4.1
Which of the following is NOT considered a transaction on a credit card statement?
a. payments made
b. fees charged by the card company
c. the statement closing date
d. customer purchases and returns
c. the statement closing date
Which of the following best describes how to calculate a monthly periodic rate?
a. Divide the APR by twelve and write as a decimal.
b. Multiply the finance charge by twelve and write as a decimal.
c. Multiply the APR by the number of days in the month and write as a decimal.
d. Multiply the APR by twelve and write as a decimal.
a. Divide the APR by twelve and write as a decimal.
Which of the following is the most common method for calculating finance charges on a credit card?
a. adjusted balance method
b. average daily balance method
c. mean balance method
d. previous balance method
a. adjusted balance method
Which of the following reasons might be used to discourage a friend from getting a cash advance on a credit card?
a. interest charges begin accumulating immediately
b. payments are applied to any purchase balance before the cash advance balance creating higher finance charges
c. the interest rate for cash advances is higher than for purchases
d. all of the above
d. all of the above
Which of the following is NOT a strategy for managing or reducing debt?
a. Use a debit card instead of cash.
b. Transfer high-interest credit card balances to lower-interest accounts.
c. Pay more than the minimum payment on credit cards.
d. Pay off credit cards with the highest interest rates first.
a. Use a debit card instead of cash.
When comparing credit cards, all the following should be evaluated before making a decision with the exception of
a. the annual percentage rate.
b. the credit limit available.
c. the method used for calculating finance charges.
d. the annual fees assessed.
a. the annual percentage rate.
The ___________________ is a document from the credit card company which outlines the costs associated with using their card.
Terms and conditions
What is the Daily New Balance equation?
New Balance = Previous Balance + (Finance Charges + New Purchases + Fees) - (Payments + Credits)
The ____________________ for cash advances and balance transfers is typically higher than the rate for purchases.
APR
True or False...
Use cash, not credit cards to reduce debt
True
A ____________________ is a number generated by credit bureaus to assess the risk an individual poses to a creditor.
Credit Score
Hernando Fuentes uses a credit card that has a 21.9% APR and uses the adjusted balance method to calculate finance charges. Hernando’s statement listed these facts: previous balance, $579.47; new purchases, $229.13; late payment fee, $29.00; payments, $150.00; and credits, $76.39. If the credit card company uses a daily periodic rate, what is Hernando’s finance charge and new balance on a 30-day billing cycle?
Finance Charge = $6.36, New Balance = $617.57
Adjusted Finance Charge =
Adj Balance = $579.47-(150+76.39) = 353.08
Finance Charge = .219/365=.0006*353.08*30= 6.36
Adj New Balance=353.08+6.36+229.13+29= 617.57
What is the Daily Balance with New Purchases equation?
Daily Balance with New Purchases = Beginning Balance - (Payments+Credits) + (Purchases+Fees)
____________________ include both periodic finance charges and fees charged.
Total finance charges
Blake earns $3,200 each month. He pays $600 per month for housing, $300 per month for a car loan, and $150 per month in other debt payments. Find Blake’s debt-to-income ratio to the nearest tenth of a percent.
Debt-to-income ratio = 32.8%
600+300+150=1050
1050/3200=32.8
Michelle Peterson’s credit card statement for the month of December showed a membership fee of $40, a late fee of $15, a finance charge of $11.72, and an over-the-limit fee of $14. What was the total cost of the card to Michelle in December?
Total Cost = $80.72
What is the Periodic Finance Charge equation?
Periodic Finance Charge = Balance Subject to Finance Charge * Periodic Rate * Number of Periods
Kurt borrowed $225 for 18 days on his credit card using a cash advance. His credit company charged a cash advance fee of $12 and a daily periodic interest rate of 0.054%. What was the total finance charge on the cash advance?
Total Finance Charge = $14.19
225*.00054*18 = 2.19
Fee = 12
What is the Total Finance Charge on the Cash Advance equation?
Total Finance Charge on the Cash Advance = Periodic Finance Charge + Fees
Debt Payments/Gross Income
Michael Lane checked his credit card statement and noticed a sale for $82.99 that was unauthorized. He also found that a sale for $52.87 had been listed as $58.27. If the new balance on his statement was $310.65, what is his correct new balance?
Correct New Balance = 222.26
New Balance = 310.65-82.99+52.87-58.27
Callie Brent’s credit card statement for March 31 showed a previous balance of $210.40 and new purchases of $22.31 on 3/11, $12.11 on 3/18, and $34.85 on 3/23. She made a payment of $210.40 on 3/27. What is Callie’s new balance?
New Balance = 69.27
210.4+22.31+12.11+34.85-210.4 = 69.27
Alice Brontworth’s credit card statement for November showed these items: 11/1, previous balance, $121.33; 11/7, purchase, $59.10; 11/11, purchase, $23.27; and 11/17, payment, $110.00. Alice’s card company uses a 1.75% monthly periodic rate and the average daily balance method including purchases. What is Alice’s finance charge for November and the new balance?
Finance Charge =$2.32, New Balance = $95.93
MAKE THE CHART
True or False
It is better to take cash out with a credit card than it is with a debit card?
FALSE
On June 1st, Jared has a $1,500 beginning balance on his credit card. He decides to stop making charges on his card and work towards paying it off. His credit card has an APR of 18%. Monthly periodic finance charges are calculated using the previous balance method. If Jared makes monthly payments of $150, how much will he owe in 6 months? How much will he have paid in periodic finance charges?
Owe in 6 Months = $705.75, Periodic Finance Charge = $105.75
MAKE THE CHART