Ignorance is not bliss when it comes to knowing credit score

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1 NET GAIN Scoing points fo you financial futue AS SEEN IN USA TODAY SEPTEMBER 28, 2004 Ignoance is not bliss when it comes to knowing cedit scoe By Sanda Block USA TODAY Fom Alabama comes eassuing news that Chucky, the 1,000-pound zoo alligato who escaped duing Huicane Ivan, has been captued. That means you can stop woying about finding a giant eptile in you bathtub and move on to othe concens. Hee's a good place to stat: you cedit scoe. You cedit scoe influences eveything fom the inteest ate on you motgage to you ca insuance pemiums, yet many Ameicans don't woy enough about thei scoes. A ecent suvey by TueCedit.com found that only 10% of Ameicans know thei scoe. Anothe suvey eleased last week by the Consume Fedeation of Ameica found that many consumes habo some dangeous misconception about thei scoes. The knowledge vacuum is toubling, consume advocates say. "The cost of not knowing you scoe and its significance could be not only denial of cedit, but also difficulty obtaining needed sevices and even a job," Stephen Bobeck, executive diecto of the CFA, said last week. Cedit scoes ae compiled by the thee majo cedit agencies, Expeian, Equifax and TansUnion, based on infomation povided by ceditos. Most scoes ae based on a fomula developed by Fai Isaac, a eseach fim. They'e designed to measue the likelihood you'll epay a loan, based on you ecod of epaying debts in the past. Some common fallacies about cedit scoes include: u You cedit scoe is like you golf scoe: the lowe, the bette. Actually, a high scoe indicates a boowe is a low isk; a low scoe signals touble. If you scoe is below 600, you can expect to pay aboveaveage inteest ates on a loan, if you can get one at all. Boowes with scoes above 700 usually qualify fo elatively low ates. If you scoe is above 760, you pobably qualify fo the lowest ates. u You can impove you cedit scoe by maying well. Maied couples don't get a combined cedit scoe, so you can't impove you numbe by maying someone with a 780. "When you get maied, you'e not mixing you cedit histoy," says David Chung, inteim pesident of CeditXpet, which sells cedit-management poducts. Howeve, lendes will look at both scoes if you apply jointly fo a loan, such as a home motgage, says John Danahe, pesident of TueCedit.com, a subsidiay of TansUnion. u Eaning moe money will impove you scoe. The amount of money you make doesn't affect you cedit scoe. You Pesented by: Repinted with pemission. All ights ese ved.

2 AS SEEN IN USA TODAY SEPTEMBER 28, 2004 scoe is based entiely on you histoy of epaying you debts, Chung says. If you'e behind on you bills, you scoe will suffe, no matte how much you ean. "I could be a multimillionaie, but if I don't pay my bills, the bank doesn't cae," Chung says. "They didn't get thei money that's all they cae about." You occupation, age and employment histoy don't affect you cedit scoe, eithe. Howeve, individual lendes may conside those factos, along with you cedit scoe, when deciding whethe to give you a loan. u Thee's little you can do to impove you scoe. Actually, thee's a lot you can do, although it may take time. About 40% of consumes suveyed by the CFA didn't ealize they could aise thei scoes by paying off a lage balance on a cedit cad. A distubing 28% mistakenly believed they could impove thei scoe by maxing out on thei cedit cads. Most cedit scoing calculations look at the amount of you outstanding debt compaed with you cedit limits. Boowes who have maxed out on thei cedit cads ae consideed iskie because they may have touble making payments. The fomula ewads boowes "who ae using cedit but using it esponsibly," Danahe says. Paying you bills on time will also go a long way towad impoving you cedit scoe. You scoe is adjusted as new infomation comes in. If you pay you bills on time, you scoe could impove in as little as thee months, Danahe says. u You can get you cedit scoe fo fee. Sadly, that's not tue. A fedeal law enacted last yea will allow consumes to get a fee copy of thei cedit epots once a yea. The ollout will stat in Decembe on the West Coast, expanding to cove all pats of the county by Septembe But unless you'e applying fo a home motgage, you'll still have to pay to get you scoe. All thee cedit epoting agencies will sell you a copy of you cedit epot and scoe. You can puchase all thee epots and scoes fom Fai Isaac, fo $ To test you knowledge of cedit scoes, go to Repinted with pemission. All ights ese ved.

