Credit Card Numbers in the US

• American Express: 38 million• Visa: 109 million cards• Discover: 49 million• MasterCard: 82 million

• Total US credit Debt in 2014: $700 BILLION

The True Cost of Paying the Minimum Payment

Payment Schedule: If you start with a debt of 580.00 and make the minimum payment each month it will take you 8 years and 1 month to be rid of your debt. In that time, you will pay $470.32 in interest.

Month

Minimum Payment

Interest Paid

Principal Paid

Remaining Balance

1 $14.25 $8.55 $5.70 $564.30

2 $14.11 $8.46 $5.64 $558.66

3 $13.97 $8.38 $5.59 $553.07

4 $13.83 $8.30 $5.53 $547.54

5 $13.69 $8.21 $5.48 $542.06

6 $13.55 $8.13 $5.42 $536.64

The Credit Card Industry

• $40 billion in profits in 2010– $12 billion in fees

• Most credit card companies are more profitable than places like McDonalds and Microsoft

Market Control

• 5 companies control 65% of the market:– American Express– Bank of America– Citigroup– JP Morgan Chase– MBNA– VISA

Affinity Cards• A credit card offered by

two groups, one a financial institution and the other a non-financial institution, such as a

• College• Airline• Non-profit group• Tim Hortans• West Jet

What’s Next? Life After High School

60%

40%Work force

School: 2-year, 4-year,

or vocational school

Why Students Use Credit Cards

• An increase in college costs and a decrease in families’ liquid savings leads to a dependence on loans & credit cards.

• Students have a cognitive disconnect between the:– Reality of their current incomes vs. an affordable lifestyle

More Reasons Why Students Use Credit Cards

• Students want their parents’ lifestyle BUT don’t have the same financial resources. They depend on:– Financial Aid– Families– Part-time work– Credit Cards

Consumption and Credit

• Students don’t embrace “old school” financial values

• Consumption pressure and easy access to credit

• Increased social acceptance of debt

• Credit is a reward

Long-term Effects of Credit

• Graduate with:– Student loans– Credit card debt

• Affect credit score• Harder to get:

– Car loan or insurance– Apartment lease– Mortgage loan– Job

College Students’ Money Problems

Credit Card Use by Year

Credit Cards: The “Other” Drug

• Marketing of credit cards on campuses poses a greater threat to students future than almost anything else

• Students with high credit card debt are more likely to:– Earn poorer grades– Drop out of school– Suffer from depression– File for bankruptcy– Work more hours to pay bills •No job?

•No income? •No problem?

•If you are a student, you will be approved!

Preparing for Managing Credit on Your Own

• Work income• Allowance income

– Live on a budget at home

• Food• Entertainment • Clothing

Managing Credit in College

• Get one credit card– Authorized user on

parents’ card– Ask parent to cosign card– Secured Card

• Pay off the balance every month

• Don’t take cash advances• Pay on time

Why Credit is Important

• FICO or credit score:• Credit Card Issuers &

Lenders• Auto Insurers

– Determine Premium (Monthly payments)

• Employers– Are you a worthy hire?

• Landlords– Are you a reliable tenant?

35% Payment History

• Late payments have the greatest negative impact.

• Recency & frequency are important too.

30% Outstanding Balances

• Total balance vs. total available credit.

• Are you overextended?

15% Length of Credit History

• Number of years you’ve used credit.

• How long since you’ve used certain accounts.

10% New Credit

• Number of new accounts.

• Multiple requests reduce your score.

10% Types of Credit

• Mix of:

– Revolving Credit• Credit cards

– Installment Credit• Car loan• Home loan

How to Improve Your Score

• Pay all bills on time.

• Pay any delinquent bills.

• Lower your total credit card debt.