MoneyCounts:
A Financial Literacy Series
Credit Cards
Dr. Daad Rizk
MoneyCounts: A Financial Literacy Series
301 Outreach Building
University Park PA 16802
dar39@psu.edu
814-863-0214
Learning Objectives
 List types, pros & cons of Credit Cards
 Review a credit card billing statement
 Analyze relationships between credit card, credit report,
credit history and credit score (FICO)
 Recognize debt signs
 Apply the 20/10 rule for debt management
MoneyCounts: A Financial Literacy Series
Reminder
Have a credit card
billing statement handy,
we will need it as we
review each section on
the bill – reading
between the lines!
MoneyCounts: A Financial Literacy Series
Types of Credit Card Accounts
 Bank Card – Visa, MasterCard, Discover (Issuer)
 Store Card – Macy’s, Chevron
 Travel and Entertainment Card – American Express
(Charge Card)
MoneyCounts: A Financial Literacy Series
Advantages of Using Credit Cards
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Use of card builds credit history
Quick source of funds in an “obsolete” emergency
Ability to obtain “needed” items
No extra charge if bill is paid on time and in full each
month
 Consumer protection ($50.00)
MoneyCounts: A Financial Literacy Series
Disadvantages of Using Credit Cards
 Need to establish credit worthiness before getting card
 Can encourage impulse buying and unnecessary “wanted”
purchases
 High interest rates if not paid in full and by the due date
 Some cards charge annual fees – can become expense with the
passage of years
 Fees are charged for late payments or spending over the limit
 Improper use of the card, late payment, over the limit charges, etc.,
can negatively affect credit history and credit score
MoneyCounts: A Financial Literacy Series
Cost and Features
 Annual Percentage Rate (APR)
 Fixed rate cards are slowly disappearing
 Variable APR tied to the Prime interest rate
 Grace Period – minimum 21 days
 Annual Fees – making a come back
 Transaction Fees – low teaser rates
 Balancing computations method for the finance charge – date of transaction
not from the last cut off period
 Credit limit –decreasing for riskier cardholders
 How widely the card is accepted – strict approvals
 What services and features are available – ask all the questions
 Minimum age is now 21 (without a co-signer, without a proof of income)
MoneyCounts: A Financial Literacy Series
MoneyCounts: A Financial Literacy Series
MoneyCounts: A Financial Literacy Series
Billing Statement
1) Summary of account activity
A summary of the transactions on your account‐‐your
payments, credits, purchases, balance transfer, cash advances, fees,
interest charges, and amounts past due. It will also show your new
balance, available credit (your credit limit minus the amount you owe),
and the last day of the billing period (payments or charges after this day
will show up on your next bill)
- Minimum 21 days in payment cycle
- Due date must be same each month
MoneyCounts: A Financial Literacy Series
Billing Statement
2) Payment information
Your total new balance, the minimum payment amount (the least
amount you should pay), and the date your payment is due. A payment
generally is considered on time if received by 5 p.m. on the day it is
due. If mailed payments are not accepted on a due date (for example, if
the due date is on a weekend or holiday), the payment is considered on
time if it arrives by 5 p.m. on the next business day.
Example: If your bill is due on July 4th and the credit card company
does not receive mail that day, your payment will be on time if it arrives
by mail by 5 p.m. on July 5th.
MoneyCounts: A Financial Literacy Series
Billing Statement
3) Late payment warning
This section states any additional fees and the higher interest rate that
may be charged if your payment is late.
- Late fee $25-$35 unless the user is late multiple times in a 6
months consecutive period.
4) Minimum payment warning
An estimate of how long it can take to pay off your credit card balance if
you make only the minimum payment each month, and an estimate of
how much you likely will pay, including interest, in order to pay off your
bill in three years (assuming you have no additional charges). For other
estimates of payments and timeframes, see the Credit Card
Repayment Calculator.
MoneyCounts: A Financial Literacy Series
Billing Statement
5) Notice of changes to your interest rates
If you trigger the penalty rate (for example, by going over your credit
limit or paying your bill late), your credit card company may notify you
that your rates will be increasing. The credit card company must tell
you at least 45 days before your rates change.
6) Other changes to your account terms
If your credit card company is going to raise interest rates or fees or
make other significant changes to your account, it must notify you at
least 45 days before the changes take effect.
MoneyCounts: A Financial Literacy Series
Billing Statement
7) Transactions
A list of all the transactions that have occurred since your last
statement (purchases, payments, credits, cash advances, and balance
transfers). Some credit card companies group them by type of
transactions.
Others list them by date of transaction or by user, if there are different
users on the account. Review the list carefully to make sure that you
recognize all of the transactions. This is the section of your statement
where you can check for unauthorized transactions or other problems.
MoneyCounts: A Financial Literacy Series
Billing Statement
8) Fees and interest charges
Credit card companies must list the fees and interest charges
separately on your monthly bill. Interest charges must be listed by type
of transaction (for example, you may be charged a different interest rate
for purchases than for cash advances)
MoneyCounts: A Financial Literacy Series
Billing Statement
9) Year‐to‐date totals
The total that you have paid in fees and interest charges for the current
year. You can avoid some fees, such as over‐the‐limit fees, by
managing how much you charge, and by paying on time to avoid late
payment fees.
10) Interest charge calculation
A summary of the interest rates on the different types of transactions,
account balances, the amount of each, and the interest charged for
each type of transaction.
MoneyCounts: A Financial Literacy Series
20/10 Rule
 How much debt can I afford to carry?
