Credit History and Ratings

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1 Credit History and Ratings Course Title Money Matters Lesson Title Credit History and Ratings Performance Objectives: Understand and manage credit responsibly. Specific Objective : As a result of this lesson, the student will: 1. Define and know the components of a credit report 2. Understand what credit history is and why it is important 3. Recognize ways to better their credit history and rating 4. Know what to do if they have an inaccurate or fraudulent report 5. Identify Identity Theft, and methods to prevent it. 6. Discuss what is NOT Identity Theft Time: Instruction time: 60 minutes, which may vary depending on teaching style. Activities will also affect time needed to complete lesson depending on the number and nature of activities chosen. TEKS Correlations: (c)(2)(A),(F); (11)(G)-(I) Occupational Correlation (O*Net Personal Financial Advisors Similar job titles: Financial Advisor, Portfolio Manager, Financial Planner, Account Executive, Registered Representative, Investment Advisor, Financial Consultant, Financial Counselor, Analyst, Certified Financial Planner (CFP) Tasks Sell financial products such as stocks, bonds, mutual funds, and insurance if licensed to do so. Build and maintain client bases, keeping current client plans up-to-date and recruiting new clients on an ongoing basis. Analyze financial information obtained from clients to determine strategies for meeting clients' financial objectives. Answer clients' questions about the purposes and details of financial plans and strategies. Review clients' accounts and plans regularly to determine whether life changes, economic changes, or financial performance indicate a need for plan reassessment. Interview clients to determine their current income, expenses, insurance coverage, tax status, financial objectives, risk tolerance, or other information - 1 -

2 needed to develop a financial plan. Recommend strategies clients can use to achieve their financial goals and objectives, including specific recommendations in such areas as cash management, insurance coverage, and investment planning. Implement financial planning recommendations or refer clients to someone who can assist them with plan implementation. Research and investigate available investment opportunities to determine whether they fit into financial plans. Explain and document for clients the types of services that are to be provided, and the responsibilities to be taken by the personal financial advisor. Preparation Materials and Equipment Needed: What is in your credit score? Worksheet (1 per student) What is in your credit score? Teacher Master Improving your FICO credit score? (1 per student) Improving your FICO credit score? Teacher Master Chalkboard, whiteboard, or smartboard Computer with projection capabilities and internet access Computers with internet access for students Learner Preparation: To get students to begin thinking about how their actions could affect their credit rating, explain that their credit rate is what determines if they can get loans. Credit Rate the numerical value calculated from a credit report that is used by creditors to help determine if you are eligible for credit. The better your rating, the better your chances of getting a loan. Each person has their own rating, based on their credit responsibility. The ratings range from Accommodations for Learning Differences: ESL: Financial Literacy Lessons for ESL Students ons_for_esl_students.pdf Activity/Outline: Give each group of 2-3 the What is in your credit score? handout. Have each group complete the worksheet. Discuss the correct answers with your students, and give them examples of each item on the handout. Work through Presentation specifically review Slide #7 and reiterate that a credit report contains information that determines your credit score based on your finances. Credit report and credit history can be used interchangeably. Continue through Presentation and discuss the terms. Have students make notes of the meaning - 2 -

3 of each term. View the Credit History and Ratings video from the hyperlink on slide #19. Have students each complete the Improving your FICO credit score internet search guide. Summary Review: Review the four objectives, and information from each as identified on the Presentation. Informal Assessment: Evaluation Observe students as they participate in the group activity What is in your credit score?, and the internet search activity, Improving your FICO credit score. Take up their papers and review for completion and participation as well as how focused their answers are to the questions and topics addressed. Formal Assessment: Quiz on Credit History Extension/Enrichment: Assign the Credit History and Score Assignment to students for input from adults that will discuss their credit knowledge. Additional Resources: Websites: " High School Program." National Endowment for Financial Education - Home. N.p., n.d. Web. 6 Jan < The Jump$tart Coalition for Personal Financial Literacy. (2010) JUMP$TART HIGH SCHOOL SENIOR QUESTIONNAIRE Adapted from "FFA Learn." Financial Planning and Management. N.p., n.d. Web. 17 Jan < Introduction - 3 -

