(Personal) Finance

lOMoARcPSD|23780900 6.1 Your Credit History 6.2 Read a Credit Report 6.3 Intro to Credit Scores 6.4 Why Your Credit Score Matters Student Activity Packet Name: In this lesson, you will learn to: • Enumerate the components of a credit report and how long each data type is retained Understand which people or organizations may review your credit report and why • • Explain key components of the Fair Credit Reporting Act and how it impacts lenders and borrowers • Read a credit report • Understand the importance of reviewing one’s credit report and the steps to take to find and dispute errors • Name the components of a credit score and how they’re calculated • Explain the impact of timely payments and low debt on credit score • Identify ways of finding out one's credit score. • Describe how credit score impacts the ability to borrow money and at what rate • Understand the implications of a thin file and how they can build credit and improve their score • Summarize the rules contained in the Equal Credit Opportunity Act Resources Questions 1 What Is a Credit Report? | Financial Terms Watch this video and use the information to answer the questions at right. Estimated time: 5 mins • What is the connection between a credit report and a credit score? • How long do financial records remain on your credit report? • Record some of the information you can expect to find on a credit report. • List two reasons explaining why it’s important to request your 3 credit reports and review them regularly. *Note: You should request reports from all 3 agencies because they collect and report data slightly differently, so you want to make sure all are accurate and reflect your true credit history. • How can you obtain a free copy of your credit report? lOMoARcPSD|23780900 2 8 Types of Companies That Are Looking at Your Credit Report Read this article to learn about which companies look at your credit report and why. Use brief phrases to complete the chart at right. Estimated time: 5 mins Who looks at your credit report? Why? 3 Making Sense of Your Credit Report Review this infographic and answer the questions at right. record the four main sections of your credit report in the space at right. Which do you think is most important? Why? Estimated time: 5 mins • Record the four main sections of your credit report. • Which do you think is most important? Why? 4 Community Credit: On-Time Payers Map Your history of ontime payments is one of the most important aspects of your entire credit report. It’s also important to remember that records stay on your report for up to a decade! Use this interactive map to learn about how many Americans are delinquent in their payments. Then, answer the questions at right. Estimated time: 5 mins • What percent of adults, nationally, were current on all credit payments in the last year? • Your friend sees your answer to #1 and assumes that each of those people has a high lOMoARcPSD|23780900 credit score. Why is your friend incorrect? • How does your state’s on-time payment record compare to the national rate? • Find your county within your state. How does your county’s rate compare to your state’s rate of on-time payment? • If you look at the state shading on the map, it seems on-time payment rates are somewhat clumped geographically. What might cause that “clumping?” • Based on prior learning, name two reasons that paying your credit card or loan bill late has serious consequences. 5 RESEARCH: Fair Credit Reporting Act Web Quest Many of the policies and practices you’ve been learning about exist because of the Fair Credit Reporting Act. Follow the directions on this worksheet in order to complete the activity. Estimated time: 15 mins 6 Everything You Need to Know About Finding and Fixing Credit Report Errors One of the main reasons to request and review your credit report is to scour it for errors. Read about how credit report errors can happen and answer the questions on the right. Estimated time: 8 mins • As a high school student, which of the three error types would you be most concerned about? Why? • Fast forward to age 45. Which error type would you now fear most? Why? • How would you decide whether to dispute the error with a credit agency or with your bank/lender? 7 All You Need to Know About Credit Scores lOMoARcPSD|23780900 Credit scores quantify the information on your credit report, so that it’s easy to compare levels of creditworthiness. Use this infographic to answer some introductory questions on credit scores. Estimated time: 5 mins • • credit card? • What percent of Americans do know their credit score? Are you in that group? At what credit score range do you think it’s unlikely that banks would offer you a loan or What are the 5 factors taken into account when calculating a credit score? • Say you’ve got a credit score of 750, and you miss one credit card payment. Will this impact your credit score MORE or LESS than if your original score was 650? Why do you think this is the case? 8 What Is a Credit Score? | Kal Penn Explains Watch this video on how FICO credit scores are calculated. Then, use the information to answer the questions on the right: Estimated time: 5 mins • What is the scale for minimum to maximum possible credit score? • Do you ideally want to have a HIGH credit score or LOW? • Payment History and Total Debt, together, comprise 65% of your score. Why do you think it’s so high? lOMoARcPSD|23780900 • Does the method for calculating credit scores seem fair to you? Why or why not? 9 Community Credit: Credit Quality Your credit score is used by future lenders to evaluate whether they’ll offer you loans and at what rate, which can have a serious impact on your finances. Use this interactive map to learn about about the distribution of credit scores across the US. Then, answer the questions at right. Estimated time: 5 mins • What states have the highest percent of their credit economy with prime credit scores? • What state in the country has the highest percent of their credit economy with subprime credit scores? • What challenges might people living in a county or state with a high concentration of subprime scores be facing as a result of the low credit scores? • As you scroll over different states, pay attention to the breakdown of percentages between prime, near prime, and subprime. What pattern(s) do you notice? What might be a cause of this distribution? • How do credit scores in your county compare to those of your state and the nation? 10 What Does It Mean If I Have a Thin File? and No Credit, or Poor Credit? Here Are Your Options Jenna’s problem on the previous activity was her “thin file.” Skim these two articles to find answers to the following questions at right. Estimated time: 7 mins • When it comes to credit scores, why is having a thin file NOT an asset? • What reasons might an 18-year-old have for his/her thin file? • Take note of the interest rates, loan limits, and terms of the loan options in the second article. What do you notice? *Hint: Look at the entries with a green “APPLY NOW” button. • How could loans like these trap someone like Jenna in a “cycle of debt?” lOMoARcPSD|23780900 11 Equal Credit Opportunity Act You’ve learned that credit reports and scores are used to determine loan eligibility, and you’ve learned a borrower can be denied for a thin file or a low score. Watch this video to learn some reasons you CANNOT be denied credit. Estimated time: 3 mins • How would you summarize the restrictions on denying credit? • Make an assumption: What is the motivation or rationale behind the Equal Credit Opportunity Act?