Plastic Money

Credit and Debt:

All Cards Are NOT Created Equal

► Credit
 Credit Cards
 Charge Card
► Debt
 Stored Value Card
 ATM/Check Card
► Smart Cards*
The Basics
■Debit Cards
allow access to checking account via ATMs
and point of sale (POS) terminals
amount is deducted from checking account
not a charge card, must have the funds
available
■“Smart Cards”
these cards store personal information
may be “loaded” with a certain dollar value
 Credit Cards
What You Need To KNOW
 Topics covered
► Types of credit cards
► Card offers
► Card terms and conditions
► Credit card billing statements
► Using credit cards
► Card fees
► Optional services and card benefits
 What are credit cards good
for?
► Emergencies
► Big ticket items
► Establishing credit
► Safer than cash
► More purchasing power
► Protection from fraud on the Internet
Types of Cards
 Credit cards
► Revolving Credit
 Credit line can be used up to the credit
limit
 Pay charges in full each month, pay just
the minimum or make a partial payment
greater than the minimum due
 Credit limit goes up and down as
purchases and payments are made
 Charge cards
► Payall charges in full every month by
the due date
 Cannot carry a balance
 No balance = no interest
 Some charge cards allow a balance carry-
over for specific purchases, such as travel
charges
 No preset spending limits or credit limits
 Secured credit cards
► Guaranteed by money deposited in an
account
 Credit limit usually equals the amount of
the deposit
 Can be used by people with credit
problems to reestablish good credit
 Sub-prime credit cards
► Marketed to people who have poor
credit
 Typically have very low lines of credit,
large upfront fees and high interest rates
 Prepaid credit cards
► Alsocalled stored value cards
► These are used by
 retailers as gift cards
 travelers as a safe way to get funds on
the road
 parents who want to give their kids the
convenience of a credit card without the
risk
Card Offers
 Types of offers
► Pre-approved
► Invitations to apply
 Offers come in the mail, by telephone and
online
► Instant credit at stores
 Pre-approved offers
► Personalized and based on credit
history
 Federal law requires that pre-approved
solicitations contain a guaranteed offer of
credit
 The only exception is if consumer has
experienced a serious decline in
creditworthiness since the offer was made
 Invitations
► Ask consumer to apply for a card
 Does not require a firm offer of credit
 Intended to interest consumers in
applying
 Instant credit
► Salespeople often ask you if you want
to get the store’s credit card
► Get a discount on purchases
► If the shopper’s credit is good, credit is
issued on the spot
Important Terms
& Conditions
 Compare basic terms
► Look for a box with:
 interest rates
 grace period
 annual fee
► This box is:
 required by law
 often headed with the words “disclosures”
or “summary of terms”
 Look closely
► Credit limits
 While the offer of credit may be
guaranteed, the actual credit limit may
not be
► Balance transfers
 If you don’t know your credit limit, it’s
difficult to know if you can transfer
balances from another card
 Cardholder agreements
► Sent with every new card
► Legal contract between consumer and
the card issuer
► By using the card, consumer agrees to
honor the terms and conditions in the
agreement
 Subject to change
► Cardterms and conditions are subject
to change at any time
 Change notices are usually sent by mail,
along with the monthly statement
 Consumers should review everything sent
by issuer, even if it looks like junk mail
 Using the card after receiving the notice
means that you accept the changes, even
if you have not read the notice
 Card billing & payments
► Each month, the credit card user is
sent a statement indicating the
purchases undertaken with the card,
any outstanding fees, and the total
amount owed. After receiving the
statement, the cardholder may dispute
any charges that he or she thinks are
incorrect .
 Card billing & payments
► Otherwise, the cardholder must pay a defined
minimum proportion of the bill by a due date, or
may choose to pay a higher amount up to the entire
amount owed. The credit provider charges interest
on the amount owed (typically at a much higher
rate than most other forms of debt). Some financial
institutions can arrange for automatic payments to
be deducted from the user's bank accounts, thus
avoiding late payment altogether as long as the
cardholder has sufficient funds.
 Card billing & payments
► Credit card issuers usually waive interest charges if
the balance is paid in full each month, but typically
will charge full interest on the entire outstanding
balance from the date of each purchase if the total
balance is not paid.