4 Introduction (LSI Quadrant I): SHOW: Show students a group of mock credit cards, bank loans, and pictures of items (cars, houses, etc.) that loans are commonly used to purchase. ASK: Ask students how credit card companies, banks, and mortgage companies determine who would be a good candidate to loan money to for the purchase, and who would not. SAY: When a credit card company, bank or mortgage company loans money, they have to first determine if the person that has asked for the loan will pay it back. ASK: Ask students if they would loan money to someone if that person had borrowed money in the past from you or someone else but had not paid it back. SAY: Credit scores are determined in much the same way. ASK: Ask students to describe what information they would need in order to determine if the person that has requested the loan would be a good person to loan money to. Outline (LSI Quadrant II): Outline Instructors can use the Presentation presentation, slides, handouts, and note pages in conjunction with the following outline. MI Outline Notes to Instructor I. Identify for the students what the objectives of the unit are: Use the Presentation as an aid. Work through A. Define and know the parts of a credit report. B. Understand what credit history is and why it is important. each slide as you identify and discuss the Key Terms for the lesson: C. Be aware of ways to improve credit history and rating. Credit D. Know how to act if a credit report is fraudulent or not accurate Credit History Credit Rate Credit Report Equifax Experian FICO - 4 -

5 II. Credit History record of your personal financial transactions. Used interchangeably with credit report. III. Credit Report contains all of the information regarding your finances, such as payment history and amounts owed. Use Presentation as aid. Ask students these questions and have them raise their hands if they: *Have a checking account and/or a savings account; *Have a telephone or other utilities billed in their own name; *Have a bank credit card; *Have a small short term cash loan; *Paid off any loans Explain that any of these that they raised their hand on are some of the first steps to establishing a credit history. Continue to advance through terms slides to the Credit Report slide. Use Presentation as aid *Explain to students that they should check their credit report closely for accuracy when they receive the free reports they are allowed each year. *Ask students what they know about identity theft, and how it could affect them if it happened to them. *Hint that a discussion about identity theft will follow in this lesson. *Continue through Presentation through Key Terms slides

6 IV. Credit Score Use Presentation as aid *Group students into groups of 2-3. *Give each group a copy of the What is in your credit score handout. *Display the slide regarding the credit report term. *Reiterate that a credit report contains all the information related to your finances. V. Credit History & Ratings View video via hyperlink on Slide 19 The Big Date VI. Identity Theft One person, using information gathered from some source, takes on the identity of another person without permission and conducts a variety of activities using that identity. A. Prevent Identity Theft: i. Check your credit report ii. Guard your social security number iii. Pick passwords carefully iv. Be careful what you throw away v. Shred important information VII. What is NOT Identity Theft? A. Someone using your credit card with your knowledge and permission B. Someone properly exercising a legally granted power of attorney on your behalf; C. Someone making up a fake name and signing into a hotel (this may be a crime, but it is NOT identity theft.) The intent is to use the identity for personal gain, generally with the intent to defraud others. *Ask students how they can prevent identity theft, and ask how they can make sure they are not a victim. Put the list on the whiteboard or other resource/equipment available. Ask students what is NOT considered identity theft. Identify scenarios and ask students to decide if the scenario does or does not describe identity theft. Verbal Linguistic Logical Mathematical Visual Spatial Musical Rhythmic Bodily Kinesthetic Intrapersonal Interpersonal Naturalist Existentialist - 6 -

7 Guided Practice (LSI Quadrant III): What is in your credit score? (group activity) Independent Practice (LSI Quadrant III): Improving your FICO credit score. Questionnaire/practice Summary Review (LSI Quadrant I & IV): Go over students responses to the Improving your FICO credit score questionnaire. Evaluation Informal Assessment (LS1 Quadrant III): Instructor should observe the work ethic of individuals involved in class discussions and the independent practice activity. Formal Assessment (LSI Quadrant III, IV): Students will be evaluated via the Quiz on Credit History and Ratings. Extension Extension/Enrichment (LSI Quadrant IV): Give one copy of the Credit History and Score Assignment to each student. Have them interview an adult that is willing to share some credit knowledge with them, and complete the questionnaire

