MODULE 9:

Using Credit Cards

PARTICIPANT GUIDE

MONEY SMART for Adults

SEPTEMBER 2018
The Federal Deposit Insurance Corporation is an independent agency created by
the Congress to maintain stability and public confidence in the nation’s financial
system. One way we do that is by providing free, non-biased financial education
materials, including this Participant Guide. For more information about our family
of Money Smart products, visit www.fdic.gov/moneysmart.
 PARTICIPANT GUIDE

Contents
Welcome..........................................................................................................................2
Module Purpose...........................................................................................................2
Section 1: How Credit Cards Work ................................................................................3
What Is a Credit Card?.................................................................................................3
Truth in Lending Disclosure ........................................................................................4
Rates and Fees .............................................................................................................5
Try It: Learning About Credit Card Fees ................................................................6
Rewards........................................................................................................................7
Other Important Terms ................................................................................................7
Try It: Choosing a Credit Card................................................................................8
Apply It: My Credit Card Comparison Chart.........................................................9
Unsecured and Secured Credit Cards...................................................................... 10
Applying for a Credit Card ........................................................................................ 11
Section 2: Managing Your Credit Card ........................................................................12
Reading a Credit Card Statement.............................................................................12
Try It: Finding Items in a Credit Card Statement................................................13
Steps for Managing Your Credit Card.......................................................................16
Apply It: Tips for Using My Credit Card ..............................................................18
Module Closing.............................................................................................................20
Remember the Key Takeaways .................................................................................20
Take Action .................................................................................................................20
Where to Get More Information or Help..................................................................21
Pre-Training Survey ......................................................................................................23
Post-Training Survey ....................................................................................................25

MONEY SMART for ADULTS Module 9: Using Credit Cards 1

 PARTICIPANT GUIDE

Welcome
Welcome to the FDIC’s Money Smart for Adults!
This is the Participant Guide for Module 9: Using Credit Cards. Use it
during and after training. Mark it up, write in it, take notes—it is yours
to keep.

Module Purpose
This module covers how credit cards work and how to manage a credit
card.
This module also:
§ Reviews important credit card terms
§ Explains the importance of comparing credit cards
§ Explains how to read a credit card statement

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Section 1: How Credit Cards Work

We will discuss how credit cards work, important credit card terms,
and choosing a credit card based on your needs.

Key
Takeaway
Know how credit
cards work so you
can more effectively
shop around for one
that meets your
needs.

What Is a Credit Card?

A credit card is a revolving line of credit. The balance on your card goes up when
you make purchases. The balance on your card goes down when you make
payments.

There is a limit on how much you can borrow on the card at one time. That is
called your credit limit. It can also be called a credit line.

You must pay at least a portion of the bill every month, called the minimum
payment.

Pay Debt
Use Debt Credit Card Decreases
Credit Card Increases Bill

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Important Financial Tool

A credit card can be an important financial tool because:
§ Regularly paying your bill so the creditor receives your payment by the due
date builds evidence that you are creditworthy.
• The opposite is also true – if you do not pay the amount due so the creditor
receives it by the due date, you can damage your credit history and
decrease your credit scores.

§ It can help you pay for emergency expenses when you cannot pay them in cash.
• You do need to pay the credit card bill eventually though.

§ It offers a convenient option for paying for purchases made online or by

phone.
§ You have the right to dispute erroneous credit card charges.
§ You have the right to dispute certain charges for goods and services that
weren't delivered as agreed.

Cards That Are Not Credit Cards

There are other kinds of cards that may seem like credit cards, but they are not.
This includes:
§ Charge cards
§ Prepaid cards
§ Debit cards

Truth in Lending Disclosure

Credit card rates and fees can vary greatly from
card to card, so understanding these terms can
help you compare credit card offers.
Creditors must give prospective credit card
customers a written disclosure containing
important rate and fee information. This is called
a Federal Truth in Lending Act or TILA disclosure.
This is a helpful tool for comparing credit cards.

