Swipe Smart Slides
Financial Literacy Module 1 • Credit Essentials
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What is Credit?
Credit is when goods, services, or money are received in exchange for a promise to pay a definite sum at a future date.
Word Origin
Derived from the Latin “credo” meaning “I believe” or “I trust.”
Class Brainstorm
Why would a person want or need to use credit instead of cash?
Key Concept: Trust & Deferred Payment Tap your cards • Swipe • Borrow
Warm-Up Activity
Thumbs Up 👍 or Thumbs Down 👎?
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Would you recommend using credit for these purchases? Vote with your thumb!
🏠 Buying a house (Mortgage)
💇 Going to a hair salon
🥤 A specialty drink & fresh cookie
🚗 Buying a reliable car
🎓 College or trade school tuition
🍕 Lunch pizza with friends
🔧 Emergency car engine repair
🏖️ A spray tan you “really really” need
🎟️ Concert tour tickets
🌴 Spring break weekend getaway
Big Rule of Thumb: Is it an investment/emergency, or an impulse want that disappears tomorrow?
How It Works
The Credit Cycle
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Step 1
The Borrower
- Wants to purchase an item or service
- Does not have sufficient cash right now
- Applies to borrow from an institution
Needs Capital
Step 2
The Lender
- Organization with resources to provide funds
- Banks, credit unions, credit card companies
- Assesses risk before approving the loan
Evaluates Risk & Extends Funds
Step 3
The Repayment
- Borrower receives credit and buys the item
- Repays principal loan over time
- Pays interest for borrowing privilege
Principal + Interest Returned
Borrowing is never free: interest is the price of using someone else’s money.
Credit Type #1
Installment Credit (Closed-End)
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Definition
A one-time loan that is repaid in a specified number of equal monthly payments until paid in full.
Classic Examples:
Auto Loans
36–72 mos
Mortgages
15–30 yrs
Student Loans
Fixed terms
May Require a Co-Signer
A co-signer is a second party with strong credit who legally guarantees the loan.
⚠️ Crucial Warning: If the primary borrower misses payments or defaults, the co-signer is 100% legally responsible to pay!
Predictable monthly budgeting Fixed end date when balance reaches $0
Credit Type #2
Non-Installment Credit (Revolving)
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Extended in Advance
Borrow money up to a pre-approved Credit Limit whenever you choose, without applying every single time.
Limit varies: Based directly on your creditworthiness & income.
Monthly Flexibility
You can pay the full balance, or make a minimum payment and carry (revolve) the rest to next month.
Interest Catch: High interest triggers if not paid in full each month!
Common Examples
General bank credit cards, department store charge cards, gas cards, and lines of credit.
Card Brands: Visa, Mastercard, Target RedCard, Amazon Store Card.
Installment = One loan, fixed payments Non-Installment (Revolving) = Reusable line of credit
Market Landscape
The Card Universe: Networks vs. Retail
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Major Payment Networks
Accepted globally anywhere
VISA Global Network
Mastercard
AMEX American Express
DISCOVER Discover Network
Used for groceries, gas, flights, online shopping, and bills worldwide.
Store & Co-Branded Cards
Tied to specific retailers
◎
Target Circle
Amazon Card
Old Navy / Gap
Kohl's Charge
Often offer 5% discounts or store perks, but frequently have much higher APRs (28–32%+).
Do not sign up at checkout just for a 15% one-time discount without checking the terms!
Video Case Study
Movie Clip: Confessions of a Shopaholic
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Discussion Prompts
- • What emotions drive the main character when pulling out her credit card?
- • How does using plastic separate the fun of buying from the pain of paying?
- • Have you ever justified a purchase with "I’ll worry about the bill next month"?
Key Theme: Frictionless spending makes money feel invisible until the statement arrives!
Clip: Becky Bloomwood encounters the green scarf Notice the rationalization cycle!
Consumer Behavior
The “Frictionless Spending” Trap
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The Invisible Cash Effect
When we pay with plastic or tap our phones, our brain does not feel the physical “pain of paying” that handing over paper cash creates.
Studies show consumers spend 12% to 18% more when using credit cards instead of cash!
