lesson eight

credit cards

overheads
 shopping for a credit card

costs:
Annual Percentage Rate (APR) or Finance (Interest) Charges

Grace period

Annual fees

Transaction fees

Balancing computation method for the finance charge

features:
Credit limit

How widely the card is accepted

What services and features are available

choices & decisions credit cards overhead 8-A

calculating finance charges

cash advances:
You pay interest charges that accrue from the date of the cash
advances.

average daily balance:

You pay interest on the average balance owed during the billing
cycle. The creditor figures the balance in your account on each day
of the billing cycle, then adds together these amounts and divides
by the number of days in the billing cycle.

adjusted balance:
You pay interest on the opening balance after subtracting the
payment or returns made during the month.

previous balance:
You pay interest on the opening balance, regardless of payments
made during the month.

past-due balance:
No finance charge is added if the full payment is received within
the grace period. If it is not received, a finance charge for the unpaid
amount is added on to your next bill.

overhead 8-B choices & decisions credit cards

 examples of finance charges

average adjusted previous

daily balance balance balance
monthly 1.5% 1.5% 1.5%

rate 18% 18% 18%

previous balance $400 $400 $400

payments $300 $300 $300

On 15th day (new balance =$100)

average daily balance $250* N/A N/A

finance charge $3.75 $1.50 $6.00
(1.5% x $250) (1.5% x $100) (1.5% x $400)

* To figure average daily balance:

($400 x 15 days) + ($100 x 15 days) = $250 x 30 days

choices & decisions credit cards overhead 8-C

Comparing credit cards

Enviro American Express Presidents

Essential Credit Choice Financial
Classic Visa Card World MasterCard

Annual Fee $50 None None

Grace Period 21 Days

21 Days 25 Days

APR 23.9900% 19.9700%

11.25%

Credit Limit Depends on Depends on Depends on

credit History credit History credit History

Finance
Charge None None 19.9700%

Method of
Calculating
Finance Charges Monthly Monthly Monthly

Transaction
Fees None None None

Fees for Late

Payment
Not specified for
late payment 8.99% Not specified

overhead 8-D choices & decisions credit cards

 Has emergency card You can transfer 50% 20, 000 PC points
Other Features
and cash of your assigned credit
earned= to $20 in
replacement, lost or limit, up to a maximum
of $7500. free groceries.
stolen protection

choices & decisions credit cards overhead 8-C

 what to do if you are denied credit

if you think the reasons for the denial are valid:

Ask the creditor if you can provide additional information or
arrange alternate credit terms.
Apply to another creditor whose standards may be different.

Do the things you need to do to improve your credit worthiness

(pay bills on time, increase income, reduce spending, obtain a
secured card, etc.) and then reapply.

if you are not sure whether the reason for the denial
is valid:
Ask the creditor to explain why you were denied.

Review your credit history.

If you find your credit history contains errors, take steps to

correct the errors.

if you believe the reason for the denial is invalid and that
the creditor has discriminated against you:
Notify the Human Rights Commission or Consumer Affairs
department in your province. They will investigate and report
back to you.

If you can afford it, hire a lawyer to file suit against the
creditor. If the court determines the creditor did discriminate,
the creditor will be required to pay you actual damages plus
punitive damages.

overhead 8-F choices & decisions credit cards

reading a credit card statement

1 Y OU R

FIRST
BANK
CREDIT CARD
STATEMENT
Box 1234
Send Payments to:
Anytown, CANADA

Date Particulars Debits/Credits

Jan25 PaymentThankYou -168.80

Jan 15 Record Recycler Anytown, CANADA 14.83
Jan15 BeeforamaRestaurant Anytown, CANADA 30.55
Jan 18 GreatExpectorations Big City, CANADA 27.50
Jan 21 Dino-Gel Petorleum Anytown, CANADA 12.26
Feb 09 Shirts 'N Such Tinyville, CANADA 40.10

Account Number Balance On Last Statement Total Credits Total Debits My New Balance

4125-239-412 168.80 - 168.80 + 125.24 = 125.24

Interest Rate/APR Credit Limit

17.5% 1,200.00
John Doe
Statement Date Past Due
211 Elm Street
Anytown, CANADA 2/13/ 00.00
Due Date Minimum Payment

3/9/ 20.00

Amount Paid

Please make cheque or money order payable

to Your First Bank. Include account number Pleaseretain
on front. this portion

General Customer Inquiries: 1-800-555-1234

Report Lost or Stolen Cards: 1-800-555-5678

choices & decisions credit cards overhead 8-E

 dealing with billing errors

collection agencies act

Sets up a procedure for the quick correction of mistakes that appear
on consumer credit accounts.

