Financial Fitness The General Store · • Credit Scores • Fixing Bad Credit CROSSROADS HIGH SCHOOL What is Credit? Credit: when goods, services, and/or money are received in exchange

MYPF 4/14/2020

Chapter 16 1

CROSSROADS HIGH SCHOOL

Financial FitnessCredit: What and Why ?


Credit and Debt

• Credit: What and Why?• Credit Cards• Credit Card Statements• Credit Scores• Fixing Bad Credit


What is Credit?

Credit: when goods, services, and/or money

are received in exchange for a promise to pay back a definite

sum of money at a future date.

Credit is derived from the Latin word “credo”

meaning “I believe.”


The Need for Credit

• Early forms of credit• The General Store• Diner’s Club Card (1950)• American Express (1958)


Common Forms of Credit

• Credit Cards• Auto Loans• Mortgages (Home Loans)• Recreational Vehicle Loans


The Credit Process

• Wants to acquire an item.

• Doesn’t have enough money/ wants to borrow from a lender.

Borrower

• Person or company with resources to provide a loan.

• Bank, Credit Card Company, Auto Dealers, etc.

Lender • If approved by the lender, receives credit.

• Pays the lender interest for privilege of borrowing.

Borrower

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Chapter 16 2


Stats:

• Average credit card debt per household with credit card debt: $5,596.

• Average home loan: $165,892• Average auto loan: $26,530• Average number of credit cards held by

cardholders is 3.5.• Average interest on credit card with a

balance on it is 14.96%.


The Reality

• Credit is a way of life for many Americans.• No credit presents inconveniences in our

lives . . . unable to book a hotel, rent a car, make a purchase online, own a car or own a home!

• Many live beyond their means and use credit to make up the difference.


The Use of Credit

• A debtor or borrower is a person who borrows money from others.

• A creditor or lender is a person or business that loans money to others.


Obtaining Credit

Borrower (or debtor) is in need of credit!

Borrower requests to

receive credit from a lender!

Lender determines whether to grant

the borrower credit based on

perceived creditworthiness.

Creditworthiness - an individual’s ability and willingness to pay the money back!


Paying Back Credit

If approved, the borrower will receive money from the lender

Borrower is usually expected to pay interestin addition to

the money borrowed!

Borrower pays money back! Typically in monthly

payments.

Interest - the price of money!


Creditworthiness

Credit approval depends on borrower’s perceived

creditworthiness

Creditworthiness is determined by a credit report and/or credit

score!

History of how you have used credit affects

creditworthiness.

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Qualifying for Credit

• To qualify for credit, you must have the ability to repay the loan.

• Qualification or Creditworthinessis based on three things: • Income• Financial position• Collateral


Income

• Sources of income include:• Job• Interest• Dividends• Alimony• Royalties

• Income represents cash inflow. When your earnings exceed your

expenses, you have the capacity to take on debt.


Collateral

• To borrow large amounts of money, creditors often want more than just your promise to repay; they want collateral.

• Collateral is property pledged to assure repayment of a loan.

• If you do not make your loan payments, the creditor can seize the pledged property.


Types of Credit

• Open-end credit (revolving)• Closed-end credit (installment)

VS.

Closed-end Credit

Open-end Credit


Closed-end vs. Open-end

Closed-end credit

Open-end (revolving) credit

Definition

Purpose of loan (what is purchased)

A one-time loan.Credit extended in

advance.

Specified in application.

May be used for a variety of purposes!


Closed-end vs. Open-end

Closed-end credit Open-end credit

Examples

Payments

Loan Amount

Specified number of equal

payments.

Varies - can be paid in one payment or a series of

equal or unequal payments.

Agreed upon during the

application.

May increase or decrease depending on amount owed.

Mortgage, automobile,

education loans.Credit Cards

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Where to get credit?

• Banks• Credit Unions• Department Stores• Automobile Dealers• Oil Companies (for gas stations)• Federal Government

(for student loans)

CROSSROADS HIGH SCHOOL4-I

The Cost of Using Credit

Interest Rate = 24% Payment = 4% of Current Balance

BALANCE TIME TO PAY OFF

INTEREST CHARGED

TOTAL COST

$2,000 11 YEARS6 MONTHS $1,850 $3,850

$6,000 16 YEARS1 MONTH $5,850 $11,850

$10,000 18 YEARS2 MONTHS $9,850 $19,850

321


Positive Credit Use

Positive Credit Use

Helps develop positive credit history credit

report.

