HACE 3200 1st Edition Lecture 11 Outline of Last Lecture I Income tax structure II Social Security III State and Income Taxes IV Standard Deductions Outline of Current Lecture V Using Credit Cards VI Open Credit VII The Five Cs of Credit VIII Balance Calculation Methods Current Lecture Taxes cont d o Choosing a Tax Form o 1040EZ Taxable income less than 50 000 Cant itemize or claim dependents o 1040A Taxable income less than 50 000 Allows for more sources of income o 1040 long form Allows the use of schedules Only form that allows you to itemize deductions o How to file Electronic filing Refund within 3 weeks Less chance of processing error Filing by mail o Help in Preparing Your Taxes IRS hotline 1 800 829 1040 Self help tax publications Computer programs Tax specialists These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Chapter 6 Using Credit Cards The role of Open Credit o Definitions and Examples of Credit Credit receiving cash goods or services with an obligation to pay later Closed credit credit that you must repay in fixed payments Examples car loans mortgages Open credit credit that you can use and repay at your pace so long as you pay the required minimum monthly payment Examples credit cards or department store credit cards Factors that determine Credit worthiness o Annual income o Length of time at current residence o Length of time at current job o Number of bank accounts o Number of credit cards o Credit history Getting a Credit Card The Five Cs of Credit o Character o Capacity o Capital o Collateral o Conditions Character Sense of responsibility toward debt payment o Proven debt repayment history o Job stability o Home ownership rental length o Low debt load Capacity Ability to repay debt o Current level of income and source of income o Current level of borrowing how many lines of credit do you currently have o Level of non obligated income o Debt including mortgage should be less tan 36 of your gross income debt to income ratio Capital Size of your financial holdings o Investment holdings o Savings o Checking o Income o Assets Collateral o Assets or property secured to obtain credit o The creditor holds the title or deed to the assets until repaid o If you default the asset is sold to repay debt o Typically secured assets include automobiles home boats Conditions Extraneous factors o Impact the current economic environment may have on your ability to repay debt Unemployment rate Discount rate Inflation rate My Own personal C Caution o Thef Protect the card itself and your card o Identity thef Shoulder surfing Dumpster diving Know Your Credit Card Philosophy o Credit user Low APR o Convenience user Low annual free Long interest free grace period Free benefits o Convenience and credit user Balance interest rate and annual fee for the lowest total costs Costs Associated with credit cards o The balance owed o Interest rate finance charge o Cash advance costs o The annual fee o Additional or penalty fees Balanced owed Revolving Balance o Revolving credit If you carry a balance from month to month on your credit card then you have a revolving account Compound interest is calculated on revolving balances Interest Rates determines finance charge o Annual percentage rate APR interest rate paid over the life of the loan o Teaser rates introductory rates used to attract new customers some as low as 0 0 o Most credit cards compound interest on a monthly basis APR 12 Balance Calculation Methods o Average daily balance most common Including new purchases Excluding new purchases o Previous balance Balance on previous month s billing not including payments o Adjusted balance Balance on previous billing minus payments Average Daily Balance 18 APR o 9595 31 309 52 o 309 52 x 18 12 o or 1 5 MPR 309 52 x 015 4 64 in finance charges
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