Notes

Unit 4 lesson 3
Affinity Card - A credit card sponsored by a third party that receives some benefit from each transaction. For example, a credit card with a college name on it might be offered to students and alumni with the college receiving a percentage of all transactions charged to the affinity card.
•Annual Percentage Rate (APR) - The cost of credit for one year, expressed as a percentage.The APR is a measure of the cost of credit, expressed as a yearly interest rate. Check out the “periodic rate,” too. That’s the rate the issuer applies to your outstanding balance to figure the finance charge for each billing period. If the card offers a very low introductory rate, find out what the rate will be after the initial period.
•Annual Membership Fee - A once-a-year cost or annual membership fee for having the credit card.
•Average Daily Balance - The daily balances for the month are added, then the total is divided by the number of days in the billing cycle to calculate how much interest you will owe for the month. New purchases may or may not be included, depending on the terms of the credit agreement.
•Billing Cycle - The number of days between your last bill and your current bill. It is usually 28 - 31 days.
•Billing Statement - Your periodic credit card bill. It summarizes all of your credit transactions for the month including charges, payments, finances charges, and outstanding balances.
•Cash Advance - A loan taken out by charging an amount of cash to your credit card. Interest for cash advances is usually higher than it is for purchases and there is usually no grace period.
•Cardholder Agreement - A written contract that states the terms that apply to the credit card.
•Chip Card/Smart Card - A card issued by a financial institution with an electronic chip embedded in it that can be programmed for frequent buyer reward programs or credit or debit card functions.
•Collateral - Savings accounts, insurance policies, bonds or other property that are promised to pay off a loan if payments are not made according to the contract. Also called security.
•Co-sign - To sign a credit agreement with someone and agree to pay for that debt if the other person does not pay.
•Credit Card - A card that allows you to pay all or a portion of the balance each month. It usually has a credit limit (or line of credit).
•Credit Line or Credit Limit - The maximum amount of credit you are allowed to use.
•Credit Union - A not-for-profit financial cooperative that offers a variety of savings and lending services to its members.
•Debit Card - Debit cards look like credit cards but they deduct money from a checking or savings account and transfer the funds to merchants electronically.
•Due Date - The day a payment is due to a creditor. After that date, a late fee can be charged and the payment can be recorded as late on your credit report.
•Fair Credit Billing Act - A federal law that applies to credit and charge card accounts to protect a borrower's right to dispute billing errors, unauthorized use of the account, and goods and services charged but not delivered satisfactorily.
•Finance Charge - The total cost of credit in dollars and cents including the interest, service fees, late fees, transaction fees, and any other miscellaneous charges.
Grace Period - The period of time before interest begins to accumulate on your purchases. Some cards do not have a grace period while others offer it only if you do not have an outstanding balance on the account at the start of the billing cycle.
•Installment Credit - A credit agreement that lets you repay credit in regular payments over a specified time.
•Late Payment Fee - A charge added to an account if a required payment is not received by a specified date.
•Minimum Monthly Payment - The smallest payment you can make on your charge card.
•Monthly Periodic Rate - The rate of interest per month calculated by dividing the Annual Percentage Rate (APR) by 12.
•Over-Limit Fee - A charge imposed on some credit accounts for spending more than your credit limit.
•Past Due - The status of a bill when the payment has not been received by the due date.
•Periodic Rate - The interest rate described in relation to a specific amount of time. For example: the Monthly Periodic Rate or the Daily Periodic Rate.
•Posting Date - The date that a purchase, cash advance, fee, or payment has been recorded on your account.
•Previous Balance - The amount you still owe from last month after payments and charge were added to your balance.
•Principal - It is the amount of money you owe not including the interest.
•Prime Rate - The amount you still owe from last month after payments and charges were added to your balance.
•Purchasing Card - A credit card used by businesses to make purchases of $5,000 or less. It eliminates the need to use purchase orders with a participating supplier.
•Regular Charge Account - The balance of the account is payable in full when the statement is received and cannot be rolled over to the next billing cycle.
•Revolving Charge Accounts - A credit account agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As the credit is paid off, it becomes available to use again for another purchase.
•Secured Credit - A loan or credit card that has savings or other collateral used to guarantee the loan.
•Truth-in-Lending Act - A federal law that requires lenders to disclose all the costs and terms of borrowing money for a loan or credit card at the time the offer is made.
•Transaction Fee - An extra charge for credit activities such as using an ATM or receiving a cash advance.
•Unauthorized Charge Definition – A charge on a credit card that was not issued by the cardholder. .
•Unsecured Loan - A loan that does not have collateral to guarantee its repayment. It may also be called a signature loan.
•Variable Interest Rate - An interest rate that changes up or down based on an economic index such as the prime rate.

You qualify if you’re at least 18 years old and have a regular source of income

applying for a secured credit card. It requires that you open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line will be a percentage of your deposit, typically from 50 to 100 percent. Application and processing fees are not uncommon for secured credit cards. In addition, secured credit cards usually carry higher interest rates than traditional non-secured cards.

If you're denied
If you don’t get the card because of information in your report, the creditor must tell you how to get a copy of the report from the consumer reporting company that provided it. There is no charge for the report if you request it within 60 days of getting notice that your application was denied. Review your report carefully. According to the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To protect your rights under the law, contact both the consumer reporting company and the information provider to dispute any information

Transaction Fees and Other Charges
Some issuers charge a fee if you use the card to get a cash advance, if you fail to make a payment on time, or if you exceed your credit limit. Some may charge a flat fee every month whether you use the card or not.

