We live in a country that has increasingly become very dependent on credit. We rely on credit to pay for everyday purchases like groceries and gas to large purchases like trips and furniture. However, there are studies that show that the American people are not always using and managing their credit cards wisely. I recall a friend of mine in college who went on a few too many shopping trips to Briarwood Mall in Ann Arbor and had $8,000.00 in credit card debt. This portion of the website will give you a basic understanding of some of the terms and practices that are used in the credit card and credit industry. The Federal Trade Commission is the Federal government agency that is responsible for consumer education and protection. www.ftc.gov They have an excellent website with numerous resources for consumers about credit and identity theft. http://www.consumer.ftc.gov/topics/money-credit There are some basic principles of credit that need to be covered. There are three general types of plastic cards available. The first is a credit card. In issuing a credit card, the credit company is allowing you to buy items and pay for them over time. The key is credit company/bank will charge you interest on any amount that you haven’t paid off at the end of the month. You will receive a bill at the end of the month with the amount of purchases that you made during that month. If you do not pay the full amount due there is usually a minimum payment that must be paid each month. You might buy $500.00 in clothes and electronic toys but only need to send them $50.00. However, they will charge you interest on the amount that you don’t pay so you will owe even more money the next month. This is one of the major problems with credit cards and people your age. If you use them inappropriately you can run up balances that will take many years to pay off. The first thing to understand about credit is that it is NOT FREE. The companies that issue credit cards make money when you don’t pay off your whole balance at the end of the month because they charge interest on the balance that you haven’t paid. There is an excellent page at the U.S. Federal Reserve that explains the cost of credit. http://www.federalreserve.gov/consumerinfo/default.htm The second type of card is a charge card. With a charge card you must pay off the complete balance every month. The third type of card is a debit card. With a debit card you must have the money in your checking or savings account and you are only allowed to use the money available in that account. Annual Percentage Rate (APR): Annual Percentage Rate is the yearly rate of interest that you will pay every year on your credit card balance. Interest is the amount that you are charged to borrow money. Remember when you use a credit card someone is paying for the goods when you purchase the goods. The bank is paying and banks want their money back. If you don’t give them the all the money at the end of the month they will charge you for using their money. The charge is interest. You want to make sure you read any credit card agreements very carefully to see what the APR is and if there is language in the contract that allows them to adjust your APR. Many credit contracts allow the company to increase your APR if you pay late or have other problems with your credit. Annual Fees: Many credit card companies will charge you an annual fee for having their credit card. The amount of the annual fee will vary and it may be difficult to get a first credit card without an annual fee. Transaction Fees and Other Costs: Credit cards usually have additional fees if you don’t make a payment on time. Usually your statement will include a due date for the statement. If your statement is not processed by the credit card company by that date you will have to pay a late fee. An important thing to remember when you begin to use credit cards is to use them responsibly. The reason to use credit cards responsibly is that as you use your credit and debit cards the banks that gave you the cards are keeping records about how much you charge, do you pay on time, how much you pay of your balance each month, how many credit accounts you have, and how much debt you have. This information becomes your credit history and you are given a credit score. There are three primary companies that report people’s credit histories. They are Equifax, Experion, and TransUnion. The Fair Credit Reporting Act requires that each of these companies provide you with a free copy of your credit report once every 12 months. All three of these companies use one toll free number and one website to manage requests for these reports. The website and phone number are 1-877-322-8228 and www.annualcreditreport.com There are some things that you can do to lessen the chances of people getting your credit information and charging things to your accounts. Make sure you sign your credit cards, keep a record of your account numbers and the phone numbers of each company so you can quickly call and cancel a card if a card is lost or stolen, destroy receipts and carbons that might have important credit card information, and report any questionable charges to your credit company quickly if you see anything suspicious. There are many steps that you can take to get information about steps to protect yourself from credit fraud from your credit company and from the Federal Trade Commission. The Federal government has passed many laws that protect your rights when it comes to credit. The Fair Credit Reporting Act was mentioned above in the Credit History portion of the website. The Equal Credit Opportunity Act protects you from being discriminated against when it comes to credit. If you feel that you have not been given credit because of your sex, race, age, or national origin you should go to the Federal Trade Commission’s website at http://www.consumer.ftc.gov/topics/credit-and-loans and read all of the materials on the Equal Credit Opportunity Act. Another important Federal law that applies to credit relationships is the Fair Credit Billing Act. This law establishes the procedures