Chapter 8 Consumer Services 223
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Pathway to Success Pathway to Success
Using Credit Wisely
As soon as you turn 18 years old, many
credit companies begin to send credit card
offers in the mail. As you begin your journey
into independence, getting your fi rst credit card
can be an exciting time. Learning to use that
credit card wisely is an entirely different lesson.
Points to remember about credit cards
include the following:
1. Credit cards are actually high-interest
loans in disguise. The company loans you
money and then gets their money back by
charging interest. If you pay off your bill
each month, you will not pay interest. If
you carry a balance, however, the fi nance
charges can be as much as 25 percent APR.
2. Companies record your payment history in
your credit report. After college, you need
a good credit history to rent an apartment,
buy a car, or take out a loan. Many
employers also check credit history before
they hire.
3. If a credit card is in your name, you are
responsible for paying the bill.
4. Read all application materials carefully,
especially the fi ne print. Find out what
happens after the introductory interest is
over. What happens to your interest rate if
you fail to make a payment?
5. Use a debit card or cash instead of
credit, if possible. Save the credit card for
emergencies.
6. Avoid buying items you do not need.
7. Pay bills on time to keep charges minimal.
Pay the full balance every month if you
can.
8. Federal law limits how credit card
companies can do business with people
younger than 21 years of age. Unless you
have enough income to make monthly
payments, you will need an adult cosigner
to obtain a credit card.
Research Credit Cards
Gather credit card offers from the mail or
online. Compare the credit applications from
at least two different companies. Make sure to
compare the following:
• Is there an introductory interest rate? If so,
what is it?
• What is the annual percentage rate (APR)?
Credit cards often charge different rates
for purchases, cash advances, and balance
transfers. What are the rates for each
different use?
• Is the APR fi xed or variable? Fixed rates
remain constant while variable rates change
depending on the prime rate.
• What is the billing cycle for the card?
• How long is the grace period?
• Is there an annual fee? If so, how much is it?
• What fees are associated with cash advances,
balance transfers, and late payments?
• Does the credit card offer any rewards for
use?
• Does the interest rate change after the
introductory period?
Based on your research, which credit card
offers the best deal? Why? Share your thoughts
with the class.