3 Pesented by: Ignoance is not bliss when it comes to knowing cedit scoe Objectives: Students goups will: h examine the aticle, Ignoance is not bliss when it comes to knowing cedit scoe. h identify the benefits of maintaining a high cedit scoe. Concepts: h Bill payment h Resouces h Poblem solving h Cedit histoy Activity at a glance: h Gade level: 9-12 h Subjects: pesonal finance, economics, language ats h Estimated time fo this activity: 45 minutes Mateials: h Reading: Ignoance is not bliss when it comes to knowing cedit scoe (one copy pe student) h Gaphic oganize h Cedit scoe h Cause & effect Pepaation: h Oganize the class into small goups. h Give each student a copy of the aticle, Ignoance is not bliss when it comes to knowing cedit scoe. h Ask students to ead the aticle and biefly discuss the attached questions. Afte, have individuals complete the gaphic oganize.

4 Ignoance is not bliss when it comes to knowing cedit scoe Discussion: What is the pupose of a cedit scoe? Why has this measue been chosen to descibe the habits of consumes? Why is maital status ielevant in the calculation of a cedit scoe? Why would people think that by maxing out a cedit cad, they would eceive a bette cedit scoe? Do you believe that you can maintain a good cedit scoe? Activity: FICO scoes ae you cedit ating. (The scoe is named afte the company who developed the pocess the Fai Isaac Cop.) Most lendes base thei appoval to extend loans on these scoes. Thee ae thee cedit bueaus: Expeian, TansUnion and Equifax. Each bueau looks at the following components to detemine the FICO scoe: bill payment histoy, types of cedit used, amount of new cedit, total money owed, and length of cedit histoy. The bueaus believe FICO scoing to be highly pedictive of futue payment isk. Review the infomation below. Then, complete the gaphic oganize on the following page. Payment Histoy (35% of Scoe) This numbe keeps tack of whethe you have been making you payments on time. Activity extensions: h Ask each student to povide thee easons why a college student could get a low cedit scoe. Then, have them list the steps that the college student could take to impove his o he cedit scoe. h Ask students to test thei knowledge of cedit scoes by taking the Consume Fedeation of Ameica quiz: Do you know the scoe on cedit scoes? It s available online at Additional esouces: h Goodpaye.com offes infomation on cedit basics. The site dicusses good cedit and its benefits, and explains how to ead and undestand cedit epots. Visit to lean moe. Amounts Owed (30% of Scoe) Length of Cedit Histoy (15% of Scoe) New Cedit (10% of Scoe) Types of Cedit Used (10% of Scoe) How much you owe and to whom you owe it. A longe, positive histoy will incease you scoe. Opening seveal new accounts o having many inquiies into you cedit histoy in a shot peiod of time will affect you chances of qualifying fo cedit. If you have a lot of lendes who ae classified as D o subpime (i.e., they loan money at highinteest ates to consumes with bad o no cedit), you may be placed in a high-isk categoy, even if you payment histoy is pefect.

5 Cedit scoe gaphic oganize: Decide whethe each of the following chaacteistics is indicative of a peson with a high o a low cedit scoe. Then, list each tait in the appopiate box. Chaacteistics of cedit histoy: Pays bills 30 days late. Pays bills on time. Ceditos chage this consume the lowest ates. Has been denied cedit. Has maxed out his cedit line on all of his cedit cads. Pays off debt. Fequently opens new cedit cad accounts. Does not make loan payments on time. Makes loan payments on time. Cell phone company feels vey comfotable selling thei sevices to this peson. Peson 1 cedit scoe of 700 Peson 2 cedit scoe of