HACE 3200 1nd Edition Lecture 12 Outline of Last Lecture I Using Credit Cards II Open Credit III The Five Cs of Credit IV Balance Calculation Methods Outline of Current Lecture I Revolving Balances II Average Daily Balance III Cash Advance IV Credit Evaluation Current Lecture Balance 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 months 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 or 1 5 MPR 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 309 52 x 015 o 4 64 in finance charges Previous Balance Method o Previous balance 215 00 o Interest 18 APR Compounded monthly 0 015 0 015 MPR x 215 3 23 in finance charges Practice Problem 1 o Calculate the interest being charged using the Previous Balance Method o It is now February Justine ended the month of January with an 875 balance on her credit card Her creditor charges her 12 APR interest is charged monthly What are her finance charges Adjusted Balance Method Previous Balance 215 Previous Payment 6 45 3 minimum Adjusted Balance 208 55 Interest 18 APR 0 015 MPR o 0 015 MPR x 208 55 3 13 in finance charges o Practice Problem 2 Calculate the interest being charged using the Adjusted Balance Method Abbie had a balance on her credit card of 1 200 however she made a 300 payment What are her finance charges for the month if she is being charged 18 APR finance charges are calculated monthly o 1200 300 900 o 900 x 1 5 13 50 o Buying Money The Cash Advance Interest begins immediately and may be at a higher rate than for purchases Usually there is a cash advance fee of 2 to 4 of the amount advanced Some cards require payment of the purchase balance before payment of the cash advance balance o The Grace Period Normally 20 to 25 days excluding cash advances Doesn t apply if you carry a balance Not all credit cards offer a grace period o Fees Range from 0 to 100 American Express charges 300 for their Platinum Card Cash advance fee o o o o Late fee average 35 Over the limit fee average 35 Credit Evaluation The Credit Bureau Credit bureau collects and reports information from creditors public court records and the consumer Determining your creditworthiness credit scoring determines if you qualify for credit and the interest rate offered Information on Your Credit Report Personal demographics Age Social Security number address Employment history Credit Repayment history Criminal convictions and judgments Previous two years of inquiries by creditors National Credit Reporting Bureaus Equifax Credit Information Services Experian Trans Union Just Say No When you have the credit card that you want and want mail offers to cease Call 1 800 567 8688 o 1 888 5OPTOUT Takes a couple of weeks and the mail solicitation will stop
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