You can challenge a billing statement for errors such as

charges for unauthorized purchases, charges for items that
were never delivered, failure to credit a payment, etc.
You must notify the creditor of a disputed item within 60 days.

Creditor must investigate and, within two billing periods, either

correct the mistake or explain why the charge is not in error.

You cannot be billed for or forced to pay the disputed amount

until the creditor has finished the investigation.

If it is determined that you are responsible for the bill, you

must be given the usual amount of time to pay it.
Your credit history is protected during the dispute process.

Creditor must supply customers with a statement of their

rights at the time the account is opened and at least twice a
year thereafter.

overhead 8-H choices & decisions credit cards

other credit card protections

prompt credit for payment

A card issuer must credit your account on the day the issuer
receives your payment, unless the payment is not made according
to the creditors requirements.

refunds of credit balances

When you return merchandise or pay more than you owe, you
have the option of keeping the credit balance on your account or
receiving a refund.

unauthorized charges
If you report your card lost before it is used, you cannot be held
responsible for any unauthorized charges.
If your card is used before you report it lost, you are usually liable
for no more than $50.00 in charges.

disputes about merchandise or services

In some circumstances, you have the right to withhold payment
for unsatisfactory merchandise or services. Otherwise, disputes
must be resolved directly with the merchant.

choices & decisions credit cards overhead 8-G

 credit card dos and donts

shop around
Look at various sources.

read and understand the contract

Read the contract carefully.

Dont rush into signing anything.

Once a contract is signed, get a copy of it.

Know the penalties for missed payments.

know your cost

Figure out total price when paying with credit.

Make the largest payments possible.

Know the penalties for missed payments.

Buy on instalment credit only after you have evaluated all

other possibilities.
Dont be misled into thinking small payments will be easy.

overhead 8-J choices & decisions credit cards

how much can you afford?
(the 20 -10 guideline)

never borrow more than 20% of your yearly net income

If your net income (money after taxes) is $400 a month, then
your net income in one year is:
12 x $400 = $4,800
Calculate 20% of your annual net income to find your safe
debt load.
$4,800 x 20% = $960
So, you should never have more than $960 of debt outstanding.

Note: Housing debt (i.e., mortgage payments) should not be

counted as part of the 20%.

monthly payments shouldnt exceed 10% of your

monthly net income:
If your take-home pay is $400 a month:

$400 x 10% = $40

Your total monthly debt payments shouldnt total more than

$40 per month.

choices & decisions credit cards overhead 8-I

 lost or stolen credit cards

protecting your credit cards

When you first receive your credit card from the provider, take
time to read the attached documentation. It will outline the
procedure to follow if your card is lost or stolen.
Some card providers may provide a credit card registry as a
convenient and safe way to keep track of all of your card numbers
for quick reference. A small annual fee may apply for this
service.
Its a good idea to make a list of everything you carry in your
wallet, including credit card numbers. Dont forget to keep the
list separate from your wallet or purse.
If your card is lost or stolen, report it promptly to your credit
card provider.
Each card provider will have their own procedures to follow if
your card is lost or stolen in Canada or while away out of the
country.

lost or stolen Visa card

First, call your issuing financial institution. If you cant

remember which one issued your card, call the Visa
International Global Customer Assistance Service toll free,
24 hours a day at (800) 847-2911. If you are out of the
country, call (410) 581-9994 collect.

overhead 8-J choices & decisions credit cards

 lesson eight
credit cards

student activities

choices & decisions credit cards overhead 8-K

 name: date:

shopping for credit

Credit card costs and features can vary greatly. This exercise will give you a chance to shop for
and compare the costs and features of three credit cards.

directions
Using the attached form, research the costs and features of:
Two major credit cards
One credit card from a department store
When youre done, answer the following questions.

what did you find?