Delayed Consequences
The joy of the purchase happens today; the dreaded bill doesn’t arrive for 30 to 45 days.
The Rewards Illusion
“I’m earning 2% cash back!” Spending $100 just to earn $2 is still losing $98.
Lifestyle Inflation
High credit limits trick borrowers into believing their purchasing power is higher than their real bank balance.
Question: When was the last time you bought something solely because you could “pay later”?
Weighing the Options
Advantages & Disadvantages of Credit Cards
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Advantages (The Pros)
- Convenience: Safe, fast cashless payment tool
- Emergency safety net: Funds when urgent crises arise
- Big-ticket purchases: Spread payments over time
- Fraud protection: Federal laws limit liability
- Credit history: Builds score for future loans
- Perks & rewards: Cash back, miles, points
Disadvantages (The Cons)
- High interest costs: Explodes if balance revolves
- Penalty fees: Late fees, return fees, over-limit fees
- Temptation to overspend: Easy to buy beyond means
- Identity theft risk: Cards can be skimmed or hacked
- Personal liability: Must report lost/stolen cards ASAP
- Credit score drops: Too many rapid card applications
A credit card is a tool, like a power saw: powerful when used properly, dangerous if mishandled.
Lender Evaluation
What is Creditworthiness?
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Core Principle
Creditworthiness is the lender’s estimate of how likely you are to repay your debts in full and on time.
1. Gate to Approval
Card approval and loan approval depend entirely on the borrower’s perceived creditworthiness in the eyes of the lender.
2. Daily Usage Matters
Every payment made, missed due date, balance carried, and credit limit exceeded dynamically alters your standing.
3. Measured by Reports
Lenders evaluate you objectively using credit reports and standardized three-digit credit scores (300 to 850).
Lenders don’t guess: your credit history is your financial GPA.
Life Impact
The High Cost of a Low Credit Score
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Excellent Score (750+)
Tier 1
Opportunities Unlocked
🏠 Home Mortgage Lowest 6.2% APR
🚗 Car Financing Low monthly rate ($380/mo)
🏢 Apartment Lease Instant approval, $0 extra deposit
Saves over $120,000+ in interest over a lifetime!
Low Score (< 580)
High Risk
Barriers & Heavy Costs
🏠 Home Mortgage Denied or 9.5%+ APR
🚗 Car Financing High subprime ($590/mo)
🏢 Apartment Lease Double security deposits
Costs thousands more each year just to borrow the exact same sum.
Your credit score touches apartments, insurance rates, utility deposits, and even job applications.
Building Your Score
Positive Credit Behaviors (Green Flags)
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Pay balances in full every month
Eliminates interest entirely so borrowing costs you $0.
Pay credit card bills on time
Payment history makes up 35% of your credit score.
Apply only for cards you need
Limits hard inquiries that temporarily ding your score.
Track all charges actively
Use app notifications or registers so budget totals never surprise you.
Inspect monthly credit card statements for billing errors
Audit every line item each month to catch fraudulent charges before the 60-day dispute deadline expires.
Consistency is king: good habits maintained over years generate an 800+ credit score.
Risk Factors
Negative Credit Behaviors (Red Flags)
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Making late card payments
Triggers late fees and damages credit reports for up to 7 years.
Paying only the minimum due
A $2,000 balance at 22% APR can take 10+ years to clear!
Exceeding the credit limit
Causes penalty fees and spikes credit utilization instantly.
Charging items you can’t pay off
Treating credit like "extra income" traps you in compounding debt.
Owning too many credit cards at once
Creates disorganized management, missed billing dates, and unwanted annual fees.
Rule of Gold: If you can't pay for it in cash today, don't charge it to plastic.
Consumer Protection
Credit Card Offers & Disclosure
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Federal Disclosure Mandate
Under federal law, credit card issuers are required to disclose their interest rates, fee structures, and grace periods in a standardized, easy-to-read tabular format before you sign.
Eliminated hidden fine print and deceptive marketing traps.
⚖️
Named After Senator Charles Schumer
Passed as part of the 1988 Fair Credit and Charge Card Disclosure Act.
Official Term
The Schumer Box
The mandatory summary table that tells you every single fee, interest rate, and penalty you could ever incur.