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Rates and Fees

The annual percentage rate (APR) is a percentage that tells you the cost of
borrowing money on a yearly basis. Compare APRs when you shop for a
credit card.
The APR charged for purchases may be different from the APR for balance
transfers.
§ Balance transfers are when you move some or all of the balance you owe on
one credit card to another credit card.
The APR charged for purchases may also be different from the APR for cash
advances.
§ Using your credit card to get cash is a cash advance.
§ Read your cardholder agreement to understand what else may be considered
as a cash advance. For example, it likely includes using your credit card to:

• Get cash from an automated teller machine (ATM) or in person from a

provider of financial services
• Borrow against your credit limit using a convenience or access check
• Make a wire transfer
• Purchase foreign currency

The creditor will likely also increase the rate on your credit card by a large
amount if you do not pay your credit card bill on time. This is the penalty APR.
Interest rates can be fixed or variable. If your payment is late and triggers the
penalty APR, get current on your payments as soon as possible. Then try to pay
on time every month. Creditors must reduce the penalty rate if they receive on-
time payments for six months.
§ Fixed rate means the interest rate will not change until the creditor tells you
in writing that it will change.

§ Variable rate means the interest rate varies, usually based on an index. A
variable rate will likely change more frequently than a fixed rate.

Low Introductory APRs

A teaser rate is a low introductory APR that is offered for a limited time of at
least six months. After the limited time, the rate will likely increase, perhaps
significantly.
It's important to know when the teaser rate ends and what the new rate will be.
If you can't pay off the balance before the teaser rate ends, be prepared to pay
what could be a much higher APR on your existing balance and future purchases.

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Try It: Learning About Credit Card Fees

Next to each fee, write the number of the definition that best describes it
from the Definition List.
Matching Definition from Definition List Below
Fee (list the number of the definition)

Late fees

Annual fees

Cash advance fees

Foreign transaction
fees

Balance transfer fees

Credit-limit increase
fees

Over-the-limit fees

Definition List
Number Definition

1 These fees are charged for transferring balances from one credit card to
another credit card.

2 These fees are charged for using a credit card to get cash.

3 These fees are charged for not making payments on time.

4 This is a fee charged every year to use the credit card.

5 These fees are charged for making purchases using the credit card in a
foreign currency.

6 These fees are charged for asking for and receiving an increase in your
credit limit.

7 These fees are charged for borrowing more money than the creditor
agreed in advance to lend to you (your credit limit).

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Rewards
Some credit cards offer rewards, such as:
§ Cash rebates
§ Points that can be used to purchase other goods and services
§ Airline miles that can be used to buy airplane tickets

Know what you need to do to qualify for rewards and maintain them. Think about
whether the rewards will cause you to overspend.

Consider the credit card fees when you look at the credit card rewards.

Shop around since rewards and how you qualify for them vary from card to card.

Other Important Terms

If your application for credit is approved, the creditor will set a credit limit. This is
the maximum credit you can use. It may be called a credit line.

The grace period is the time between when your statement is issued and when
your payment is due.

The balance computation method is how interest on your account is calculated.

§ There are different methods. The average daily balance is one method. The
cardholder agreement will explain which method is used.

Cards may offer different customer service features, such as the ability to pay
your bills online.

Some credit cards may also offer you additional features for free, such as
extending the warranty period on certain products you purchase using the card.

There may also be additional products and services you can choose, for a fee.
These can include:
§ "Payment protection" or “credit protection” to help you make payments if a
specific hardship occurs, such as unemployment or hospitalization
§ Programs that will monitor your credit reports for signs that a thief may be
attempting to use your name to commit fraud

Before agreeing to pay a fee for an additional product or service, ask for a written
summary of features and costs.
§ Consider checking whether you can receive the offered product or service
somewhere else for less money.
§ Find out if you may already have it from another company.

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Try It: Choosing a Credit Card

Read the scenario and answer the question.

Scenario: Siddharth Chooses a Credit Card

Siddharth is a self-employed web designer and is
generally satisfied with how much he earns. He
knows that his income is not steady. Some months
he earns a lot, but then business slows down for a
while and he earns much less.
Siddharth has a disability that affects his balance and
mobility. He would find it convenient to shop online
for things he needs. For example, a grocery delivery
service now serves his neighborhood. He can select the
groceries he wants on a website and pay online to have them
delivered to his door.
He has decided to apply for a credit card and collected information on several
cards. Now he wants to choose one.