8 What is in your credit score? Place each of the following components of a credit score next to a section of the pie chart that resembles how much it makes up your credit score. Payment History Types of Credit Used Length of Credit History Amounts Owed New Credit 10% 10% 35% 15% 30% Source: Garman, E.T., & Forgue, R. (2007). Personal Finance (9 th ed.). South- Western College

9 What is in your credit score? Place each of the following components of a credit score next to a section of the pie chart that resembles how much it makes up your credit score. Payment History Types of Credit Used New Credit Length of Credit History Amounts Owed 10% = Types of Credit Used 10% = New Credit 35% = Payment History 15% = Length of Credit History 30% = Amounts Owed Source: Garman, E.T., & Forgue, R. (2007). Personal Finance (9 th ed.). South- Western College

10 Name: Date: Period: Improving your FICO credit score Using a website to improve your FICO score, complete the following questions: 1. It is important to know that improving a credit score takes and there is no. (Fair Isaac Corporation, 2010). 2. The best solution to improving a credit score is to manage credit over. (Fair Isaac Corporation, 2010). 3. What kind of impact would a delinquent payment have on a credit score?. (Fair Isaac Corporation, 2010). 4. How long does a collection account stay on your report?. (Fair Isaac Corporation, 2010). 5. Susan and John just got credit cards with limits of $2,500 to use on their SAE pork production projects. Susan has used all the extra money that she doesn t need for her pork production on stuff that she wanted from the mall, her current balance is $2,300 that she owes. John has used his credit card only for feed and medicine expenses and his debt is only $650. Since neither Susan nor John has maxed out their credit cards, will this affect each of their credit scores the same?. 6. Phil owes $3,000 on a credit card. He decides to take out another credit card to pay off the first one. Is this a good or bad strategy? Why or Why Not?

11 7. Fran decides she wants to build up some credit so she can eventually get a large enough loan for a house. She has never had a credit card before and needs advice on what to do. She has heard that the more credit cards she has, the better her credit will be. What advice can you give her? 8. Which one of these items will help raise your credit score? (Fair Isaac Corporation, 2010) a. Opening new accounts responsibly and paying them off b. Pay down your revolving credit c. Always pay your bills on time d. All of the above

12 TEACHER KEY Improving your FICO credit score Using a website to improve your FICO score, complete the following questions: 1. It is important to know that improving a credit score takes time and there is no _quick fix. (Fair Isaac Corporation, 2010). 2. The best solution to improving a credit score is to manage credit responsibly over time. (Fair Isaac Corporation, 2010). 3. What kind of impact would a delinquent payment have on a credit score? Negative. (Fair Isaac Corporation, 2010). 4. How long does a collection account stay on your report? Seven years. (Fair Isaac Corporation, 2010). 5. Susan and John just got credit cards with limits of $2,500 to use on their SAE pork production projects. Susan has used all the extra money that she doesn t need for her pork production on stuff that she wanted from the mall, her current balance is $2,300 that she owes. John has used his credit card only for feed and medicine expenses and his debt is only $650. Since neither Susan nor John has maxed out their credit cards, will this affect each of their credit scores the same? A higher outstanding debt will affect a credit score negatively more so than a lower debt. Susan s credit score will most likely be lower than Johns. 6. Phil owes $3,000 on a credit card. He decides to take out another credit card to pay off the first one. Is this a good or bad strategy? Why or Why Not? Opening new credit cards could actually lower your credit score. The paid off credit card will still show up on Phil s report for seven years. The most effective way for Phil to improve his score would be to pay off his debt as soon as possible

13 7. Fran decides she wants to build up some credit so she can eventually get a large enough loan for a house. She has never had a credit card before and needs advice on what to do. She has heard that the more credit cards she has, the better her credit will be. What advice can you give her? Taking out many new credit cards will actually lower her credit score. She should start by just taking out one credit card, and managing it responsibly. She should only take out multiple credit cards it s absolutely necessary for larger purchases if she knows she can pay them off without late payments. 8. Which one of these items will help raise your credit score? (Fair Isaac Corporation, 2010) a. Opening new accounts responsibly and paying them off b. Pay down your revolving credit c. Always pay your bills on time d. All of the above

