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2.6.3.

F1

UnderstandingCreditCards

AdvancedLevel

Creditcardsareaformofopenendcredit.Acreditcardisaplas ccardthatyoucanusetoaccessalineofcreditthat
hasbeenestablishedinadvance.Whenyoupayforapurchasewithacreditcard,youareborrowingmoney.Acredit
allowsyoutocon nueborrowingwitheachconsecu vepurchaseaslongasthecreditlimit(themaximumdollar
amountthatcanbeborrowed)isnotexceeded;theexactcreditlimitvariesamongcards.

Youpayinteresteachmonthonthebalanceofthecreditcardthatisnotpaidinfull.Thelongeryoutaketopayothe
totalbalance,themoreyouwillpayininterest.Therateatwhichinterestischargedonacreditcardaccountis
expressedintermsoftheannualpercentagerate(APR),whichisthecostofcreditexpressedasayearlyinterestrate.

Creditcardcompaniesrequireatleastaminimumpayment(usuallymonthly)ontheamountowed.However,the
minimumpaymentisusuallyonlyasmallpercentage(2.55%)ofthetotalbalance,enoughtocovertheinterest
chargeforthatmonthbutnotmuchmore.Consequently,ifyouonlypaytheminimumpaymenteachduedateyou
willmakeveryslowprogresstowardpayingothetotalcardbalance.

TakeMirandaforexample.Toprepareforherfirstsemesterofcollege,Mirandapurchasedanewcomputerfor$1,000
andtextbooksfor$500,spendingatotalof$1,500onhercreditcardcharging15%APR.Itwouldtakeher11yearsto
payothebalanceifshemadeonlytherequiredminimumpaymentof$30(andmakenoaddi onalchargestothe
creditcard).Coun ngthe$1,413ininterestpaid,shewouldenduppaying$2,913forthecomputerandtextbooks.A
largerpaymentof$135permonthwouldallowhertopayotheen rebalanceinjust1year,withonly$125paidin
interest.

~Timetopayo ~Totalamountof
card
interestpaid

~Totalamount
paid

PaymentMade

FullPayment

$1,500

1month

$0

$1,500

Par alPayment

$135

1year

$125

$1,625

MinimumPayment

$30

11years

$1,413

$2,913

CreditCardvs.DebitCard:Adebitcardisaplas ccard(whichlookslikea
creditcard)thatiselectronicallyconnectedtothecardholdersdepository
ins tu onaccount.Chargestoacreditcardarepaidbackatalater me.
Chargestoadebitcardarepaidforimmediately.

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2.6.3.F1

CreditCardsasFinancialTools
Creditcardsarehelpfulfinancialtoolsifmanagedresponsibly.Creditcardshavethefollowingbenefits:

Convenientpaymenttool:Creditcardsreducetheneedtocarrylargeamountsofcash,areusefulinemergencies,
andareo enrequiredtoholdareserva on(mostcommonlyatahotel).However,theconveniencemaymakeit
temp ngtooverspend.Beconsciousofallcreditcardpurchasestoensureyoucanpaythatmoneyback.

Protectedfromunauthorizedcharges:Acardholdersmaximumliabilityforunauthorizeduseofacreditcardis
$50.Iflossofacreditcardisreportedbeforethecreditcardisfraudulentlyused,thecardholderhasnopersonal
liabilityforunauthorizedcharges.Ifthecreditcardnumberisusedfraudulently,butthecreditcarditselfisnot
used,thecardholderhasnopersonalliability.

Developposi vecredithistory:Whenacreditcardisusedresponsiblyitcanhelpyoudevelopaposi vecredit


history.Followthese psforposi vecreditcardmanagement:
Paycreditcardbalancesinfulleverymonth
Paycreditcardbillson me
Beconsciousofhowcreditcardsaectyourcredithistory
Checkthemonthlycreditcardstatementforerrors
Neglec nganyoftheseprac cescoulddevelopanega vecredithistory

Onlineshoppingissaferwithacreditcardthanadebitcard:Onlineshoppingwithacreditcardissaferthanusing
adebitcard.Creditcardshavemoreprotec onagainstfraudthandebitcards.Personalliabilityforunauthorized
useofadebitcarddependsonhowquicklythelossisreportedaswellasthepoliciesofeachdepository
ins tu on.Personalliabilitycanbe$0,$50,$500,orunlimited.Inaddi on,sincedebitcardsareconnectedtoa
depositoryins tu onaccount,moneymaynotbereplacedrightawaybecausedepositoryins tu onshaveten
businessdaystoinves gatefraud.