Benefits
Issuers may offer additional benefits, some with a cost, like insurance, credit card protection, discounts, rebates, and special merchandise offers.

Types of Cards
Revolving Agreement
A consumer pays in full each month or chooses to make a partial payment based on the outstanding balance. Department stores, gas and oil companies, and banks typically issue credit cards based on a revolving credit plan.

Charge Agreement
A consumer promises to pay the full balance each month, so there are no interest charges. Charge cards, not credit cards, and charge accounts with local businesses often require repayment on this basis.

Installment Agreement
A consumer signs a contract to repay a fixed amount of credit in equal payments over a specific period of time. Automobiles, furniture, and major appliances often are financed this way. Personal loans usually are paid back in installments, too.

Charge account types


Bank Cards
•Revolving charge cards are credit cards issued by financial institutions. The two largest bankcards in the United States include VISA and MasterCard. They offer consumers a wide range of different types of credit card that are convenient to use and are accepted worldwide.
•Cardholders are given a credit limit when they are issued a card. If you are just starting to establish credit for yourself, your credit limit may be low until the creditor feels you can manage a larger limit.
•Some bank credit cards charge an annual membership fee, while others do not.
•You have the option to pay all of your bill or just the minimum monthly balance required by the company. (usually 1 to 2% of the balance)

Affinity Cards
Affinity cards are credit cards that are sponsored by two or more organizations that cooperate to offer credit to members of a group or people who share a common interest. For example, you may be offered a VISA credit card with your college's name on it. A percentage (typically 1 - 3%) of the total amount charged may be given to the college for scholarship funds.

Store Credit Cards
•Many large department stores and other types of retail stores offer credit to their customers. Examples include: JCPenney, Kohls, Gordmans, American Eagle and Sears. These credit cards offer an easy and convenient way to make purchases from that store or buy from the store online. You may receive advance notice of sales from the store if you are a credit cardholder, and using the store's credit card may make it easier for you to return merchandise.
•Store cards usually do not charge an annual membership fee, but the interest rates can be quite high if you do not pay off your balance in full each month.

Travel and Entertainment Cards (T&E Cards)
•Diners Club and American Express are two examples of travel and entertainment cards. These cards are accepted throughout the world and are usually used by business travelers to buy airline tickets, rent a car, or pay hotel charges or restaurant bills.
•Cardholders usually pay an annual membership fee and may have no limit to the amount that can be charged.
•These cards may be called regular charge accounts because the consumer is expected to pay the balance of the account in full, often 25 to 30 days after the billing date.

Average Daily Balance

This is the most common calculation method. It credits your account from the day payment is received by the issuer. To figure the balance due, the issuer totals the beginning balance for each day in the billing period and subtracts any credits made to your account that day. While new purchases may or may not be added to the balance, depending on your plan, cash advances typically are included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the "average daily balance."

Adjusted Balance

This is usually the most advantageous method for card holders. Your balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. Purchases made during the billing period aren't included.

This method gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount. Some creditors exclude prior, unpaid finance charges from the previous balance.

Previous Balance

This is the amount you owed at the end of the previous billing period. Payments, credits and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.

Two-cycle Balances

Issuers sometimes use various methods to calculate your balance that make use of your last two month's account activity. Read your agreement carefully to find out if your issuer uses this approach and, if so, what specific two-cycle method is used.

Credit Card Tips
•Keep these tips in mind when looking for a credit or charge card.
•Shop around for the plan that best fits your needs.
•Make sure you understand a plan's terms before you accept the card.
•Hold on to receipts to reconcile charges when your bill arrives.
•Protect your cards and account numbers to prevent unauthorized use. Draw a line through blank spaces on charge slips so the amount can't be changed. Tear up carbons.
•Keep a record - in a safe place separate from your cards - of your account numbers, expiration dates and the phone numbers of each issuer to report a loss quickly.
•Carry only the cards you think you'll use.

Some examples of billing errors include
•Unauthorized charges.
•Charges for the wrong amount.
•Charges for things that weren't delivered.
•Math errors.
•Failure to credit your account for returns.

In order to preserve your rights under this law, you must
•Write to the creditor within 60 days after the bill containing the error is sent to you.
•Send the letter to the address given for "billing inquiries," not the address for sending payments.

The creditor must
•Acknowledge receipt of your letter within 30 days.
•Solve the dispute within 90 days after receiving your letter.

The creditor must not
•Report your account as delinquent while investigating your dispute.
•Deny you credit because you have disputed a bill.

If, after investigation, the bill does turn out to be correct
•You must be told in writing how much you owe and why.
•You may ask for copies of the documents proving you owe this amount.
•You will owe the disputed amount plus any accumulated finance charges.

If, after investigation, the bill turns out to be incorrect
•The creditor must tell you in writing the corrections that will be made.
•The creditor must remove all finance charges and late fees.

Liability for Unauthorized Charges

If someone uses your credit card without your permission, the most you will owe for anything that person charges is $50.

If you report the loss before the card is used, the amount you owe is $0.

Report your lost or stolen credit card as soon as possible. Most credit card companies have a toll-free telephone number for this purpose.

Disputed Merchandise or Service

You can dispute charges on your credit card bill for unsatisfactory goods or services under the following conditions:
•You have made this purchase in your home state, or within 100 miles of your billing address.
•The charge is for more than $50. (Unless the seller is also the card issuer.)
•You tried to resolve the dispute with the seller first.