Earn a high credit score!

A high credit score gives the opportunity to have lower interest rates on loans,

the privilege to use different forms of credit, and an easier approval process

for future credit!


Positive Credit Use

• Examples of positive credit behaviors:• Paying credit bills on time. • Paying credit card balances in full every

month.• Applying for only credit cards that are needed.• Keeping track of all charges by keeping

receipts and using a check register.• Checking the monthly credit card and loan

statement for errors.


Negative Credit Use

Consumers with low credit scores have difficulty getting loans, difficulty renting apartments, pay higher

interest rates, pay higher insurance rates, and have difficulty obtaining a job!

Improper credit use.

Develops negative credit

history and credit report!

Lower credit score.


Negative Credit Use

• Examples of negative credit behaviors:• Making late credit payments.• Paying only the minimum payment on credit cards. • Exceeding a credit card’s credit limit (usually triggers a

penalty fee).• Charging items that can’t be paid off immediately.• Having too many credit cards and other loans.

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Chapter 16 5


PROs and CONs of Credit

• PROs• Purchasing power• Emergency funds• Convenience• Deferred billing• Proof of purchase• Builds credit

• CONs• Higher cost for

what you buy• Finance charges• Ties up income• Ability to easily

overspend


Coming up ….

• Everything you need to know about credit cards but were afraid to ask!

• Reading a credit card statement.• Credit scores and credit reports.• Fixing bad credit and bankruptcy.

Assignment #49 – CREDIT & DEBT PART ONE: NOTE TAKING GUIDE Crossroads High School Financial Fitness Ms. Stark

Assignment #49 – CREDIT & DEBT PART ONE: NOTE TAKING GUIDE Financial Fitness -- MMss.. SSttaarrkk Crossroads High School

Name:

Due Date:

Evaluation: This assignment is worth 15 points.

COMMON FORMS OF CREDIT: 1. ___________________________ 2. ___________________________ 3. ___________________________

WHAT IS CREDIT?

DEFINTIONS DEBTOR / BORROWER: CREDITOR / LENDER: CREDITWORTHINESS:

THE CREDIT PROCESS:


CREDITWORTHINESS IS BASED ON: 1. 2. 3.

WHAT IS COLLATERAL?

WHERE TO GET CREDIT

1. 2. 3.

4. 5. 6.

CLOSED-END CREDIT

OPEN-END (REVOLVING) CREDIT

DEFINITION

PURPOSE OF LOAN

PAYMENT

LOAN AMOUNTS

EXAMPLE

When your _______________exceeds your _____________, you have the capacity to take on debt.


A HIGH CREDIT SCORE GIVES . . .

THREE (3) EXAMPLES OF POSITIVE CREDIT BEHAVIOR: 1. 2. 3.

CONSUMERS WITH LOW CREDIT SCORES . . .

THREE (3) EXAMPLES OF NEGATIVE CREDIT BEHAVIOR: 1. 2. 3.

PROS OF HAVING CREDIT CONS OF HAVING CREDIT

1.

2.

3.

4.

5.

6.

1.

2.

3.

4.

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Financial Fitness

Credit Cards 101


What is a Credit Card?

Is a credit card open-end or closed-end credit?

Credit card -a plastic card that you can

use to access a line of credit that has been established in

advance.

A person can borrow up to an established credit limit.

Credit limit: maximum

dollar amount

that can be borrowed.


Credit Card Interest

The cost of credit expressed as a yearly interest rate.

Rate at which interest is charged is referred to as:

Annual Percentage Rate (APR)

Interest is charged each month the balance is not paid in full!


Minimum Payments

• Required to make at least a minimum payment each month.• A minimum payment is usually only a

small percentage (2.5 to 5%) of the total balance due.