Never sign a credit card application without locating and reading its Schumer Box first.
Video Guide
Understanding the Schumer Box
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What to Watch For
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- The APR tiers: Look for purchase APR vs. balance transfer and cash advance rates.
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- The Grace Period: Discover how you can legally pay zero interest each month.
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- Penalty APR: How one late payment can spike your interest rate to almost 30%!
Pro Tip: By law, the Schumer Box format makes comparing two competing card offers instant and objective!
Resource: Credit Card Insider Consumer Education Series Standardized Federal Disclosure in Action
Terms Breakdown
What’s Inside the Schumer Box?
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Purchase APR
The yearly interest charged on unpaid balances. May include an introductory 0% promo rate.
Variable vs. Fixed
Grace Period
The window of time (usually 21–25 days) between statement date and due date where $0 interest is charged if paid in full.
Avoid All Interest
Annual Fees
A yearly maintenance fee charged simply for holding the card ($0 for basic cards, $95–$695 for premium travel cards).
Know Card Costs
Penalty APR & Fees
Surge rates (up to 29.99%) and fees ($15–$40) triggered by late payments or returned checks.
Cost of Mistakes
Standardized by law so you can compare any two cards side-by-side. Always read the table before you submit!
Real Example
Sample Schumer Box Table
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Interest Rates & Interest Charges
Annual Percentage Rate (APR) for Purchases
0% intro APR for first 12 billing cycles. After that, 17.50% variable based on the Prime Rate.
APR for Cash Advances
25.99%. Interest begins accruing immediately (no grace period!).
How to Avoid Paying Interest on Purchases
Your due date is at least 25 days after billing cycle close. Pay entire balance by due date.
Fees
Annual Fee
None ($0)
Penalty Fees (Late / Returned)
Late Payment: Up to $15.00 • Over-Limit: None • Returned: Up to $15.00
Notice: Cash advance APR is far higher than purchase APR Pay in 25 days = 0% interest paid
Application Process
4 Steps to Getting a Credit Card
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1
Comparison Shop
Compare APRs, annual fees, reward structures, and terms across multiple banks before selecting the right card.
Do your research first!
2
Submit Application
Complete a formal application providing SSN, income, employment details, and living costs to verify ability to repay.
Income verification
3
Credit Investigation
Lender runs a hard inquiry on your credit report with Equifax, Experian, or TransUnion to assess payment reliability.
Underwriting review
4
Approval Decision
Approved or denied based on creditworthiness. If approved, your initial credit limit and APR are officially assigned.
Card sent in mail
What about “Pre-Approved” offers? Banks run soft credit checks to mail marketing offers, but you still must formally apply and be approved!
Federal Law
Truth in Lending Act (Card Lost or Stolen)
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Maximum Liability
$50 Max Loss
By law, the maximum liability for unauthorized charges on a lost/stolen physical card is $50.00 per card.
Most banks offer $0 zero-liability!
Reporting Deadline
60-Day Window
You must formally report the unauthorized charge in writing within 60 days of the first bill statement showing the error.
Act promptly to protect your rights.
Digital Theft
$0 Liability
If your card number was stolen online or breached while the card stayed in your wallet, your liability is exactly $0!
100% covered against data breaches.
Key Distinction: Credit cards offer far greater legal protection than debit cards, where stolen funds drain your actual checking account!
Action Checklist
6 Golden Credit Card Safety Tips
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Sign Your Card
Sign the signature strip immediately upon receiving it and write “See ID” next to your signature.
Guard Your Plastic
Never leave cards unattended in cars, desks, or restaurants. Report lost or stolen cards the minute you notice.
Proper Closure
Close unwanted accounts by calling and writing in, then thoroughly destroy and cut up the physical card.
Protect Numbers
Never give card numbers over unsecured calls, random texts, or unverified websites. Beware of phishing links!
Emergency Records
Keep a secure list of card numbers, exp dates, and 24/7 bank phone lines stored separately from your wallet.
Shred Mail Solicitations
Always cross-cut shred pre-approved card offers and bank letters before discarding to block dumpster diving.
Final Takeaway: Credit is financial trust. Protect it, use it with intention, and let it work for your future!
