need help on this

NGPF Case Study Types of Credit #1 Spanish version Case Study Summary Alignment to Credit Card Unit Learning Objectives: Description: In this Case Study, students will take on the role of a peer financial counselor to analyze credit card promotions and comparison shop for a card. They will also learn about alternatives to credit cards for those seeking to develop a credit history. Students will be able to Understand how principal, interest rate, and term are critical components to evaluating credit options (3.1) Explain how a credit card works in terms of making purchases and managing payments (3.2) Understand how interest is charged and how to avoid or minimize it (3.2) Establish criteria for choosing a credit card, based on the factors important to their needs (3.3) Recognize and avoid marketing schemes that might lead to bad decisions (3.3) Identify alternative routes to establishing credit, aside from opening their own credit card account (3.3) Internet Usage: Optional Spreadsheet Skills: None Gimme Some Credit Jose recently became a peer financial advisor at his college. He was excited about this role, as it combined his love of personal finance with his desire to help others in his college community. He often found himself amazed by the lack of knowledge that students had about all things financial, whether it was checking accounts, credit cards or student loans. His parents had taught him valuable lessons growing up and his surprise came from the fact that most students didn't have similar experiences with their families. Jose had recently seen more students coming forward to ask him for advice regarding credit cards. He wasn't sure if it was peer pressure (one roommate telling another) or the influx of credit card spam that seemed to have hit student email boxes recently. In fact, just that afternoon, Michelle had come to his office with one of these credit card offers (see below). She could not contain her excitement: \"Hey Jose, I couldn't believe this offer I got from a credit card company today. It's amazing to me that they don't charge me any interest and don't make me pay them back. Am I missing something as this seems too good to be true? I mean, what is the right way for me to evaluate such a great offer?\" www.ngpf.org Last updated: 10/8/16 1 Exhibit 1 Credit Card Offer Answer this: 1. What should Jose tell Michelle about this offer? What are additional questions she should find answers to prior to getting this credit card? Now that Jose had helped Michelle, he was on to his next appointment with George. Jose pulled out George's file and began to read through his notes: College junior; recently turned 21 Responsible approach to money; has a budget and emergency savings fund of $1,000 Works 10 hours per week at local retailer during school year earning $10/hour Has $20,000 in federal student debt; not planning to start payments until grace period ends Had trouble renting an off-campus apartment when the landlord couldn't find his credit score When George ran credit report, he discovered that he had no credit history George came in, excited to review a list of credit cards that he had spent some time analyzing on a credit card comparison site. When Jose asked him how he came up with his list, George mentioned that he had searched for cards that met his criteria: no annual fee, the best cash rewards, and available for those with a Good credit score (690-719). Before looking at the list that George brought in, Jose asked George why he'd decided to use a comparison site instead of visiting each card's website, and how he'd chosen the comparison site to use -- there are so many. George said his friend had vouched for this website and he thought the results looked pretty good. www.ngpf.org Last updated: 10/8/16 2 Exhibit 2 Credit Card Comparison Site: Answer this: 2. What should Jose tell George about comparison sites and their accuracy, business models and how they determine their rankings? Now that Jose had given George a few tips on comparison sites, he recalled what he had learned in his recent peer advisor training about the importance of listening to clients. Before jumping in with his own thoughts, he decided to listen to hear what George had to say: \"I really feel like it's time for me to get a credit card. I learned how important it is to have a credit history when I kept getting turned down for an off-campus apartment my sophomore year. Every time that a landlord pulled credit on me, they came up empty. Now that I am 21, I can apply for a credit card without having my parents' cosign on the application (they would never agree to that)! I hear that it is easy to land that first credit card, and I can't wait to apply. www.ngpf.org Last updated: 10/8/16 3 Once I get a card, I want to know what the best way is to boost my credit score. I heard from a friend that you need to have a balance on your card (in other words, not pay off your card in full every month) in order to get a credit score. He also told me it is ok to be late every once in a while, since credit scores are based on improving your payment habits and not whether you are paying every month on-time. That seemed to make sense to me.\" As Jose thought about how best to respond to George, he realized that there were three questions he had better be prepared to answer to set George straight about credit: Answer this: 3. Underline all of the flaws in George's statement above. 4. Do you think George will be approved for one of the three cards on his list? Why or why not? 5. What is the best way to use a credit card to build your credit history? 6. What are other ways that George can start to build his credit history besides a traditional credit card? You may want to skim this Simple Dollar article to come up with ideas. www.ngpf.org Last updated: 10/8/16 4 www.ngpf.org Last updated: 10/8/16 5