Creditcardbonuses:Somecreditcardcompaniesoeraddi onalbenefitsbeyondtheuseofthecreditcard.
Bonusesvarygreatlybutmayincludecashrebates,airlinemiles,warran esforitemspurchasedwiththecardand
travelaccidentinsurance.However,somecreditcardsthatoerextrabenefitsmayalsochargehigher/addi onal
feesorchargehigherinterestrates.Itisimportanttoevaluateifthebenefitsoutweighthecosts.
DebitorCredit?
Everwonderwhenusingadebitcardinastorewhyyoumaybeaskedifitshouldbe
runasadebitorcreditpurchase?Whenapurchaseismadewithadebitorcreditcard,
apointofsale(POS)terminalisusedtoprocessthetransac on.SomePOSterminals
automa callydis nguishbetweencreditanddebitcards,butothersaskthecardholder
todosoifitisnotacreditcardtodeterminehowthetransac onisprocessed.

Wouldyoubewillingto
payeitherhigher/
addi onalfeesorhigher
interestratestoobtaincredit
cardbenefits?Explain.

Ifyouselectcredit,areceiptmustbesignedtocompletethetransac on,although
thismaybeop onalifthepurchaseamountisunder$25.
Poten albenefit:extraliabilityprotec onfromfraudulentcharges
Ifyouchoosedebit,thenyoumustenterthecardspersonaliden fica onnumber
(PIN).
Poten albenefit:Youmaybeabletowithdrawcashfromyourdepositoryins tu on
accountattheendofthetransac onfornofee
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2.6.3.F1

CreditCardOer
Creditcardissuersarerequiredtodisclosethetermsandfeesofeachcreditcardinaneasytoreadboxformat(known
astheSchumerBox)onallcreditcardapplica onsandsolicita ons.TheSchumerBoxdisplaysthecreditcardterms
includingthemaincostsofthecard.Whenshoppingforacreditcard,evaluatetheSchumerBoxtofindthecreditcard
thatbestfitsyourneeds.AsampleSchumerBoxisdisplayedbelowwithexplana onsofeachsec on.
InterestRatesandInterest
Charges
AnnualPercentageRate
(APR)forPurchases

APRforBalanceTransfers

APRforCashAdvances
PenaltyAPRandWhenit
Applies
HowtoAvoidPaying
InterestonPurchases
MinimumInterestCharge
ForCreditCardTipsfrom
theFederalReserveBoard
Fees
SetupandMaintenance
Fees

Transac onFees
PenaltyFees

*HowWeWillCalculate
YourBalance

*LossofIntroductoryAPR

WhatThisMeansforYou
Thissec ondisclosestheinterestpaidforpurchasesonthecard.Somecreditcardshavean
introductoryratewhichistheAPRchargedduringthecreditcard'sintroductoryperioda eracredit
cardaccountisopened.Ifthecardhasanintroductoryrate,theintroductoryratealongwiththe
ratethatappliesa ertheintroductoryrateendswillbeshownhere.Mul pleinterestratesmaybe
listedherebecausethefinalinterestratemaydependontheapplicantscredithistory.Somecards
willhaveavariablerateAPRthatisanAPRthatmaychangedependingonotherfactors.
Thissec ondisclosestheinterestpaidforbalancetransfers(theactoftransferringdebtfromone
creditcardaccounttoanother).Balancetransferfees(disclosedinthefeesec onoftheSchumer
box)mayapply,evenifthebalancetransferAPRis0% .
Thissec ondisclosestheinterestpaidforcashadvancessuchaswithdrawingcashfromanATM
usingacreditcard.Cashadvancefeesmayalsoapply.
PenaltyAPRistheinterestratechargedonnewtransac onsifthepenaltytermsinthecreditcard
contractaretriggered.ThePenaltyAPRisalmostalwayshigherthantheAPRforpurchases.This
sec ondisclosesthepenaltyAPRaswellasthepenaltytermsthattriggerthepenaltyAPR.
Thissec onexplainshowyoucanavoidinterestchargesonpurchasesbypayingyourbillinfullby
theduedate.
Creditcardcompanieso enhaveaminimuminterestamount.Thesechargestypicallyrangefrom
$0.50to$2permonthandaredisclosedinthissec onofthecreditcardoer.
Thissec ondirectsconsumerstotheFederalReservewebsitetoobtainmoreinforma onabout
creditcards.
WhatThisMeansforYou
Thissec ondisclosesanysetupandmaintenancefeesforthecard,whichcaninclude:
1.AnnualFeeAyearlyfeethatmaybechargedforhavingacreditcard.
2.AccountSetupFeeUsuallyaone mefeeforopeningandse nguptheaccount.
3.Par cipa onFeeUsuallyamonthlyfeechargedforhavingacreditcard.
4.Addi onalCardFeeUsuallyaone mefeeforhavingasecondcardonanaccount.
Thissec ondisclosesanytransac onfeesforthecard(balancetransferfeesandcashadvancefees).
Thissec ondisclosesthepenaltyfeesforthecard,whichcanincludelatepayment,overthelimit,
andreturnedpaymentfees.
1. Alatepaymentfeeischargedwhenacardholderdoesnotmaketheminimummonthly
paymentbytheduedate.
2. Anoverthelimitfeeischargediftheaccountbalancegoesoverthesetcreditlimit.The
cardholderwillnotbechargedthisfeeunlesshe/shehasauthorizedthecreditcardcompanyto
permittransac onsthatexceedthecreditlimit.
3. Areturnedpaymentfeemaybechargedifthecardholdermakesapaymentbutdoesnothave
enoughmoneyinthataccounttocoverthepayment.
Thefourbalancecalcula onmethodsare:adjustedbalance,averagedailybalanceincludingnew
purchases,averagedailybalanceexcludingnewpurchasesandpreviousbalance.Dependingonthe
balanceyoucarryoverandthe mingofyourpurchasesandpayments,youllusuallyhavealower
financechargewiththeadjustedbalancemethod,theaveragedailybalanceexcludingnew
purchasesmethodorthepreviousbalancemethod.
Ifthecardhasanintroductoryrate,thisareawilllisthowthelowerintroductoryratecanbelost.