14 Name: Date: Period: Credit History and Score Assignment Interview an adult that you know is willing to share some credit knowledge with you. Ask them the following questions. 1. When did you get your first credit card? 2. Have you every obtained your credit report? a. Have you obtained your credit score? 3. What types of information appear on your credit report? 4. What actions can you take to improve or maintain your credit score? 5. What actions do you take to prevent against identity fraud? Answer the following questions on your own, based on what you learned in class. 1. What makes up the largest part of your credit report? 2. What is the company in charge of the calculations to determine credit scores? 3. Give three ways to start establishing credit history. 4. List three things that could hurt or decrease your credit score

15 TEACHER KEY Credit History and Score Assignment Interview an adult that you know is willing to share some credit knowledge with you. Ask them the following questions. Answers will vary for questions When did you get your first credit card? 2. Have you every obtained your credit report? a. Have you obtained your credit score? 3. What types of information appear on your credit report? _Examples: loans, mortgages, utilities, credit cards, etc._ 4. What actions can you take to improve or maintain your credit score? Examples: pay bills on time, keep credit card balances low, pay off debt, manage credit cards responsibly. 5. What actions do you take to prevent against identity fraud? Examples: keep important information in a safe place, guard SS number, create difficult passwords for online banking, pick PIN numbers wisely, and don t put SS number on driver s license. 6. What makes up the largest part of your credit report? Payment History 7. What is the company in charge of the calculations to determine credit scores? _FICO Fair Isaac Corporation. 8. Give three ways to start establishing credit history. 1. Have a checking account and a savings account 2. Have a telephone or other utilities billed in their own name. 3. Have a bank credit card. 4. Have a small short term cash loan 5. Paid off any loans. 9. List three things that could hurt or decrease your credit score. Examples: Late payments, high balances on credit cards, opening/applying for many new credit cards

16 Name: Date: Period: Quiz - Credit History and Ratings Part 1. Multiple Choice Identify the correct response to each of the following statements. Write the letter corresponding to the correct answer in the space provided to the left of each item. 1. Which of the following statements best describes your right to check your credit history for accuracy? a. Your credit record can be checked once a year for free. b. You cannot see your credit record. c. All credit records are the property of the U.S. Government and access is only available to the FBI and Lenders. d. You can only check your record for free if you are turned down for credit based on a credit report. 2. Which of the following can impact your credit rating? a. Borrowing money from a friend to pay for lunch. b. Living with your parents until you earn enough money to afford to rent an apartment c. Paying cash for a used car d. Making a late car loan payment 3. Which of the following agencies provide free credit reports for consumers? a. Equifax, credit unions b. Credit unions, your bank c. Experian, Credit Reports Association d. TransUnion, Experian e. None of the above, you must pay a fee for any credit report 4. Suki wants to move into her own apartment after graduating from high school, but she is worried that she won t be able to rent an apartment without significant credit history. What can Suki do to start using credit wisely? a. Rent an apartment with a friend who will sign the lease b. Apply for a store credit card c. Apply for several major credit cards d. Close her checking account to avoid bouncing a check 5. Credit experts recommend that you check the status of your credit reports at least a. Every time you apply for a loan or credit card. b. When you apply for your first loan or credit card. c. Once a year

17 d. Once every five years. Part 2. Matching and Short Answer. Match each situation described below with whether it is an appropriate or inappropriate use of credit by placing a check in the correct column. In the right column, write at least one sentence to justify your answer. Situation Appropriate (X) Inappropriate (X) Reason 6. 1 year loan to buy a mountain bike 7. Borrow $5,000 to pay for a wedding reception 8. Use store credit to buy a new refrigerator to replace one that no longer is working properly 9. 5-year loan for used car 10. Set up a 6- month payment plan to pay hospital fees for X-rays from an accident KEY

18 Quiz over Credit History and Ratings 1. A 2. D 3. D 4. B 5. C Answers will vary

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