What should Siddharth consider?

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Apply It: My Credit Card Comparison Chart

As you are shopping for a credit card, you can use this chart to compare
different credit cards.

Comparison Item Credit Card 1 Credit Card 2 Credit Card 3

Name of creditor/card

Introductory APR and

for how long

APR after
introductory period

APR: Purchases

APR: Cash advances

APR: Balance transfers

Penalty APR

Annual fee

Late fee

Over-the-limit fee

Cash advance fee

Other fees, if any

Grace period?
How long?

Are there rewards?

My credit limit,
if known

Is it a secured card?
Requirements?

Other:

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Unsecured and Secured Credit Cards

Banks and other financial institutions offer both unsecured and secured credit
cards with varying credit limits and rates. Until now, we’ve been talking about
unsecured cards.
A secured credit card requires collateral. You keep money (as collateral) in a
dedicated deposit account at the financial institution issuing the card.
§ The card is “secured” with that collateral.

If you pay at least the minimum payment regularly so the creditor receives it by
the due date, you generally can improve your credit history and increase your
credit scores.
A secured credit card is usually easier to qualify for than an unsecured card.
Secured credit cards typically have lower credit limits than unsecured credit cards.
Some people apply for secured credit cards if they are unable to get an unsecured
card. A secured credit card can help them build or improve their credit history.

Applying for a Credit Card

You can apply for a credit card, whether secured or unsecured:
§ At banks, including in person, on the phone, online, or through the mail
§ At retail stores
§ Other places online, such as credit card comparison websites

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You may also receive credit card offers in the mail. You may opt out of receiving
certain mailed credit card offers by:
§ Calling 1-888-5-OPTOUT (567-8688)
§ Visiting www.optoutprescreen.com

Key Terms in the Application Process

Credit Card Person applying for a credit card
Applicant:

Creditor: The company that issues the card

Individual Credit: When you apply for a credit card on your own, based on
your own assets, income, ability to pay and credit history

Joint Credit: When you apply for a credit card with another person, based
on the assets, income, ability to pay, and credit history of
both people
Authorized User: Someone you allow to use your credit card account who has
no responsibility to pay the bill.

Remember the Key Takeaway

Know how credit cards work so you can more effectively shop
around for one that meets your needs.

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Section 2: Managing Your Credit Card

We will discuss how to read a credit card statement and manage a
credit card.

Key
Takeaway
Credit cards can
be convenient,
but manage them
carefully to keep
costs down and
avoid damage to
your credit.

Reading a Credit Card Statement

If you have a credit card, you will receive a billing statement each billing cycle that
your account has activity. Information on the statement includes the:
§ Account Billing Cycle
§ Account Summary:
• Previous Balance
• New Balance
• Credit Limit
• Credit Available
§ Payment Information:
• New Balance
• Minimum Payment Due
• Payment Due Date
• Late Payment Warning
• Total Minimum Payment Warning
§ Credit Counseling Statement
§ Notice of Interest Rate Changes, if any
§ Transactions or Account Activity:
• Transactions
• Finance Charges
• Annual Fee and Interest Totals
§ Interest Charge Calculation
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Try It: Finding Items in a Credit Card Statement

Use the example credit card statement on the next two pages to answer
these questions.
What is the credit limit, which is sometimes called a credit line?

What is the minimum payment due and when is it due?

How long will it take to pay off the credit card if the cardholder pays only the
minimum payment each month?

How long will it take to pay off the credit card if the cardholder pays $25 each
month, which is more than the minimum payment?

What interest rate will be charged on purchases made after April 9?

What interest rate applies to cash advances?

What are some important things to review in your credit card statement?

