CREDIT CARDS

Personal FinanceSpring 2012

Allows the user to buy goods based on the promise that they will later pay for the goods

Issuers give users access to a line of credit to purchase items

What is a Credit Card?

Issuer (Visa) has agreement with a business (Target) to pay charges of issuer’s users(You).

You sign contract with Visa and are given a line of credit to make purchases

You makes a purchase at a Target and Visa pays Target

You pay back Visa at a later date, with possible interest charges

How Credit Cards Work

Ease of Use Emergencies Build Credit History Rewards Fraud Protection Record of transactions

Why Do We Use Credit Cards

Ease of Use, Psychological: You spend more! Interest Charges & Other Fees Inflated Prices for all consumers

Issues with Credit Cards

Annual Fee:  Yearly cost of owning a credit card.  Many credit card companies offer cards with no annual fee.

Annual Percentage Rate (APR):  The amount of interest charged on a yearly basis. Example: a APR of 18% means that for $100 charged, after 1 year you would need pay $118

Balance Transfer:  The process of paying off another creditor’s account

Cash Advances:  Money borrowed against a charge or credit card

Credit Line:  Also known as credit limit, this is the maximum amount that you can charge on your credit card.

Credit Card Vocabulary

Grace Period:  The period within which any credit extended for purchases may be repaid without incurring a finance charge

Introductory Rate:  Competitive interest rate offered to cardholders, usually for three to six months, before moving to the standard APR.

Finance Charge:  The costs associated with your credit card account including such charges as interest, service or membership fees, transaction fees, etc.

Minimum Payment Due:  The minimum amount you must pay, to keep your account current, if you are not paying your balance off in full (usually 2 to 3 percent of your average daily balance).

Credit Card Vocabulary

DEBIT CARDS-linked to your

bank account-less risk of

over spending

Debit vs. Credit Cards

CREDIT CARDS-can spend more than you have (credit limit)-fraud protection-rewards-credit rating