Credit and Credit Cards

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Credit Credit is the ability of a consumer to

obtain goods or services before payment, based on an agreement to pay later.

Using a credit card can be an important component of personal finance.

Brainstorm Let’s make a list of pros and cons of credit cards

Pros You can use them practically everywhere, especially overseas.

They can boost your purchasing power because they can be used to buy goods and services over the phone, through the mail and online.

They provide financial backup in the event of an emergency, such as an unexpected healthcare cost, job loss or auto repair.

They allow you to purchase items and pay them off in monthly installments. They offer discounts at stores and rewards. For instance, when you make purchases using the credit card you can collect points; these points accumulate and can be used to get free items, such as airline tickets.

Some cards may offer cash back as an incentive to use the card.

They can help build your credit history.

They keep a record of your expenses, helping you to monitor your financial activities.

Credit cards allow you the right to dispute billing errors and defective merchandise.

They allow you withhold payments.

Cons Credit cards can have their disadvantages, though, especially when

they're used in an unwise manner. Some consumers feel compelled to spend more money than they

have. Consumers may continuously roll over a balance for several months. Carrying a large amount of credit cards also isn't too favorable in the

eyes of lenders. Acquiring too much credit card debt can ruin your credit score. Studies have indicated credit card debt as a significant factor in

consumer bankruptcies. Credit card fraud is a possibility.

Some Facts 92% of graduate students had at least one credit

card Average outstanding balance on these cards was

$8612 (2012) 67% got these cards as an undergraduate (no

“real” job)…is this a good thing? 56% of undergraduates got their card when they

turned 18

Basic Credit Card Information A credit card represents an agreement between

a lender- the institution issuing the card-and the cardholder

A convenient form of borrowing with a revolving line of credit

Your credit history determines your credit limit Sometimes referred to as “easy access”

Continued… Card holders receive a monthly statement (mail

or electronically) that includes a list of purchases and payment information

A minimum amount is due each month. Why would institutions like you to pay the minimum?

Interest is the price of using someone else’s money

It is an unsecured loan (not backed with collateral) can lead to higher interest rates

Types of credit cards Visa MasterCard American Express Discover Retail Cards

Incentives are used by most companies An incentive (perceived benefits that encourage

certain behaviors) Competition is a major reason for this

Rewards programs Mileage Cash back Points for merchandise Introductory interest rates

Credit Cards and Law The Credit Card Act (2009) The Fair Credit and Charge Disclosure Act (1988) The Fair Credit Billing Act (1974) The Truth in Lending Act (1968)