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2.6.3.F1

HowtoObtainaCreditCard
1. Shoparound:Findthecardthatbestfitsyourneedsbycomparingdierentcreditcardoers.
2. Completeacreditapplica on:Creditcardapplica onsareavailableontheInternet,overthephoneorinperson
dependinguponthespecificlender.Creditcardcompaniesalsosendapplica onsthroughthemailtopoten al
applicants.Youmayreceivepreapprovedcreditcardapplica onsinthemail,meaningyouhavebeenpre
approvedforthatpar cularcardbecauseyoupassedtheini alcredithistorycheck.
3. Determineifyouareapprovedandthefinalcredittermsoered:Youmayormaynotbeapprovedforthecredit
card.Ifyouareapproved,makesuretoreviewthe
Youmustbe21toobtainacreditcard.Ifyouare
finalcredittermsoered.
under21,youcanobtainacreditcardwithacosigner
orproofofsucientincometomakepayments.

CreditCardStatements

Touseacreditcardresponsibly,youneedtounderstandhowtoreadandevaluateacreditcardstatement.Credit
cardstatementsoutlineimportantinforma onaboutyourcreditcard.Theinforma onincludedonacreditcard
statementisexplainedbelow.Thenumbersinthestatementcorrespondtothecreditcardstatementonpage5.
1. SummaryofAccountAc vityThissec onincludesanoverviewofallthebasicinforma onforthecard.
2. PaymentInforma onThetotalnewbalance,theminimumpaymentamount,andthedatepaymentisdueis
includedinthepaymentinforma on.
3. LatePaymentWarningThelatepaymentwarningstatesanyaddi onalfeesandthehigherinterestratethat
maybechargedifapaymentislate.
4. MinimumPaymentWarningAminimumpaymentwarningincludesanes mateofhowlongitcantaketopay
oacreditcardbalanceifonlytheminimumpaymentismadeeachmonth,andanes mateofthetotalamount
paid,includinginterest,ifthebillispaidinthreeyears(assumingnoaddi onalchargesaremade).
5. No ceofchangestoyourinterestratesThissec onno fiesthecardholderiftheratesforthecardwillbe
increasing(usuallybecausethePenaltyAPRwastriggered).
6. OtherchangestoyouraccounttermsThissec onno fiesthecardholderofanyincreaseinfeesoranyother
significantchangestotheaccount.
7. Transac onsAlltransac onsthathaveoccurredsincethelaststatementarelistedhere.
8. FeesandInterestChargesThefeesandinterestchargesarelistedseparately.
9. YeartodateTotalsThetotalamountpaidinfeesandinterestchargesaredisplayedforthecurrentyear.
10. InterestChargeCalcula onThissec onprovidesasummaryoftheinterestratesonthedierenttypesof
transac ons,accountbalances,theamountofeach,andtheinterestchargedforeachtypeoftransac on.