Minimum Payment

Payment Made

Time to Pay Off Card

Total Interest Paid

Total Amount Paid

Full Payment $1,500 1 month $0 $1,500

Partial Payment $135 1 year $125 $1,625

Minimum Payment $30 11 years $1,413 $2,913

You have $1,500 on credit card charging 15% APR.

A minimum payment is due each month the card has a balance!


Credit Card = Helpful?…if managed responsibly

Develop positive credit

history.

Convenient payment tool.

Protected from unauthorized

charges.

Credit card safer for online

shopping.

Credit card bonuses.

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Maximum LiabilityMaximum Liability

$50$50

Unauthorized use of any type.Unauthorized

use of any type.

$0$0

If a lost credit card is reported before it is fraudulently used.

If a lost credit card is reported before it is fraudulently used.

If the credit card number is used fraudulently, but the

credit card itself is not used.

If the credit card number is used fraudulently, but the

credit card itself is not used.

Credit Card Lost or Stolen

Report lost or stolen

cards immediately!

Check your statements monthly!


Types of Cards

1. Premium cards high credit limits and usually have features like warranties, insurance, rewards, such as cash back or frequent-flier miles.

2. Affinity cards allows an organization to offer members a branded card — those who have an "affinity" for that organization.

3. Retail cards are credit cards associated with a retail store.4. Secured cards require a cash security deposit.

• Used to build credit by those who don't have a long credit history, or those who have had credit problems in the past.


What is a Debit Card?

• Plastic card which looks like a credit card but is electronically connected to the cardholder’s bank account.

• Money is immediately withdrawn from the cardholders checking account.


Visa and MasterCard

• They do not issue cards set rates or fees.• They provides financial institutions (banks)

with Visa-branded payment products that they then use to offer credit, debit, prepaid cards to customers.

• It is only a processing network.• Helps with fraud protection for consumers • Guaranteed payment for merchants.


Debit or Credit?

Point of Sale

If you pick “credit”

A receipt must be signed. (optional if purchase is under $25)

Extra liability protection from fraudulent charges.

If you pick “debit”

Must enter the card’s personal identification number (PIN).

Option to withdraw cash from your depository institution

account for no fee.


Credit Card Offers

Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format,

called the Schumer Box!

Must direct to the Federal Reserve website (http://www.federalreserve.gov/creditcard/)

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Interest Rates and Interest ChargesAnnual Percentage Rate (APR) for Purchases

12.99%, 13.99% or 14.99%, introductory APR for one year, based on your creditworthiness. After that, your APR will be 14.99%. This is a variable-rate APR that will vary with the market based on the Prime Rate.

APR for Balance Transfers

15.99% This APR will vary with the market

based on the Prime RateAPR for Cash Advances

21.99% This APR will vary with the market

based on the Prime RatePenalty APR and When it Applies

28.99%This APR may be applied to your account if you:1. Make a late payment;2. Go over your credit limit;3. Make a payment that is returned; or4. Do any of the above on another account

that you have with us.How long will the Penalty APR apply? If your APR’s are increased for any of these reasons, the Penalty APR will apply until you make six consecutive minimum payments when due.

How to Avoid Paying Interest on Purchases

Your due date is at least 25 days after the close of each billing cycle. We will not charge you any interest on purchases if you pay your entire balance by the due date each month.

Minimum Interest Charge

If you are charged interest, the charge will be no less than $1.50.

Transaction Fees

For Credit Card Tips from the Federal Reserve Board To learn more about factors to consider when

applying for or using a credit card, visit the website of the Federal Reserve Board at http://www.federalreserve.gov/creditcard

Penalty Fees

Fees

Annual Percentage Rate (APR) for Purchases

• Interest rate paid for purchases.• Multiple interest rates may be

listed - final interest rate may depend on creditworthiness of applicant.

Credit cards may charge many different types of interest rates.


12.99%, 13.99% or 14.99%, introductory APR for one year, based on your creditworthiness.After that, your APR will be 14.99%. This is a variable-rate APR that will vary with the market based on the Prime Rate.