that must be followed if there has been a mistake in your account or statement. There is also the Fair Debt Collection Practices Act which establishes practices that are unfair, deceptive, or abusive and can’t be used when a debt collector is trying to collect money that you owe. Some of the parts of this law include: 1. You can only be called about a debt between 8a.m. and 9 p.m.. 2. Debt collectors may not contact you at work if they know your employer doesn’t like it. 3. Debt collectors may not harass you, and 4. Debt collectors must stop contacting you if you ask them to do so in writing. There are more provisions that you can read at the U.S. Federal Trade Commission website. There are many other interesting areas that you need to educate yourself about if you want to manage your financial affairs in an intelligent way. There are wonderful resources at the Federal Trade Commission. Take some time and read these. The information the provide is excellent. http://www.consumer.ftc.gov/topics/credit-and-loans For specific information on identity theft there is an excellent resource at the Federal Trade Commission. The link above will take you there. Identity theft happens when someone uses your name, Social Security number, date of birth, or other personal information to commit fraud. As this crime has increased in frequency the government has expanded the protections for consumers. One of the realities for teenagers in our nation is that many of you will be working. When you work you may need to pay taxes, so I will briefly explain some of the basics of the Federal tax system. Each state and even some local areas like counties and cities will have additional taxes that workers are responsible for paying to the appropriate government. For the purposes of this website, I will give you a brief explanation about the Federal tax system and make numerous references to the Internal Revenue Services’ website at www.irs.gov. because it has many excellent educational resources for students. The Internal Revenue Service(IRS) is the Federal agency that manages our Federal tax system. Therefore whenever you hear people say things like..”The Tax Man or IRS” they are referring to the Internal Revenue Service. There are three primary Federal taxes that are deducted from your pay. The taxes are; the Federal income tax, FICA(Social Security) tax, and Medicare taxes. These taxes will be deducted from your pay by your employer. There is a lower level of income where it is unnecessary to file a Federal tax return. If you are unsure whether or not you need to file a Federal tax return you can check at the IRS website. http://www.irs.gov/Filing Two of the most applicable questions at that web page are: 1. Did you have Federal taxes withheld from your pension and wages for this tax year and wish to get a refund back? 2. Were you self-employed with earnings of more than $400.00? Even though you may not need to file a federal tax return because you don’t make enough money, you will want to file a return anyway to get back money that your employer has deducted from you paycheck for Federal taxes. There is an excellent explanation of what types of income are taxable for students at the IRS website. http://www.irs.gov/Individuals/Students If for some reason this link doesn’t work you can find the information in the “student” portion of the “Individuals” area of the website. The area is title “Taxable Income for Students”. This area includes information on how you should treat things like tips, babysitting income, income from bank accounts or other investments, and scholarships just to name a few. A few of the more important areas will be discussed below. Tips: You must report your tips because they are income. I know that many people who receive tips don’t report all of their tips but the law states that you must report all of your tips because tips are income and income is subject to taxation. If you make more than $20.00 a month in tips, you must report your tips to your employer. You need to report this to your employer because your employer must withhold the appropriate taxes from your paycheck. When you receive your W-2 (Form W-2 is the form employers use to report wage, salary, and tip income) from your employer you will use the W-2 to complete your income tax return. Self-Employed: Many people your age are considered self-employed because you earn money babysitting, cutting grass, washing/detailing cars, fixing computers, etc. If you are earning money on your own and make more than $400.00 a year, you will need to pay an additional self-employment tax to the Federal government. Interest: Any money that you earn in the form of interest from investment accounts or bank accounts must be declared as income. Scholarships: The money or value of scholarships that people receive may also be taxable and considered income. If you are not a candidate for degree the whole amount of the scholarship would be included as income. If you are a candidate for degree, generally you can exclude scholarship money used for tuition and fees required for enrollment and money used for books, supplies and other required educational equipment. If you win a scholarship as part of a contest and can use the money for anything, the entire amount is taxable. The IRS has an excellent publication “Publication 970” that discusses all the different tax benefits related to education. Form 1040: The primary form that you will fill out for your Federal tax return is the Form 1040. The Form 1040 has a few variations. The IRS website has instructions for each of the different variations of the form. If you are working and are still confused about the tax system and the IRS website still leaves you with questions. Contact the IRS or check with your local public library because there are usually organizations that offer tax assistance to people who need further assistance.
Credit and Taxes Credit
Do You Have Plastic?
Important Terms In the Credit Business
Your Credit History
Avoiding Credit Card Fraud
Your Rights With Credit
Identity Theft and Other Areas
Taxes and the World of Work