Creditcardsareaformofopenendcredit.Youcancon nueto
borrowaslongasthecreditlimitisnotexceeded.Creditcardshave
manybenefitsandareahelpfulfinancialtoolifyoumanagethem
responsibly.Youdonotpayinterestifyoupaythebalanceinfullevery
month.However,ifyouonlypaytheminimumpaymentyoumake
slowprogresstowardspayingothetotalcardbalance,andwillpay
significantlymoreinterest.

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2.6.3.F1

CreditCardStatement
SummaryofAccountAc
PreviousBalance
Payments
Purchases
BalanceTransfers
CashAdvances
PastDueAmount
FeesCharged
InterestCharged
NewBalance

CreditLimit
Availablecredit
Statementclosingdate

PaymentInforma on

vity
535.07
450.00
+517.12
+785.00
+318.00
+0.00
+69.45
+11.36
$1,786.00

$2,000.00
$214.00
3/22/2012

Daysinbillingcycle

Ifyoumakenoaddi onal
4 chargesusingthiscardand

YouhavetriggeredthePenaltyAPRof28.99%.
Thischangewillimpactyouraccountasfollows:
Transac onsmadeonora er4/9/12:Asof
5/10/12,thePenaltyAPRwillapplytothese
transac ons.WemaykeeptheAPRatthislevel
indefinitely.
Transac onsmadebefore4/9/12:Currentrates
willcon nuetoapplytothesetransac ons.
However,ifyoubecomemorethan60dayslate
onyouraccount,thePenaltyAPRwillapplyto
thosetransac onsaswell.
TransDate
2/22
2/25
2/26
2/27

2/23
2/25
2/26
3/1

XXXX5
XXXX6
XXXX7

2/23
2/27
2/28

2/23
2/27
2/28

TypeofBalance
Purchases
CashAdvances
BalanceTransfers

$62

3years

Andyouwillendup
payinganes mated
totalof
$2,785
$2,232
(savings=$553)

ImportantChangestoYourAccountTerms
Thefollowingisasummaryofchangesthatarebeingmadetoyouraccountterms.For
moredetailedinforma on,pleaserefertothebookletenclosedwiththisstatement.
Thesechangeswillimpactyouraccountasfollows:
Transac onsmadeonora er4/9/12:Asof5/10/12,anychangestoAPRsdescribed
belowwillapplytothesetransac ons.
Transac onsmadebefore4/9/12:CurrentAPRswillcon nuetoapplytothese
transac ons.
IfyouarealreadybeingchargedahigherPenaltyforpurchases:Inthiscase,anychanges
toAPRsdescribedbelowwillnotgointoaectatthis me.Thesechangeswillgointo
eectwhenthePenaltyAPRnolongerappliestoyouraccount.

RevisedTerms,asof5/10/12

PostDate

XXXX1
XXXX2
XXXX3
XXXX4

eachmonthyoupay
Onlytheminimumpayment

Youwillpayothe
balanceshownonthis
statementinabout
8years

30

No ceofChangestoYourInterestRates

ReferenceNumber

NewBalance
$1786.00
MinimumPaymentDue
$53.00
PaymentDueDate
4/20/12
LatePaymentWarning:Ifwedonotreceiveyourminimumpaymentbythedatelistedabove,
you may have to pay a $35 fee and your APRs may be increased up to the Penalty rate of
28.99%
MinimumPaymentWarning:Ifyoumakeonlytheminimumpaymenteachperiod,youwill
paymoreininterestanditwilltakeyoulongertopayoyourbalance.Forexample:

APRforpurchases
Transac ons

16.99%

Descrip onofTransac onorCredit

Store#1
Payment
CashAdvance
BalanceTransfer
Fees
LateFee
BalanceTransferFee
CashAdvanceFee
TotalFeesforthisPeriod
InterestCharged
InterestChargeonPurchases
InterestChargeonCashAdvances
TotalInterestforthisPeriod

2012TotalsYeartoDate
Totalfeeschargedin2012
Totalinterestchargedin2012

$517.12
$450.00
$318.00
$785.00
$35.00
$23.55
$10.90
$69.45

$6.57
$4.79
$11.36
$90.14
$18.74

InterestChargeCalcula on
AnnualPercentageRate(APR)
BalanceSubjecttoInterestRate
14.99%
$533.32
21.99%
$265.00
0.00%
$575.67

10

Amount

9
InterestCharge
$6.57
$4.79
$0.00

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