HACE 3200 1nd Edition Lecture 12Outline of Last Lecture I. Using Credit CardsII. Open CreditIII. The Five Cs of CreditIV. Balance Calculation MethodsOutline of Current Lecture I. Revolving BalancesII. Average Daily BalanceIII. Cash AdvanceIV. Credit Evaluation Current Lecture- Balance Owed= Revolving Balanceo 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 Chargeo Annual percentage rate (APR)—interest rate paid over the life of the loano 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 Methodso Average daily balance, most common Including new purchases Excluding new purchaseso Previous balance –balance on previous months billing not including paymentso Adjusted balance—balance on previous billing minus payments- Average Daily Balance (18% APR)o $9595/31 = $309.52o $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 Methodo Previous balance: $215.00o 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 MPRo 0.015(MPR) x $208.55= $3.13 in finance chargeso 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=900o 900 x 1.5%= 13.50o 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 balanceo 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 periodo Fees Range from $0 to $100 (American Express charges $300 for their PlatinumCard) Cash advance fee Late fee(average $35) Over- the- limit fee(average $35)o 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 offeredo 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 creditorso National Credit Reporting Bureaus Equifax Credit Information Services Experian Trans Uniono Just Say No When you have the credit card that you want and want mail offers to cease:- Call: 1.800.567.8688o 1.888.5OPTOUT- Takes a couple of weeks and the mail solicitation will
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