15.99% This APR will vary with the market based on the Prime Rate

APR for Cash Advances


Penalty APR and When it Applies

28.99%This APR may be applied to your account if you:1. Make a late payment;2. Go over your credit limit;3. Make a payment that is returned; or4. Do any of the above on another account that you have with us.How long will the Penalty APR apply? If your APR’s are increased for any of these reasons, the Penalty APR will apply until you make six consecutive minimum payments when due.





For Credit Card Tips from the Federal Reserve Board

To learn more about factors to consider when applying for or using a credit card, visit the website of the Federal Reserve Board at http://www.federalreserve.gov/creditcard

FeesSet-up and Maintenance Fees

NOTICE: Some of these set-up and maintenance fees will be assessed before you begin using your card and will reduce the amount of credit you initially have available. For example, if you are assigned the minimum credit limit of $250, initial available credit will be only about $209. Annual Fee: $20 Account Set-up Fee: $20 (one-time fee) Participation Fee: $12 annually ($1 per month) Additional Card Fee: $5 annually (if applicable)

Transaction Fees Balance Transfer: Either $5 or 3% of the amount of each transfer, whichever is greater (maximum fee: $100)

Cash Advance: Either $5 or 3% of the amount of each cash advance, whichever is greater

Foreign Transaction: 2% of each transaction in U.S. dollarsPenalty Fees Late Payment: $29 if balance is less than or equal to $1000 OR $35 if balance is

more than $1000 Over-the-limit: $29 Returned Payment: $35

* How We Will Calculate Your Balance: We use a method called “average daily balance (including new purchases).”* Loss of Introductory APR- We may end your introductory APR and apply the Penalty APR if you become more than 60 days late in paying your bill

Fixed vs. Variable Rate APR

• Fixed-rate APR cannot change during the period of time outlined in a credit card agreement.

• Variable Rate APR may change depending on other factors (such as economic conditions).






















Introductory Rate• Introductory rate - APR

that may be charged after a credit card is opened.

• Will have a different APR (usually higher) after the introductory period ends.

• Not all credit cards have an introductory rate.























& Cash Advances

• Balance transfer - act of transferring debt from one credit card to another.

• Cash advance includes withdrawing cash from an ATM using a credit card.

• Balance transfer and cash advance fees may also apply (even if the APR is 0%).























Discloses the penalty APR and the penalty terms that

trigger it to take effect!

• Penalty APR - interest rate charged on new transactions if the penalty terms in the contract are triggered.






















How To Avoid Paying Interest on Purchases

• Explains how you can avoid interest charges by paying credit card bills in full every month.


• Typically range from $0.50 to $2 per month

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Set-up and Maintenance Fees

• Any set-up and maintenance fees for the card.• Annual fee - a yearly

fee that may be charged for having a credit card.



















Foreign Transaction: 2% of each transaction in U.S. dollarsPenalty Fees Late Payment: $29 if balance is less than or equal to $1000 OR $35 if balance is more

than $1000 Over-the-limit: $29 Returned Payment: $35

* How We Will Calculate Your Balance: We use a method called “average daily balance (including new purchases).”

* Loss of Introductory APR- We may end your introductory APR and apply the Penalty APR if you become more than 60 days late in paying your bill

Transaction Fees• Discloses any transaction

fees for the card.• Balance transfer fees.• Cash advance fees.

(May be charged in addition to APR.)






















Penalty Fees• Discloses the penalty fees

for the card (in addition to Penalty APR)• Late-payment- charged

when a cardholder does not make the minimum monthly payment by the due date.

• Over-the-limit-charged if the account balance goes over the set credit limit.






















How we calculate your balance.

• Credit card companies can use one of several methods to calculate the outstanding balance on a credit card.






















Loss of Introductory APR

If the card has an introductory rate, this area will list how the

lower introductory rate can be lost.


How do I obtain a credit card?

Comparison shop for a credit card

Compare credit card offers and determine which card to apply for.

Complete a credit application

A form requesting information about a person’s ability to repay.

Lenders conduct a credit investigation

A comparison of information on credit application to information on a credit report.

Approval?

Applicant may or may not be approved (depends on creditworthiness)

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Credit Card Act of 2009

• Credit Cards cannot be issued to someone under 21 years of age without a co-signer or proof of income,

• Under 21 years of age a co-signers permission needed to raise limit,


You must be 21 years

old.