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Try It: Finding Items in a Credit Card Statement continued

Example Credit Card Statement

Account Number xxxxx6789
February 21, 2020 to March 22, 2020
Summary of Account Activity Payment Information
Previous Balance $100.00 New Balance $500.00
Payments and -$50.50
Other Credits Current Payment Due $20.00
Purchases and +$415.00 Minimum Payment Due $20.00
Adjustments
Balance Transfers +$0.00 Payment Due Date 4/21/20

Cash Advances +$0.00 Late Payment Warning: If we do not receive your

Minimum Payment by the date listed above, you
Past Due Amount +$0.00 may have to pay a late fee of up to $35.00 and
Fees Charged +$35.00 your APR may be increased up to the Penalty
Interest Charged +$0.50 APR of 28.99%.
Minimum Payment Warning: If you make only
New Balance Total $500.00 the Minimum Payment each period, you will pay
more in interest and it will take you longer to
pay off your balance. For example:
Total Credit Line $2,000.00
Total Credit Line $1,500.00 If you make You will And you
Available no additional pay off the will end up
Statement Closing Date 3/22/2020 charges using balance paying an
this card and shown on this estimated
Days in Billing Cycle 31 each month statement in total of
you pay about
Only the 40 months $634.15
Minimum
Payment
$25 36 months $613.99

If you would like information about

credit counseling, call 800-xxx-xxxx.

Notice of Changes to Your Interest Rates

You have triggered the Penalty APR of 28.99%. This change will impact your account as follows:

Transactions made on or after 4/9/20: As of 5/10/20, the Penalty APR will apply to these
transactions.

Transactions made before 4/9/20: Current rates will continue to apply to these transactions.
However, if you become more than 60 days late on your account, the Penalty APR will apply to
those balances as well.

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Try It: Finding Items in a Credit Card Statement continued

Example Credit Card Statement continued

Transactions
Reference Trans Post Description of Transaction or Amount
Number Date Date Credit
Payments and Other Credits
2340980TUH08 2/25 2/25 Payment Thank You $50.50-
TOTAL PAYMENTS AND OTHER
CREDITS FOR THIS PERIOD $50.50
Purchases
304958VIM345 2/27 2/28 Store 1 $200.00
0980PCJ34590 3/5 3/7 Store 2 $150.00
0880PKJ39870 3/5 3/7 Store 3 $65.00
TOTAL PURCHASES
FOR THIS PERIOD $415.00
Fees
897263698VVO 2/23 2/23 Late Fee $35.00
TOTAL FEES
FOR THIS PERIOD $35.00
Interest Charged
Interest Charge on Purchases $0.50

Interest Charge
on Cash Advances $0.00

TOTAL INTEREST
FOR THIS PERIOD $0.50

2020 Totals Year-to-Date

Total fees charged in 2020 $70.00

Total interest charged in 2020 $1.57

Interest Charge Calculation

Your Annual Percentage Rate (APR) is the annual interest rate on your account.
Type of Balance Annual Percentage Balance Subject Interest
Rate (APR) to Interest Rate Charge
Purchases 14.99%(V) $100.50 $0.50
Balance Transfers 21.99%(V) $0.00 $0.00
Direct Deposit and Check Cash 21.99%(V) $0.00 $0.00
Advances
Bank Cash Advances 21.99%(V) $0.00 $0.00

APR Type Definitions Daily Interest Rate Type: V = Variable rate (rate may vary)

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Steps for Managing Your Credit Card

Credit cards can provide a convenient way to purchase goods and services and
can help improve your credit history and credit scores. But you must manage
them carefully.
Here are some basic steps for
managing your credit card effectively:

§ Keep good records.

§ Check your monthly statements

for mistakes.

§ Pay your credit card bill on time

and pay at least the minimum
amount due each month so
that the creditor receives your
payment by the due date.

§ Try to limit how much you owe

compared to your credit limit:

• Credit scores are generally

higher for consumers who do
not “max out” or otherwise use a large share of their available credit.
• The percentage of your credit limit that you use is called the credit
utilization rate.
• Using a large share of your available credit at any point in the month may
have a negative impact on your credit scores, even if you consistently pay
your full balance each month.
• Some experts advise using no more than 30% of your available credit.
Others advise using no more than 20%. While keeping the balance on your
credit card at or below those percentages may not always be realistic,
it helps to use as little of your credit limit as possible if you want higher
credit scores.

§ Understand the impact of different payment strategies:

• Paying only the minimum payment by the due date
• Paying more than the minimum payment by the due date
• Paying the full balance by the due date

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Compare the price of items with how much you really pay when you only pay the
minimum payment. All figures are rounded to the nearest dollar.