1. Which credit card has the highest annual percentage rate and how much is it?
The Presidents Choice Financial World Master Card has an annual percentage rate of 19.97%.
2. What method is used to calculate the monthly finance charges for the first major
Credit card? It requires a monthly payment.
3. When does the finance charge begin to accrue on the credit card from the local
department store? After the Grace Period.
4. Do any of the cards have annual fees? The Enviro Classic Visa has an annual fee of 50$.
If so, which one(s) and how much is the fee?
5. Is there a transaction fee on any card? No card has a transaction fee.
If so, how much is it? None
6. Is there a minimum finance charge on either of the major credit cards?
If so, how much is it? The third card has a financial charge of 19.97%.
7. Does the first major credit card charge a fee for late payments?
If so, how much is it? No, it does not specify it, the card company would state it before you
purchase the card. If they didnt then, I would make sure to ask them.
8. What is the grace period on the credit card from the local department store? 21 days.
9. Jamel wants to buy a new CD player that costs $450. According to his budget, he can
afford payments up to $62.00 per month. Which of the three credit cards youve found
would you recommend Jamel use to purchase the CD player?
Why? Jemel should use the Enviro Classic Visa because it has the lowest annual percentage rate
of 11.25%. Since Jemel is not planning on paying off his entire purchase at once, it is to his
advantage to use a card that has a low APR.

activity 8-1b choices & decisions credit cards

shopping for credit (continued)

use the following form to compare two or more credit cards:

card one card two

Type of account:
Credit card
Charge card
Company name,
address, phone

Web site

Locations where
card is accepted

Annual fee (if any)

Grace period

Annual Percentage
Rate (APR)

Finance charge
calculation method

Credit limit

Minimum payment

Other fees:
Late payment
Other features

choices & decisions credit cards activity 8-1a

 name: date:

the statement

A credit card statement provides information such as how and when youve used your credit
card, how much you owe, how much interest youre paying to use the card, how much your
minimum payment is, and how much credit you have left.
Knowing how to read your credit card statement can also help you catch unauthorized charges
and/or billing errors.
So, it can pay to know how to read the statement!

directions
Use the credit card statement on the following page to answer these questions:
1. What is the date of the statement?

2. What is the Annual Percentage Rate (APR)?

3. What is the new balance?

4. What was the previous balance?

5. How many charges were made during the billing cycle?

6. How many credits and payments were made during the billing cycle?

7. Were there any charges for late payments?

If so, how much were the charges?

8. What is the total amount of the credit line?

9. What is the total amount of available credit?

10. What is the total amount of charges made during the current billing period?

11. What is the account number on the statement?

12. Where should the payment be sent?

activity 8-2b choices & decisions credit cards

the statement (continued)

Send Payments to:

Box 1234

1 Y OU R Anytown, CANADA

FIRST CREDIT CARD

BANK STATEMENT

Date Particulars Debits/Credits

Jan25 PaymentThankYou -168.80

Jan 15 Record Recycler Anytown, CANADA 14.83
Jan15 BeeforamaRestaurant Anytown, CANADA 30.55
Jan 18 GreatExpectorations Big City, CANADA 27.50
Jan 21 Dino-Gel Petorleum Anytown, CANADA 12.26
Feb 09 Shirts 'N Such Tinyville, CANADA 40.10

Account Number Balance On Last Statement Total Credits Total Debits My New Balance

4125-239-412 168.80 - 168.80 + 125.24 = 125.24

Interest Rate/APR Credit Limit

17.5% 1,200.00
John Doe
Statement Date Past Due
211 Elm Street
Anytown, CANADA 2/13/ 00.00