Or, have proof of income.

Or, have a co-signer

Obtaining a Credit Card

If a credit card is not managed

responsibly, what impact

does that have on a co-signer?


Website for more info:

• http://www.creditcards.com/credit-card-news/credit-card-law-interactive-1282.php


To avoid paying interest on a credit card, pay the

balance in full every month.

A credit card can have a positive or a negative

impact on credit history.

Credit card companies are required to disclose the

terms and fees of a credit card.

If you apply for credit and are approved, be sure to

review the final credit terms offered.

Credit card statements outline important

information about a credit card and should be

checked carefully for errors.

Summary

Assignment #50: Hunter & Cabela’s Visa Card Crossroads High School Financial Fitness Ms. Stark

Assignment #50: Hunter & Cabela’s Visa Card Financial Fitness -- MMss.. SSttaarrkk Crossroads High School

Name: Due Date: Goal: Learn the hidden interest involved with credit card purchases, and the real cost of buying “wants” on credit! Assignment: Complete the spreadsheets below and answer the subsequent questions.

See below for instructions. Evaluation: This assignment is worth 30 pts. _______________________________________________________________________________________________________________________ In September, Hunter is approved for his first credit card! (YES!) It is a single issue type card offered by Cabela’s (World’s Foremost Outfitters), his favorite store! After careful evaluation of his finances, Hunter decides to set a store spending budget not to exceed $1,200 a year. This $1,200 just happens to coincide with the $1,200 credit limit imposed by the store. He also promises himself that he will charge no more than $100 a month and pay his balance in full every month to avoid the interest rate of 21.6% APR (or periodic monthly rate of 1.8%). His new creditor, Cabela’s Club Visa, requires a minimum 10% payment on any unpaid balance. And so, Hunter casts himself (like a fly fishing pole) to Cabela’s in Marysville. His monthly purchase totals resulting from his shopping excursions follow:

September $150.00 (BIG closeout sale on summer camping tents.)

October $90.00 (Hunting vest, hunting supplies and gear.)

November $90.00 (Snowboarding equipment.)

December $475.00 (Holiday gifts!)

January $250.00 (It’s a very cold winter and a winter coat sale.)

February $100.00 (Marine electronics sale.)

March $200.00 (Truck towing hitch.)

April $100.00 (New fishing rod!)

May $230.00 (New outdoor BBQ grill.)

June $220.00 (Kayak sale!) In July and August, Hunter is too busy enjoying summer to visit Cabela’s. He is not too busy to realize that his new credit card expenses are seriously threatening his college plans. He wasn’t able to pay the card off in full each month and is now being charged interest. Help Hunter regain control of his finances by completing the following credit card balance statement and by answering questions 1 through 5.

Assignment #50: Hunter & Cabela’s Visa Card Crossroads High School Financial Fitness Ms. Stark

Forward Balance Month Purchases New

Balance (1.80%)

Monthly Rate Adjusted Balance Payment

$ 0 Sept $ 150.00 $ 150.00 $ ---- $ 150.00 $ 100.00

$ 50.00 Oct $ $ 140.00 $ $ $ 100.00

$ 42.52 Nov $ $ $ $ 134.90 $ 100.00

$ Dec $ $ 509.90 $ $ 519.08 $ 100.00

$ Jan $ $ $ $ $ 100.00

$ 581.12 Feb $ $ $ $ 693.38 $ 100.00

$ Mar $ $ $ $ $ 100.00

$ Apr $ $ $ $ $ 100.00

$ May $ $ $ $ 969.35 $ 100.00

$ June $ $ $ $ $ 110.93

$ 998.02 July

1. How much did Hunter actually spend OVER his $100 a month budget limit? (Hint: In ten (10) months his expenditures should not have exceeded $1,000.)

2. How much over his $100 monthly payment budget was he required to pay on his last bill? Why?

3. How much interest has Hunter paid on his unpaid balance? (Hint: Add interest column.)

4. In what month did Hunter almost reach his credit limit, and how much more would he have had to spend to exceed the limit?

