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