Paying Only the Minimum Payment

How Much
You Really
Credit Card Pay for the Total Years to
Item Price APR Interest Paid Item Pay Off
TV $500 18% $132 $632 3

Car Repair $1,000 18% $863 $1,863 8

Furniture $2,500 18% $5,363 $7,863 23

Compare what happens when you pay only the minimum payment and when you
pay more than the minimum payment.

Paying More Than the Minimum Payment

Original Credit Total Years Total
Balance Card APR Monthly Payments to Pay Off Interest Paid Amount Paid
$2,500 18% Minimum 23 $5,363 $7,863
Payment
$2,500 18% Minimum 4 $1,025 $3,525
Payment + $24
$2,500 18% Minimum 3 $754 $3,254
Payment + $41

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Apply It: Tips for Using My Credit Card

You can use these tips to manage your credit card effectively. Check tips
from the list you want to start or continue doing.

oo
Review your monthly statement as soon as you receive it. Contact the creditor
right away if you notice errors. For example, there may be a charge for an item
you did not purchase.

oo
Pay off your balance in full each month to save money and avoid paying
interest. If you can’t do that, pay as much as you can, as soon as you can.

oo
Pay on time to avoid late fees and avoid having late payments on your credit
report. If you cannot pay on time, call the creditor right away. The creditor may
waive the late fees or be willing to make other payment arrangements.

oo
Try to minimize how much you owe in relation to your credit limit. This is
your credit utilization rate. Some experts advise using no more than 30% of
your credit limit while others advise using no more than 20%. While keeping
balances at or below those percentages may not always be realistic, it helps to
use as little of your credit limit as possible.

oo
Know that using a high percentage of your credit limit at any point in the
billing cycle can negatively affect your credit scores. This is true even if you
regularly pay off your entire balance every month.

oo
Keep a record of important information about your credit cards. This includes
keeping your account numbers, expiration dates, and the website address and
telephone numbers of each creditor in a safe place, separate from your credit
cards, so that you can report a loss quickly.

oo
Carry only the credit cards you expect to use. This can save you time if you
lose your wallet or purse because you would have fewer cards to cancel.

oo
Think about the cost difference if you purchase an item with cash compared
to if you purchase an item with credit and do not pay the credit card bill in full.
For example, if you purchase a $500 television using a credit card with a 20%
APR, it could cost you $1,084 and take 3 years to pay off your debt.

oo
Read the rules that govern your account (the cardholder agreement). You can
access the information online or ask your creditor for a paper copy if you do not
already have one.

oo
Read all notices and information you receive from the creditor. They may be
telling you about an important change to your account.

oo
Ask the creditor to lower the interest rate after you have established a good
record of making payments on time. Creditors are not required to do so, but
they may be willing to do so to keep you as a customer.

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Apply It: Tips for Using My Credit Card continued

oo
Think carefully before accepting a balance transfer offer. In many cases, a
balance transfer can be a good way to get your debt under control and pay it
off faster. However, before you move your balance, you need to know exactly
what you’re getting into. For example, while a balance transfer may offer a low
APR, you may have a higher APR than what you were originally paying after the
introductory period ends. This becomes particularly important if you were not
able to pay off your balance during the introductory period.

oo
Be careful with blank convenience checks that your creditor may send you as
a quick way to write yourself a loan. Expect to incur a transaction fee of several
percent of the amount of each check. In addition, the interest rate can be much
higher than the rate on your card purchases, perhaps twice as high. Even if you
are offered a low interest rate initially, find out what interest rate you will pay
when the introductory period is over. Most creditors also start charging interest
as soon as the check posts to your account, even if they otherwise give you a
grace period to repay your credit card for purchases.

oo
Remember that incidental and impulse purchases can add up. When the bill
comes, you have to pay what you owe. If you are in the habit of regularly using
your credit card, consider checking how much you currently owe on the card
before you make a new purchase to make sure you are able to pay the balance
in full when due. You may be able to check your current balance online or with a
mobile app. You can also keep your own record of your purchases.

oo
Think carefully before closing a credit card account. Closing a credit card
account can lower your credit scores, particularly if it is an account you have
held for a long time. It can also lower your credit scores if closing an account
means you use a larger percentage of your credit limits on other accounts.

oo
If your card is lost or stolen, or if you suspect that your information may be
used to make fraudulent purchases on your credit card account, immediately
contact the creditor.

oo
Ask the creditor about activating free security features. You may be able to sign
up for alerts online. As an example, those alerts can notify you whenever your
card is used without the credit card being physically present.

oo
If you need help with a debt challenge, consider contacting a credit counselor
for personalized guidance. Look on your credit card statement for a toll-free
number you can call to get help in finding one.

