuntary unemployment credit insurance • Pays minimum monthly payments, but not for new purchases • Credit property insurance • Cancel debt on items that are destroyed by specific incidents not covered in other policies.
Find a Consumer-Friendly Card • Consumer Reports Top 10 cards have • No universal default • No two-cycle billing • No balance transfer fees • Grace period of at least 25 days • No annual Fees • Based on Cardweb’s analysis of 10,200 card offers in August, 2005.
