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Warm-Up

A company has 50 employees. Forty of them earn $100 per day, and 10 earn $60 per day. What is the average daily salary of the 50 employees?

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3.5 Credit Cards

Objective: Define the basic vocabulary of credit cards and compute an average daily balance.

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What do I need to know to use credit cards?

A credit card is a plastic card that entitles the holder to make purchases and pay for them later. The issuer of the card has given the person whose name is on the account a line of credit.

Using credit cards is both a convenience and a responsibility There is a great temptation to overspend

The Truth in Lending Act protects you if your card is lost or stolen. You may be partially responsible for charges made but maximum liability is $50. Notify creditor immediately as you are not responsible for any charges that occur after you notify the creditor.

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Example 1:

Frank lost his credit card in a local mall. He notified his creditor before the card was used. However, later in the day, someone found the card and charged $700 worth of hockey equipment on it. How much is Frank responsible for paying?

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Example 2:

Credit card companies issue a monthly statement, therefore APR must be converted to a monthly periodic rate. If the APR is 21.6%, what is the monthly finance charge?

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Average Daily Balance

The average daily balance is the average amount owed per day during a billing cycle.

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Example 3:

Rebecca did not pay last month’s credit card bill in full. Below is a list of Rebecca’s daily balances for her last billing cycle.

For 7 days she owed $456.11

For 3 days she owed $1177.60

For 6 days she owed $990.08

For 9 days she owed $2115.15

For 5 days she owed $2309.13

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Example 4:

Rebecca (from Example 3) pays a finance charge on her average daily balance of $1,441.60. Her APR is 18%. What is her finance charge for this billing cycle?