Remember the Key Takeaway

Credit cards can be convenient, but manage them carefully to keep
costs down and avoid damage to your credit.

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Module Closing
Remember the Key Takeaways
Section Key Takeaway
1: How Credit Cards Know how credit cards work so you can more
Work effectively shop around for one that meets your
needs.
2: Managing Your Credit cards can be convenient, but manage them
Credit Card carefully to keep costs down and avoid damage to
your credit.

Take Action
You are more likely to take action if you commit to taking action now. One way
to commit is to think about what you plan to do because of what you learned
today. Then write it down.
What will I do?

How will I do it?

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Will I share my plans with anyone? If so, who?

Where to Get More Information or Help

For information and tools to help manage credit cards, visit consumerfinance.gov
and search for “credit cards.”
For information about a range of topics related to credit cards, including scams to
watch out for and consumer protections, visit www.consumer.ftc.gov/topics/credit-
and-loans.
For information about credit card laws and resources, visit www.usa.gov and
search for “credit cards.”

If you have a question about a banking product, ask a customer service

representative at the financial institution for help.
If you have a concern, explain to the customer service representative what
happened and what you would like them to do to correct the situation. If that does
not help, consider contacting the federal regulator for that financial institution.
To find out who regulates the financial institution, call the FDIC toll-free at
1-877-ASK-FDIC (1-877-275-3342) or visit www.fdic.gov/consumers/assistance/
filecomplaint.html.

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Pre-Training Survey
Your instructor may ask you to complete this pre-training survey before the
training begins.
Please answer these questions:
1. You may be charged a penalty annual percentage rate (APR) if:
a. You have less than the minimum balance in your account
b. You pay your credit card bill late
c. You request an increase in your credit limit
d. All of the above
e. None of the above

2. Paying only the minimum payment True False

helps you to pay off your credit card
balance with minimal interest.

3. The annual fee, if any, and the APR True False

are key terms to look at when you
shop for a credit card.

4. A good strategy for improving your True False

credit history is to keep a balance on
your credit card that is close to your
credit limit.

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Post-Training Survey
Your instructor may ask you to complete this post-training survey after the training
ends.
Please answer these questions:
1. You may be charged a penalty annual percentage rate (APR) if:
a. You have less than the minimum balance in your account
b. You pay your credit card bill late
c. You request an increase in your credit limit
d. All of the above
e. None of the above

2. Paying only the minimum payment True False

helps you to pay off your credit card
balance with minimal interest.

3. The annual fee, if any, and the APR True False

are key terms to look at when you
shop for a credit card.

4. A good strategy for improving your True False

credit history is to keep a balance on
your credit card that is close to your
credit limit.

About the Training

Check the box that best describes your agreement or disagreement with each of
these statements.
Completely Somewhat Somewhat Completely
agree agree disagree disagree

5. I would recommend this training to others.

6. I plan to apply what was discussed in this

training to my life.
7. The instructor used engaging training
activities that kept me interested.
8. The instructor was knowledgeable and
well prepared.

9. The Participant Guide is clear and helpful.

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Visit the FDIC’s website at www.fdic.gov/education for more information and
resources on banking-related issues. For example, FDIC Consumer News provides
practical hints and guidance on how to become a smarter, safer user of fnancial
services. Also, the FDIC’s Consumer Response Center is responsible for:
§ Investigating all types of consumer complaints about FDIC-supervised
institutions
§ Responding to consumer inquiries about consumer laws and regulations
and banking practices

You can also call the FDIC for information and assistance at
877-ASK-FDIC (877-275-3342).

MONEY SMART for Adults

PARTICIPANT GUIDE
Module 9: Using Credit Cards

September 2018
www.fdic.gov/education