Credit Cards

What are the benefits?

No need to carry large sums of cash

Helps credit rating

Have access to a written record of all purchases

Rewards programs (points, cash back, frequent flyer, etc)

Impulse Buying

What is impulse buying? When a consumer purchases something to which they

suddenly were attracted to and had no intention of buying previously.

What is one purchase you have made on impulse?

Why does having a credit card increase impulse buying?

Revolving Charge Account

Most common type of card

Entire bill does not have to be paid in full each month. Rather, there is a minimum monthly payment, and a finance charge for all balances carried over.

To avoid a finance charge, pay your bill in full each month

Your rights:

Truth in Lending Act (1968)

Protects you if your card is lost or stolen

You may be partially responsible for purchases made prior to you reporting the card stolen

May have to pay $50

Not responsible for any purchases made after the card is reported stolen

Credit Card terms & Conditions

Credit Card terms & Conditions

APR

Annual Percentage Rate

Rate at which your balance is charged to be carried over each month

To find monthly finance charge, need monthly percentage rate

Divide by 12

APR

You sign up for a credit card with a 21.6% APR. What is your monthly interest rate?

→ 21.6% ÷ 12

= 1.8%

Average Daily Balance

The average of the amounts you owed each day in the billing period.

Changes due to purchases and payments made

Most common method used in computing finance charges

Gets credit card companies the most $$$

Finding Average Daily Balance

Add the balances for every day in the billing cycle

Divide by the number of days

This will result in the average amount owed on each day

Example:

Rebecca did not pay last month’s credit card bill in full. Below is a list of Rebecca’s daily balances for her last billing cycle.

For seven days, she owed $456.11 For three days she owed $1,177.60 For six days she owed $990.08 For nine days, she owed $2,115.15 For five days, she owed $2,309.13

Example

Find the sum of the daily balances:

7 (456.11) = 3,192.773 (1,177.60) = 3,532.806 (990.08) = 5,940.489 (2,115.15) = 19,036.355 (2,309.13) = 11,545.65

Total = $43,248.05

Example

Divide the total balance by the number of days in the billing cycle:

# of days: 7 + 3 + 6 + 9 + 5 = 30

A.D.B. = $43,248.05 ÷ 30

= $1,441.60

One more example:

Naoko has these daily balances on his credit card bill.

2 days at $99.78 15 days at $315.64 11 days at $515.64 2 days at $580.32

Find Naoko’s average daily balance

Example

Find the sum of the daily balances:

2 (99.78) = 199.5615 (315.64) = 4,734.6011 (515.64) = 5,672.042 (580.32) = 1,160.64 Total = $11,766.84

Example

Divide the total balance by the number of days in the billing cycle:

# of days: 2 + 15 + 11 + 2 = 30

A.D.B. = $11,766.84 ÷ 30

= $392.22

Classwork:

Page 197, 2 – 9 (skip 7)