5. Knowing that Hunter will have to pay an additional 1.80% interest on each month’s unpaid balance, below calculate how long it will take him to pay off the Cabela’s bill if he makes no additional purchases and continues to pay at least $100 per month. NUMBER OF MONTHS TO PAY OFF _________________?

Forward Balance Month Purchases New

Balance (1.80%)

Monthly Rate Adjusted Balance Payment

$ 998.02 July NONE $ 998.02 $ 17.96 $ 1,015.98 $ 108.25

$ 907.73 Aug NONE $ 907.73 $ 16.34 $ 924.07 $ 100.00

$ 824.07 Sept NONE $ $ $ $ 100.00

$ Oct NONE $ $ $ $ 100.00

$ Nov NONE $ $ $ $ 100.00

$ Dec NONE $ $ $ $

$ Jan NONE $ $ $ $

$ Feb NONE $ $ $ $

$ March NONE $ $ $ $

$ April NONE $ $ $ $

$ May NONE $ $ $ $

$ June NONE $ $ $ $

Assignment #52 – CREDIT CARDS: NOTE TAKING GUIDE Crossroads High School Financial Fitness Ms. Stark

Assignment #52 CREDIT CARDS 101: NOTE TAKING GUIDE Financial Fitness -- MMss.. SSttaarrkk Crossroads High School

Name: Date Due:

Evaluation: This assignment is worth 15 points.

WHAT IS A CREDIT CARD?

Interest is charge ______________________________

__________________________________________.

A minimum payment is

usually____________________

__________________________

__________________________

_________________________.

A minimum payment is due

__________________________

_________________________.


IF MANAGED RESPONSIBILY, CREDIT CARDS CAN BE HELPFUL:

Credit card issuers are required to _____________________

_____________________________________________

_____________________________________________ _____________________________________________.

CREDIT CARD LOST OR STOLEN

TYPES OF CARDS:

1.

2.

3.

4.


SCHUMER BOX VOCABULARY FIXED VS. VARIABLE APR RATES: INTRODUCTORY RATE: BALANCE TRANSFER: CASH ADVANCE: ANNUAL FEE:

SUMMARY

1


Financial FitnessCredit Card Statement & Average Daily Balance!



CREDIT IS NOT FREE!

• When you do NOT pay off your entire balance, the credit card bank or company charges you a finance charge!

• Based on your APR (Annual Percentage Rate).• Different ways to compute finance charges.


Average Daily Balance

• Most common method of calculating the balance on a credit card in order to determine finance charges.

• Based on the average amount owed each day of the billing cycle. • Billing cycles and interest rates differ from card to

card with some allowing a “grace period” with no interest or finance charges if the account is paid in full each month.


AVERAGE DAILY BALANCE

• STEP ONE:Average Daily Balance = Sum of Daily Balances

Number of Days

• STEP TWO:Finance Charge = Average Daily Balance x Periodic Rate

• STEP THREE:New Balance = Unpaid Balance + Finance Charge


KNUCKLE TRICK

• Since we need to count days, make sure you know how many days are in each month!

• Knuckle trick31 days: Top of KnuckleJan, March, May, July, Aug, Oct, Dec

30 days: Knuckle Valleys Feb, April, June, Sept, Nov

NOTE: February is either 28 or 29 days!

2


Figure Average Daily Balance!

• STEP ONE:Average Daily Balance = Sum of Daily Balances

Number of Days


Calendar?

9/12$300

9/13$300

9/14$300

9/15$300

9/16$300

9/17$300

9/18$300

9/19$300

9/20$300

9/21$300

9/22$300

9/23$300

9/24$300

9/25$300

9/26$300

9/27$300

9/28$300

9/29$300

9/30$300

10/1$100

10/2$220

10/3$220

10/4$220

10/5$220

10/6$220

10/7$220

10/8$220

10/9$220

10/10$220

10/11$220

10/12$220


Table!

