Credit Cards
How to Use Them, But Not Abuse Them
Developed by Melissa King
Agenda
Credit Cards: The Basics
 Credit Reports
 Positives and Disadvantages of Credit Cards
 The Do’s and Don’ts of Credit Cards

Credit Cards: The Basics

What is credit?
 It
is a loan, allowing you to receive goods
and services now and pay for them later
 It is an agreement that the money borrowed
will be paid back
 It is a debt, it is NOT income
 It comes with fees; interest and other charges
Credit Cards: The Basics

Fees, fees, and more fees
 Interest
rate fees--what you pay for using the $$
 usually
10% - 25% for students (after intro rate)
 Annual
fee for just having the credit card
 Over the limit fees, charged whenever you
exceed your credit limit
 Late payment fees
 Transaction fees
 Other miscellaneous fees
 read
the fine print!!!
Plastic Money

Charge Cards
 must
be paid back every thirty days
 provides convenience of not having to pay for
purchases with cash, but balance may not be
carried over month-to-month

Credit Cards
 operate
on a credit limit and revolving basis
 if not paid-in-full within grace period, interest
is charged on the remaining balance
Plastic Money

Debit or Check 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 that
can then be spent at POS terminals
Students & Credit Cards

Some recent statistics
 76%
of undergraduate students (18-24) have
credit cards (an 8% decrease from the 83% with
cards in 2001)
 56% of final year students have four credit
cards or more (up from 27% in 1998 & 32% in
2000)
2005 Nellie Mae Study
Credit Card Ownership by Grade
Level
Year 1
Year 2
Year 3
Year 4/5
Percentage
who have
credit cards
42
72
83
91
Average
number of
credit cards
2.26
3.44
4.0
5.07
Percentage
who have 4
or more
cards
15
34
41
56
Student Credit Card Balances
1998
2000
2001
2004
Average
credit card
debt per
student
$1879
$2748
$2327
$2169
Median credit
card debt per
student
$1222
$1236
$1770
$946
Percentage
with balances
$3000-$7000
14
13
21
16
Percentage
with balances
over $7000
10
9
6
7
Stats on Credit Card Balances
 By
senior year, 31% of students have a balance
of $3000-$7000
 1 in 8 students owe $7,000 or more
 In the past 10 years, bankruptcy filings by those
under 25 have increased by 96%
Credit Card Debt – EUP students
Spring, 2001
Credit Card Debt
$5000 or more
7.6
$4000 - $4999
2.0
$3000 - $3999
2.0
$2000 - $2999
3.7
$1000 - $1999
7.1
$500 - $999
5.3
$250 - $499
5.5
$100 - $249
5.1
$1 - $99
4.5
None, pay full amount
Total %
18.0
None, not responsible
5.1
I don’t have a credit card
31.8
0.0
10.0
20.0
Percent
30.0
40.0
Credit Reports
Your financial resume
 Shows financial responsibility
 Follows you for life - just like your school
transcript

Credit Reports

What is in a credit report?
 personal
information
 payment history
 amount of credit you have access to and are
using
 inquiries
 public records, judgments, liens, bankruptcies
Credit Scores
Range from 300-850
Components:
 Payment history (35%)
 Outstanding debt (30%)
 Length of credit history (15%)
 Number of inquiries on your report (10%)
 Types of credit currently (10%)
More Info on Credit Scores

Check the Internet
www.myfico.com
http://money.howstuffworks.com
www.bankrate.com
The Positives
majority of students use credit cards
responsibly
 provide convenience and security
 allow students to establish credit histories

The Disadvantages
college students are more likely than other
types of credit card users to run up debts
they cannot pay
 many students do not understand the
consequences of incurring excessive debt
and making payments late

 impaired
credit rating
 more difficult and costly to obtain credit later
The Disadvantages (continued)
college students (with limited or no credit
history and income) are charged higher
interest rates
 many students pay only the minimum
amount due each month, not aware of how
much this will cost them in interest and time

Credit Card Payment Behavior
Pay off all credit card balances on all cards each
month
21%
Make the minimum monthly payments on all
cards every month
12%
Pay off some cards in full each month but make
only the minimum monthly payment on others
8%
Make more than the minimum payment but
always carry a balance
44%
Make less then the minimum payment on some
or all cards each month
11%
My parents pay my credit card bills
4%
Table 1. Minimum Repayment Schedule
on a $2000 Credit Card Loan at 19 Percent
Minimum monthly
payment amount
Number of months
to repay
Total Interest
Payment
$40
100
$1,994
$50
64
$1,193
$75
35
$619
$100
25
$424
Source: Credit Card Minimum Payment Interest Calculator, Daniel C. Peterson
www.webwinder.com
Interest savings between lowest/highest payment = $1,570;
time saved = 75 months or 6.25 years!
Credit Cards: Possible
Consequences





Between 10 - 20% of students are risking
unacceptably high levels of debt
Many students must take on additional jobs to
pay their debts
Many cut back on the number of classes or drop
out of school all together
Career choices can be limited
Some are forced to file bankruptcy
Credit Cards: The Risks

Characteristics of high-risk use
 Average
credit card balances over $1,000
 Owning four or more credit cards
 Carrying a balance each month
 Using credit cards to charge tuition or fees
Credit Card Don’ts
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 your credit limit

Source: USA Funds Life Skills -Module 1
Credit Card Do’s
Limit the number of cards you have
 Use a debit card instead of a credit card
 Use a card that has no annual fee and lower
interest rates
 Know all of your card’s fees
 Pay your full balance each month or at least
pay more than the minimum amount due
 Pay on time, all the time

Source: USA Funds Life Skills -Module 1
Questions ? ? ?
Student Financial Support and Services
can help!
www.youcandealwithit.com
Community Resources

Consumer Credit Counseling Service of
Western Pennsylvania Inc
4402 Peach St
Erie, PA 16509
866-4509