employ a graphing utility to determine the region of | Ch 9 - 32

Chapter 6: Credit Cards and Open Credit  What is Credit o Credit is buying something today with the obligation to pay later o Consumer credit  Non-mortgage credit purchases  Auto loan, credit card, vacation loans o Open or Revolving credit  Borrow up to credit limit  Variable payback  Minimum payment to full amount  Interest charges build on the outstanding balance  Open or Revolving Credit o EX:  Credit cards  Open accounts at stores  Operating lines of credit  Home equity line of credit  Main Factors o Interest Rate (apr)  Measure by annual percentage rate  APR is the estimate of actual annual cost of the account  Allows comparison of different accounts  Different rates  Purchases rate  Balance transfer rate  Chas advances rate  Default rate  May be fixed or variable  Fixed rates on credit cards can change over time o 45 days notice from company  Variable rate o Variable rates usually tied to an index o Variable rate may change each month  Teaser rates  Short term low rates  After stated term, rate increases o Calculating the balance owed  Average daily balance method  Most common  Add up each day’s balance, divide by number of days  Previous balance method  Uses the previous statements ending balance  Higher interest charges  Adjusted balance method  Subtracts any payments from previous balance  Lower interest charges than PBM o Cash Advance  Borrow cash against your credit limit  Pay advance fee  High apr on advances  Starts accruing immediately o Grace period  Time from initial purchase to first interest charges  No grace period if there is an outstanding balance o Annual Fee  Fee charge just to have card o Other Fees  Minimum interest charge  Balance transfer fee  Cash advance fee  Late fee  Over the limit fee  Types of open credit o Bank credit cards  Issued by banks o Variations of bank credit cards  Premium or platinum cards  Affinity cards  Secured credit cards  Collateral o Travel and Entertainment cards  Not revolving- entire balance each month  Probably an annual fee o Single purpose cards  Used for only one store  Good way to limit spending o Charge accounts  Use product/service today, pay at the end of the month  Advantages of Credit Cards o Convenience o Safer o Great for emergences o Helps with record keeping o Internet shopping o Helps build credit history o Extra warranties and consumer protection  Disadvantages o Typically spend more with credit card vs cash o Easy to lose track of purchases o Fees and interest charges o Live above your means now but pay for it later o Destroy your credit history if used unwisely  Getting a credit card o 5 c’s of credit  Character: measure by credit score/history  Capacity: current income  Capital: value of investment assets  Collateral: only for secured credit cards  Conditions: overall economy  Troubleshooting credit card situation o Determne how long it will take to pay balance in full o Switch to lowest apr card possible o Use savings to reduce credit card balances o Pay credit card balances with home equity line o Work with creditor  Credit history o Creditors report to credit bureaus  Credit limits  Outstanding balance  Payment history  Date opened  Judgement, collections o Used to calculate credit score o