Madisen Norton 2nd Period Chapter Six Pages 166-195 Page 194 Questions: 1, 2, 3, 5, 6, 7, 8, 11, 12,13, 20 1) Define the

term credit. How is credit different from open credit? What is revolving credit? Credit: Receiving cash, goods, or services with an obligation to pay later. Credit is different from open credit because you have to pay so much on credit each month, but with open credit you can pay it back when you can, with a minimum balance each month with added interest on the unpaid balance. Revolving credit is a line of credit that you can use and then pay back at whatever pace you like so long as you pay a minimum balance each month, paying interest on the unpaid balance. 2) Paying a $30 annual fee for the privilege of using a credit card can be thought of as adding $2.50 to your monthly bill. What other card features and fees affect the cost of credit? Cash advance fees, late fees, over-the-limit fees, and penalty rates. 3) Describe how a lender calculates the annual percentage rate (APR) when issuing credit. Why is the APR such an important tool when shopping for credit? A lender calculates the APR by using one of three methods: (1) the average daiy balance method, (2) the previous balance method, and (3) the adjusted balance method. You simply multiply your ARP by your outstanding balance. 5) What is a grace period? Why would a grace period be canceled or eliminated? The Grace Period is the length of time given to make a payment before interest is charged against the outstanding balance on a credit card; a grace period may be canceled or eliminated if you dont completely pay off all of your previous months borrowing. 6) List and briefly describe the most common fees and penalties imposed by credit card issuers. Cash Advance Fee: A charge for making a cash advance, paid as either a fixed amount or a percentage of the cash advance. Late fee: a fee imposed as a result of not paying your credit card bill on time. Over-the-limit fee: a fee imposed whenever you go over your credit limit. Penalty Rate: the rate you pay if you dont make your minimum payments on time. 7) List five benefits, or advantages, associated with credit card or open credit use. What is the major disadvantage? Benefits/Advantages: Its more convenient; its a source of emergency funds; you get to use it before you actually pay for it; if you pay your full credit card balance each month, a credit card allows you to earn interest on money you would not hav if you paid cash from the date of purchase until the payment date. Disadvantages: Its easy to spend too much money, and lose track of how much money youve spent; you pay high interest rates; and youll have less budget flexibility in the future. 8) List and briefly describe the 11 credit card rules resulting from the CARD Act of 2009. a) Notification of rate increase: Your credit card company has to tell you when they plan to increase your rate or other fees, they must give you a 45 day notice. b) Notification of schedule for pay off: You credit card company has to tell you how long it will take you to pay off your balance. c) No interest rate increases for the first year: your credit card company cannot increase your rate fo the first 12 months after you open an account.

d) Increased rates apply only to new charges: if your credit card company does raise your interest rate after the first year, the new rate will apply only to new charges you make. e) Restrictions on over-the-limit transactions: you must tell your credit car company that you want it to allow transactions that will take you over your credit limit. f) Caps on high-fee cards: if your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25% of the initial credit limit. g) Protections for underage consumers: if you are under 21, you will need to show that you are able to make payments, or you will need a cosigner, in order to open a credit card account. h) Standard payment dates and times: your credit card company must mail or deliver your credit car bill at least 21 days before your payment is due. i) Payments directed to highest interest balances first: if you make more than the minimum payment on your credit card bill, your credit card company must in general apply the excess amount to the balance with the highest interest rate. j) Fee Limits: your credit card company cannot charge you a fee of more than $25 unless: i) one of you last six payments was late, in which case your free may be up to $35; or ii) your credit card company can whos that the costs in incurs as a result of late payments justify a higher fee. k) No inactivity fees: your credit card company cant charge you inactivity fees, such as fees for not using your card. 11) What is (are) the most important decision factor(s) in choosing a credit card for a credit user, a convenience user, and convenience and credit user? A Credit User: generally carries an unpaid balance from month to month. A Convenience User: someone who pays off the credit card balance each month. A Convenience and credit user: Someone who generally, but not always, pays off all of the balance. 12) Explain how the CARD Act of 2009 has changed the way college students apply for and access credit cards. They dont apply for as many because they arent allowed as many freebies 13)Explain the 5 Cs of credit and how they relate to individual creditworthiness. a) Character: refers to your sense of responsibility with respect to debt payment. b) Capacity: lenders look to both your current income level and your current level of borrowing. c) Capital: Refers to the size of your financial holdings or investment portfolio. d) Collateral: refers to assets or proerty offer as security to obtain credit. e) Conditions: refers to the impact the current economic environment may have onyour ability to repay any borrowing 20) List four Ways to avoid credit card fraud. a) In a safe place at home keep a detailed list of all your credit and debit cards and other accounts, including the 24-hour customer service phone numbers for each. This information will help you cancel your accounts quickly and minimize the danger to your inances. b) Dont carry documents that include your Social Security number or any PIN numbers, passwords, or access codes for bank or credit cards.

c) Keep your birth certificate, passport, and Social Security card in a fireproof stong box in your home, or in a safety deposit box. If you lose your drivers license, these will be your only official forms of identification. d) Check your credit reports with the three national credit bureaus-TransUnoin, Experian, and Equifax-for suspicious activity at least once a year. Federal law entitles you to a frre annual report; to get it, call (877) 322-8228