Transcript Slide 1

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
What You Don’t Need in a
Credit Card Offer
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.
Top 10 Consumer-Friendly Cards
Card
Issuing bank
Intro APR
Go-to APR
Platinum
MasterCard
Town North
none
v 7.99%
Visa Platinum
First
Tennessee
f 3.90%
v 8.40
Visa Gold
Pulaski
f 0.00
f 8.50
Visa Platinum
Rewards
Simmons First
National
none
f 8.95
Target Visa
Target National
none
Visa Platinum
BB&T
Platinum
MasterCard
Cash advance
fee
Late-payment
fee
Over-limit fee
Currencyexchange fee
2%
$15
$15
$3
$35
$35
$35
$29
$3
$29
$29
f 9.90
$3
$35
f 1.90
f 9.90
$3
$35
$29
$2
Franklin
Templeton
Bank & Trust
none
v 9.99
$3
$29
$29
$2
Visa Platinum
RBC Centura
f 2.90
v 9.99
$4
$29
$29
$1
Visa Platinum
Commerce
f 2.99
v 10.49
Visa Platinum
Zions
none
v 11.50
none
none
none
$2
none
3%
none
$2
$1
none
$29
none
$2
$29
$1
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Do you earn more than $30,000 per year?

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Yes
No
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Personal
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Search Results
Card
Reward Type
Juniper Frontier MasterCard Platinum
877-523-0478
Airline
Fleet MilesEdge
800-225-5353
Airline
Brand
A.P.R. Annual Fee Grace Period
MasterCard 14.24% V
None
20 days
14.99% V
None
20 days
Travel
MasterCard 9.24% V
None
20 days
MBNA Norwegian Cruise Line
800-932-2775
Travel
MasterCard 9.90% V
None
25 days
MBNA Royal Caribbean
800-932-2775
Travel
Visa
9.90% F
None
25 days
Travel
Visa
10.24% V
None
20 days
Visa
Chase Travel Rewards Platinum
Bank One Flexible Rewards Visa Signature