Due Date Minimum Payment

3/9/ 20.00

Amount Paid

Please make cheque or money order payable

to Your First Bank. Include account number Pleaseretain
on front. this portion

General Customer Inquiries: 1-800-555-1234

Report Lost or Stolen Cards: 1-800-555-5678

choices & decisions credit cards activity 8-2a

 the statement answer key

A credit card statement provides information such as how and when youve used your credit
card, how much you owe, how much interest youre paying to use the card, how much your
minimum payment is, and how much credit you have left.
Knowing how to read your credit card statement can also help you catch unauthorized charges
and/or billing errors.
So, it can pay to know how to read the statement!

directions
Use the credit card statement on the following page to answer these questions:
1. What is the date of the statement? 2/13/01

2. What is the Annual Percentage Rate (APR)? 17.5%

3. What is the new balance? $125.24

4. What was the previous balance? $168.80

5. How many charges were made during the billing cycle? Five

6. How many credits and payments were made during the billing cycle? One

7. Were there any charges for late payments? No

If so, how much were the charges? None

8. What is the total amount of the credit line? $1,200

9. What is the total amount of available credit? $1,074.76

10. What is the total amount of charges made during the current billing period? $125.24

11. What is the account number on the statement? 4125-239-412

12. Where should the payment be sent? Your First Bank, Box 1234, Anytown, Canada

activity 8-3a choices & decisions credit cards

name: date:

how much does it really cost?

directions
Answer the following questions. You ll see for yourself how much items bought
with credit can actually cost.

questions
Dimitri wants to buy a stereo for $650 and pay for it using a credit card that has
an Annual Percentage Rate of 19.8% and a periodic interest rate of 1.65%.

If Dimitri pays the minimum monthly payment of $21.45:

1. How long will it take him to pay for the stereo?

2. What is the total amount Dimitri will pay for the stereo?
3. What is Dimitris total cost of using credit?

If Dimitri makes monthly payments of $60:

4. How many months will it take for Dimitri to pay off the stereo?
5. What is the total amount Dimitri will pay for the stereo?

6. What is Dimitris total cost of using credit?

Karen took a cash advance on her credit card for $1,500. The credit card she
used charges an Annual Percentage Rate of 21% and a periodic interest rate of 1.75%.

If Karen pays the cash advance back at a rate of $60 per month:
7. How long will it take Karen to pay for the cash advance?
8. What is the total amount Karen will end up paying for the cash advance?
9. How much interest will Karen pay?

If Karen pays the cash advance back at a rate of $120 per month:
10. How long will it take Karen to pay for the cash advance?

11. What is the total amount Karen will end up paying for the cash advance?

12. How much interest will Karen pay?

choices & decisions credit cards activity answers 8-2a key

 how much does it really cost? (continued)

Marie just used her new credit card to buy a bike for $400. Her budget allows her
to pay no more than $25 each month on her credit card. Marie has decided not to use
the credit card again until the bike is paid off. The credit card she used has an Annual
Percentage Rate of 21% and a periodic interest rate of 1.74%.

If Marie pays $25 each month on her credit card:

13. How long will it take Marie to pay for the bike?

14. What is the total amount Marie will end up paying for the bike?

15. How much interest will Marie pay for using her credit card to buy the bike?

If Marie pays the minimum payment of $20 each month:

16. How long will it take Marie to pay for the bike?

17. What is the total amount Marie will end up paying for the bike?

18. How much interest will Marie pay for using her credit card to buy the bike?

Gary has just used his credit card to buy a new watch. He got the watch on sale
for $235. The regular price was $290. He used a credit card that has an Annual
Percentage Rate of 20% and a periodic interest rate of 1.67%.

If Gary makes the minimum monthly payment each month of $20:

19. How much will Gary end up paying for his new watch?

20. How long will it take Gary to pay for his watch?

21. What is the total amount of interest Gary will end up paying?

If Gary pays $25 each month, instead of the minimum monthly payment of $10 each month:
22. How much will Gary end up paying for his new watch?

23. How long will it take Gary to pay for his watch?

24. What is the total amount of interest Gary will end up paying?

activity answer key 8-3a choices & decisions credit cards

how much does it really cost? answer key

directions
Answer the following questions. You ll see for yourself how much items bought
with credit can actually cost.

questions
Dimitri wants to buy a stereo for $650 and pay for it using a credit card that has
an Annual Percentage Rate of 19.8% and a periodic interest rate of 1.65%.