Date Item Debit Credit Balance No. of Days Daily Balance

9/12-30 Balance $300.00 19 $5700.0010/1 Payment -$200.00 $100.00 1 $100.0010/2-12 Purchase $120.00 $220.00 10 $2420.00

TOTAL DAILY BALANCE: $8,220.00

Average Daily Balance = Sum of Daily Balances

Number of Days

$8220 = $265.1612 = $265.1631

Assignment #53 – Reading Credit Card Statements Crossroads High School Financial Fitness Ms. Stark

Assignment #53: READING CREDIT CARD STATEMENTS Financial Fitness -- MMss.. SSttaarrkk CCrroossssrrooaadds High School

Name: Date Due: Assignment: In this assignment, you will read a typical credit card statement to familiarize yourself with typical charges found on statements. Next, you will learn how to calculate the average daily balance, as it is the basis for how finances charges are applied. Lastly, you will figure out the 20/10 rule for various scenarios. Evaluation: This assignment is worth 30 points. _________________________________________________________________________________________ PART A: The end of every cycle, the credit card company takes an accounting of your credits and debits and sends you that information in the form of a credit card statement. You should read the statement carefully and verify the charges. Read the sample statement below and answer the ten questions that follow.


1. How many purchases were made during the billing cycle?

2. What is the sum of all purchases made during the billing cycle?

3. When is the payment for this statement due?

4. What is the minimum amount that can be paid?

5. How many days are in the billing cycle?

6. What is the previous balance?

7. How much credit is available to use?

8. What is the current APR and Monthly Periodic Rate?

9. If the monthly APR was to change to a new rate of 24.99% what would be the new Monthly Periodic Rate?

10. How many days from the billing cycle until the payment must reach the creditor? PART B: Finance or interest charges are based on the average amount the consumer owed each day of the billing cycle. This average is called the AVERAGE DAILY BALANCE. It is used with the monthly periodic rate to determine the finance charge. Billing cycles and interest rates differ from card to card, with some allowing a “grace period” with no interest or finance charges if the account is paid in full each month.


The AVERAGE DAILY BALANCE, along with the FINANCE CHARGE, is calculated as follows in order to find a customer’s NEW BALANCE: 1. Compute the daily balances and the average daily balance (30-day billing cycle). Then compute the

monthly finance charge based on an Annual Percentage Rate (APR) of 15%.

Date Item Charge (+)

Payment (-)

Balance No. of Days Daily Balance No. of Days x Balance

6/5 Balance $350.00 6/10 Charge $50.00 6/15 Payment $30.00 6/18 Credit $20.00 6/20 Charge $10.00 6/25 Payment $30.00

a. Average Daily Balance: ______________________________ b. Monthly Finance Charge: ____________________________ c. New Balance: ______________________________________

2. Compute the daily balances and the average daily balance (25-day billing cycle). Then compute

the monthly finance charge based on an Annual Percentage Rate (APR) of 18%.


Payment (-)


3/1 Balance $500.00 3/3 Payment $50.00 3/6 Charge $65.00 3/8 Charge $30.00 3/10 Credit $11.00 3/14 Charge $30.00 3/18 Payment $20.00

d. Average Daily Balance: ______________________________ e. Monthly Finance Charge: ____________________________ f. New Balance: ______________________________________


3. Compute the daily balances and the average daily balance (31-day billing cycle). Then compute the

monthly finance charge based on an Annual Percentage Rate (APR) of 23.999%.


Payment (-)


11/18 Balance $180.00 11/26 Charge $30.00 11/28 Charge $16.00 12/1 Payment $35.00 12/8 Charge $28.00 12/12 Credit $10.00 12/15 Charge $30.00

g. Average Daily Balance: ______________________________ h. Monthly Finance Charge: ____________________________ i. New Balance: ______________________________________

_________________________________________________________________________________________ PART C: Financial advisors often suggest the use of the 20/10 Rule to people who are beginning to use credit: Your total borrowing should never exceed 20 percent of your yearly take-home pay, and you should never take on monthly payments that total more than 10 percent of your monthly take-home pay. Calculate the 20/10 rule for the follow scenarios:

1. A. If your yearly take-home pay is $27,000, your total borrowing should not exceed _____________. B. If your monthly take-home pay is $2,250, your monthly credit payments should

not be more than _____________.





Documents

Financial Fitness The General Store · • Credit Scores • Fixing Bad Credit CROSSROADS HIGH SCHOOL What is Credit? Credit: when goods, services, and/or money are received in exchange