► For example, if a user had a $1,000 outstanding

balance and pays it in full, there would be no interest
charged. If, however, even $1.00 of the total balance
remained unpaid, interest would be charged on the
$1,000 from the date of purchase until the payment
is received. The precise manner in which interest is
charged is usually detailed in a cardholder
agreement which may be summarized on the back of
the monthly statement.
 This is a good time to consider how you can
pay those bills on time and avoid any
unnecessary charges. Because you cannot
rely on a statement to remind you when its
time to pay a bill or to tell you how much you
owe, you need to create your own system of
determining when a bill is due and what you
owe. For credit cards that system involves
knowing your billing cycle and keeping track
of your charges.
 Billing Cycle
► To determine when a bill is due, you need to know
your credit card's billing cycle. Often, credit card
billing cycles are 30 days long, with a grace period
of 20 days, meaning the bill is due 20 days after the
close of the billing cycle. To learn what your billing
cycle and due date are read the fine print on your
credit card agreement or a previous credit card
statement. Mark the close of the next billing cycle
on the calendar.

► After the close of that billing cycle, tally the charges

you made on that card during that billing cycle.
 Billing Period

Jan 1 Feb 1 Bill Dispatch Feb 8/9 Due date Feb 21

NextB
illingC
ycle

Purchase Record Billing Payment

Record Updates
Interest and other
Charges
Annual percentage rate (APR)
► Card’s interest charge, expressed as a
yearly rate
► The interest rate is the cost of borrowing
money from the credit card company
► Your card’s interest rate is usually for
purchases — if you withdraw cash you
might be charged a higher interest rate
 Variable rates
► Ifcard has a variable rate, the APR will
change when interest rates go up or down
► Variable interest rates change according to a
set formula using an “index” and a “margin”
► The most common index is the Prime Rate
published in the business sections of major
newspapers and online
 Prime Rate
► The interest rate banks charge their most
qualified borrowers
► Prime Rate is the “index” most commonly
used to set interest rates on variable rate
credit cards
 Other indexes used include the London
Interbank Offering Rate (LIBOR)
 Indexes are published in the business
sections of major newspapers and online
 Fixed rates
► Despite their name, fixed interest
rates can change as early as 15 days
after the company gives notice of a
new rate
 Default or penalty rates
► Higher interest rates charged for late
payments or decline in credit
► Default factors
 Late payment
 Bounced check
 Reduction in credit score
► Higherrate will apply to the existing
balance, not just new purchases
 Cash advance APR
► Most cards charge a higher interest
rate for cash advances

Default with other creditors

Some companies apply a default or
penalty rate if consumer fails to make
timely payments on their other credit
cards or loans with other banks
This is sometimes called “universal
default”
The Downside of Credit card
Use

► The price of credit is high

► Additional fees add to the cost
► Credit makes it easy to overspend
► You are vulnerable to fraud
Credit Card Don’ts

Don’t get more than one

Don’t use them for cash advances
Don’t use them to pay for basics: rent,
groceries, etc.
Don’t charge more than you can pay off in a
month
Don’t let banks increase you credit limit
Credit Card Do’s
Use a debit card vs. a credit card
Use a card with no annual fee and low
interest rates
Know all of your card’s hidden fees
Always pay more than the minimum each
month
Pay on time, all the time
 Prepaid Debit Cards
► In the recent years, the “Prepaid Debit Cards”
came into existence and popularity. The biggest
distinction with “Prepaid Debit Cards” is that no
checks are associated with Prepaid Debit Card
accounts.
► Traditional debit cards are associated with bank
checking accounts held by bankable people
 Prepaid Debit Cards
► Prepaid Debit Cards can be issued to “Bankable
People” and “Un-Banked People” with:
1. No bank account needed
2. No banking history needed
3. No credit check
4. Just about everyone is approved - no declines
5. No employment verification needed
 What Is An International Debit
Card?
► Issued outside of the domestic area of
Home Country by an offshore bank (non-
domestic bank)
► E.g. U,S, banks’ issued debit cards can
only be issued to U.S. residents – per
Patriot’s Act
► Issuance specified as “Cross-Regions”
with “Extended Areas of Application”