If Dimitri pays the minimum monthly payment of $21.45:

1. How long will it take him to pay for the stereo? 43 months
2. What is the total amount Dimitri will pay for the stereo? $908.50
3. What is Dimitris total cost of using credit? $258.50

If Dimitri makes monthly payments of $60:

4. How many months will it take for Dimitri to pay off the stereo? 13 months
5. What is the total amount Dimitri will pay for the stereo? $721.99

6. What is Dimitris total cost of using credit? $71.99

Karen took a cash advance on her credit card for $1,500. The credit card she
used charges an Annual Percentage Rate of 21% and a periodic interest rate of 1.75%.

If Karen pays the cash advance back at a rate of $60 per month:
7. How long will it take Karen to pay for the cash advance? 34 months
8. What is the total amount Karen will end up paying for the cash advance? $1,989.88
9. How much interest will Karen pay? $489.88

If Karen pays the cash advance back at a rate of $120 per month:
10. How long will it take Karen to pay for the cash advance? 15 months

11. What is the total amount Karen will end up paying for the cash advance? $1,707.52

12. How much interest will Karen pay? $207.52

choices & decisions credit cards activity 8-3b

 how much does it really cost? answer key

Marie just used her new credit card to buy a bike for $400. Her budget allows her
to pay no more than $25 each month on her credit card. Marie has decided not to use
the credit card again until the bike is paid off. The credit card she used has an Annual
Percentage Rate of 21% and a periodic interest rate of 1.75%.

If Marie pays $25 each month on her credit card:

13. How long will it take Marie to pay for the bike? 19 months

14. What is the total amount Marie will end up paying for the bike? $473.38

15. How much interest will Marie pay for using her credit card to buy the bike? $73.38

If Marie pays the minimum payment of $20 each month:

16. How long will it take Marie to pay for the bike? 25 months

17. What is the total amount Marie will end up paying for the bike? $545.60

18. How much interest will Marie pay for using her credit card to buy the bike? $145.60

Gary has just used his credit card to buy a new watch. He got the watch on sale
for $235. The regular price was $290. He used a credit card that has an Annual
Percentage Rate of 20% and a periodic interest rate of 1.67%.

If Gary makes the minimum monthly payment each month of $20:

19. How much will Gary end up paying for his new watch? $257.71

20. How long will it take Gary to pay for his watch? 11 months

21. What is the total amount of interest Gary will end up paying? $28.71

If Gary pays $25 each month, instead of the minimum monthly payment of $20 each month:
22. How much will Gary end up paying for his new watch? $257.71

23. How long will it take Gary to pay for his watch? 11 months

24. What is the total amount of interest Gary will end up paying? $18.14

activity 8- 4 choices & decisions credit cards

name: date:

how deep can they go?

directions
Read each of the following scenarios and determine if the purchase can be made
and how the decision will affect the credit load.
Write your answers in the blanks provided. Use the space below each problem to show how
you arrived at your answer. (Use the other side of this paper if you need more room.)

1. After paying rent, Laura and Jamie have a combined monthly net income of $1,200.
What is the most they can afford to pay for instalment and credit card debt?

2. Isaac has a monthly net income of $800. He shares an apartment with friends and pays
$150 each month for rent. Isaac wants to buy a car. Currently, he has only one credit card
payment each month for $80.
Given his current income and current fixed expenses, what doesIsaac have left in his
budget for a car payment?

3. After paying rent, Indra has a monthly net income of $450. She wants to buy a new
bike and pay for it using a credit card.
What is the largest monthly payment she can commit to making?

4. Petr has a monthly net income of $640. He pays $120 per month for rent. He has a
car payment of $125 per month.
Petr wants to buy new tires for his car. The total cost of the new tires is $420. If he
uses credit to pay for the tires, his minimum monthly payment will be $40.
If Petr buys the tires, what percentage of his net income, after rent, will he have
committed to debt payments?

choices & decisions credit cards activity answers 8-3b key

 how deep can they go? answer key

directions
Read each of the following scenarios and determine if the purchase can be made
and how the decision will affect the credit load.
Write your answers in the blanks provided. Use the space below each problem to show how
you arrived at your answer. (Use the other side of this paper if you need more room.)