 Never carry more than 20% of your yearly net income
 If your yearly net income is $6,000, your total debt outstanding should never
exceed $1,200 (20% of $6,000)
 Never cause your monthly payment to be more than 10% of your monthly
income
 If your monthly net income is $500, your credit card debt payment should
not exceed $50
 20/10 rule applies to total debt combined outside mortgages (credit cards, student
loans, car loans)
MoneyCounts: A Financial Literacy Series
Very Important Tool
Federal Reserve Credit Card Repayment Calculator
 How long will it take me to pay off my credit card balance if I make only the
minimum payment?
 How do I pay off my credit card
sooner?
MoneyCounts: A Financial Literacy Series
balance
10 tips to control credit card debts
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Have an emergency fund (10% of net income)
Charge only what you can afford (20/10 rule)
Avoid balance transfers (high interest rate)
Don't miss credit card payments (not to pay late payment)
Pay your balance in full each month (not to pay interest)
Avoid cash advances (high interest rate)
Understand your credit card terms (read between the lines)
Limit the number of credit cards you sign for (control debt)
Do not lend or lose your credit card
(control liability)
Recognize the signs of getting yourself
in debt (control debt)
MoneyCounts: A Financial Literacy Series
Credit Cards and FICO Score
How is FICO SCORE calculated (300-840)
 Payment history is 35% measures your ability to pay on time
 Debt level is 30% (credit balance to credit limit )
 Length of credit history is 15% (It’s good to leave open the accounts
that you’ve had for a long time)
 Inquiries are 10% (how many times you fill applications for credit)
 Mix of credits are 10% (having different kind of accounts, car loan,
student loan, credit card, mortgage)
 Annual Credit Report.com

MoneyCounts: A Financial Literacy Series
FICO (Fair Isaac Corporation)
MoneyCounts: A Financial Literacy Series
FICO Scores
Understanding the Crossroads that Lead to Explaining the Score
What makes up the score?
•
35% = Payment History
•
30% = Capacity (Capacity is King)
•
15% = Length of Credit
•
10% = Search & Acquisition for New Credit
•
10% = Type of Credit
What actions will hurt the score?
•
Missing payments (regardless of dollar
amounts…It will take 24mo. to restore credit
with one late payment).
•
Credit cards at capacity (i.e., maxing out
credit cards).
•
Opening up numerous trades in a short time
period.
•
Having more revolving loans in relation to
installment loans.
•
Loans at finance companies
What does not Affect the Score?
•
Income
•
Length of residence
•
Length of employment
Approximate Credit Weight for each Year
•
40% = current to 12 months
•
30% = 13-24 months
•
20% = 25-36 months
•
10% = 37+ months
How to Improve the Score
•
Pay down on credit cards
•
Do not close credit cards because capacity
will decrease.
•
Continue to make payments on time
(old late pays will become less significant with time).
•
•
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Slow down getting new loans.
Acquire a solid credit history with years of
experience.
Move revolving debt to installment debt.
MoneyCounts: A Financial Literacy Series
What’s in a credit report?
• Contains Details about your identity and financial
bahavior
– Accounts
• Credit cards, retail cards, real estate loans, auto loans and collection
accounts
– Inquiries
• Hard inquiries and soft inquiries
– Public Records
• Bankruptcy, tax lien, civil judgments
– Potentially negative items
– Accounts in good standing
MoneyCounts: A Financial Literacy Series
How often is it updated?
• Monthly by creditors
– Different times of the month for each creditor
• Creditor A on the first of the month
• Creditor B on the 11th of the month
• Etc.,
– Using increments of 30,60,90,120 days late
• If you miss a payment by 30 days – report is updated as 30 days late
• Etc.,
– Failed to pay
• Over 120 days (sometimes 180 days) report is updated to Failed to Pay
MoneyCounts: A Financial Literacy Series
Credit Cards/Credit Report/Credit History
 Every credit card you open, gets recorded on your credit report and
establishes credit history includes department store credit cards,
Bank cards, Travel cards, Gas cards, etc.,
 All positive information remain indefinitely on your report - good
credit history pay on time, pay in full, etc.,
 All negative information "age-off" for 7 years, late payments, chapter
13 bankruptcy (reorganization of debt), liens, foreclosures, etc.,
 Chapter 7 Bankruptcy remains for 10 years
 Child Support and defaults on student loans are reported until
satisfied
MoneyCounts: A Financial Literacy Series
What not to do to protect your financial reputation
 Do not open a credit card unless you are serious about having that
particular card and intend to keep it for a very long time
 Do not get seduced by rewards and token gifts to get you to open a
credit card (umbrella, pen, or a saving of 10% on purchases)
 Do not "MAX" your credit card to the limit ( do not charge anymore
than 30% of your total credit limits)
 Do not send your payment late, avoid paying "PILS" penalties,
interest, late payment and surcharges
 Live by the 20/10 rule to keep a healthy budget
MoneyCounts: A Financial Literacy Series
Make a Plan!
• Invent a game
– $ Spent on wants (not needs) $ Saved, $
Debt
• Each time you spend money on wants, you put
same in saving account and same against debts
– Train for freedom
• How fast can you pay down credit card debts
– Set goals and take charge
MoneyCounts: A Financial Literacy Series
MoneyCounts:
A Financial Literacy Series
Thank You!
Comments and Questions
Dr. Daad Rizk
MoneyCounts: A Financial Literacy Series
301 Outreach Building
University Park PA 16802
dar39@psu.edu
814-863-0214