1. After paying rent, Laura and Jamie have a combined monthly net income of $1,200.
What is the most they can afford to pay for instalment and credit card debt?
$240.00
$1,200 x 20% = $240

2. Isaac has a monthly net income of $800. He shares an apartment with friends and pays
$150 each month for rent. isaac wants to buy a car. Currently, he has only one credit card
payment each month for $80.
Given his current income and current fixed expenses, what does Isaac have left in his
budget for a car payment?
$50.00
$800 - $150 = $650
$650x 20%= $130
$130 - $80 = $50
3. After paying rent, Indra has a monthly net income of $450. She wants to buy a new
bike and pay for it using a credit card.
What is the largest monthly payment she can commit to making?
$90
$450 x 20% = $90

4. Petr has a monthly net income of $640. He pays $120 per month for rent. He has a
car payment of $125 per month.
Petr wants to buy new tires for his car. The total cost of the new tires is $420. If he
uses credit to pay for the tires, his minimum monthly payment will be $40.
If Petr buys the tires, what percentage of his net income, after rent, will he have
committed to debt payments?
32%
$640 - $120 = $520 $125 + $40 = $165
$520 x 20% = $104 $520/ $165= 32%

quiz 8-5 choices & decisions credit cards

name: date:

lesson eight quiz: credit cards

true-false
1. A priority credit card is usually accepted by one type of store or company.
2. The average daily balance method of calculating interest is based on the opening
balance of the account for the previous month.
3. The annual fee for a credit card is set by the government.
4. APR measures the interest rate charged by a credit card.
5. If someone uses your lost or stolen credit card and you report it immediately, you
are usually liable for no more than $50.
multiple choice
8. Comparing the APR among
6. A credit card issued through a
credit union would be an example several credit cards allows you
of a card. to obtain the:
A. longest grace period.
A. bank
B. lowest annual fee.
B. travel and entertainment
C. lowest interest rate.
C. store
D. priority D. least expensive method of
calculating interest.
7. The grace period refersto the time:
9. If a billing error occurs on a
A. taken to process a credit card credit statement, a consumer has
application. days to notify the creditor.
B. for paying an account without A. 30
an interest charge. B. 60
C. allowed to notify a creditor of
C. 90
a billing error.
D. 120
D. used for calculating interest.

case application
Jack uses his credit card for almost all purchases. He charges gas purchases, clothing, food,
and other living expenses. What is your opinion of this money management habit?

choices & decisions credit cards activity answers 8- 4 key

 lesson eight quiz: credit cards answer key

true-false
1. t A priority credit card is usually accepted by one type of store or company.
2. f The average daily balance method of calculating interest is based on the opening
balance of the account for the previous month.
3. f The annual fee for a credit card is set by the government.
4. t APR measures the interest rate charged by a credit card.
5. t If someone uses your lost or stolen credit card and you report it immediately, you
are usually liable for no more than $50.

multiple choice
8. C Comparing the APR among
6. A A credit card issued through a
credit union would be an example several credit cards allows you
of a card. to obtain the:
A. longest grace period.
A. bank
B. lowest annual fee.
B. travel and entertainment
C. lowest interest rate.
C. store
D. priority D. least expensive method of
calculating interest.
7. B The grace period refers to the time:
9. B If a billing error occurs on a
A. taken to process a credit card credit statement, a consumer has
application.
days to notify the creditor.
B. for paying an account without A. 30
an interest charge. B. 60
C. allowed to notify a creditor of
C. 90
a billing error.
D. 120
D. used for calculating interest.

case application
Jack uses his credit card for almost all purchases. He charges gas purchases, clothing, food,
and other living expenses. What is your opinion of this money management habit?
If Jack pays off his balances each month, his use of credit cards may be a convenient money management
techniquethat provides completerecords of all of his spending. However,if this habit results in
overspending and paying more, due to interest, Jack needs to assess his financial activities.

quiz 8-5 choices & decisions credit cards