What is your Credit Scores?

What is your Credit Scores? A Four Corners Activity

Opening Activity: Discuss • What is a “credit report?” • How does someone’s credit report impact his or her financial opportunities?

Learning Objective • Describe how a credit score is calculated, improved, and monitored

Four Corners Activity • You will hear a question regarding credit scores • Please go to the corner (A, B, C, or D) that you think best answers the question

Question #1 • How many major credit reporting agencies are there in the United States? A. 2 B. 3 C. 4 D. 5

Answer #1: B • There are three major credit reporting agencies in the United States: Equifax, Experian, and TransUnion • If you want to check your credit, you will have to receive a report from each one of these companies • That being said, you can request a copy of your credit with just one telephone call or web form: 1-877-322-8228 or www.annualcreditreport.com

Question #2 2. The Highest score you can get on a credit report is… A. 750 B. 800 C. 850 D. 900

Answers #2: C • The highest score a person can earn on their credit report is 850. • The lowest score someone can receive is 300 • The average score is 700

Question #3 3. Anything below ______ will place you in the “sub-prime borrowing” category. This category means you are at risk for not paying off your credit card, loans, and bills. A. 700 B. 600 C. 500 D. 400

Answer #3: B • For most companies, a credit score below 600 means you are a credit risk. • The company will charge you a higher interest rate to ensure they make money if you do default (not pay off the debt)

Question #4: 4. Banks usually charge customers with sub-prime credit scores a higher interest rate. It is usually _____ % higher than the interest rate given to customers with good credit. A. 1 B. 2 C. 3 D. 4

Answer #4: A or B • The sub prime credit rate is usually 1-2% higher than the best rate available. • It can also have additional fees tacked on • With large purchases such as a home, it makes a big difference in how much they will lend you and therefore in what type of home you can afford

Question #5 4. Which of the following items does NOT impact how your credit score is calculated? A. how much money you make • B. how many credit cards you have C. how many accounts you have paid off D. how many companies have looked at your credit score

Answer #5: A • Your credit score may list your employer but it does not list your income • Your credit score is calculated based on… • Bill paying history: What and who do you owe? • Credit/payment history: Have you been paying your debt? • Collections for any unpaid sums: Have you ever paid late or not paid at all? • Recent Activity: Who is looking at your credit score? Do you plan to get new debt? • Any court judgments for bankruptcy

Question #6: • True or False: You need a credit card to have a high credit score. • Go to corner A if you think this is true • Go to corner B if you think this is false

Answer #6: False • You do not need a credit card in order to have a high credit score • You simply need a responsible credit history, meaning you pay your bills on time • Your bill could be a utility contract, home mortgage, or car loan • In fact credit cards can lower your score • Creditors think that another loan or credit card would over tended your budget. • This is why the consider not only how much debt you have but also how much debt you could possibly have • In other words, what have you charged and what could you charge in the future?

Question #7: The best way to improve your credit score is to… A. Pay your bills on time each month B. Pay off all credit cards, loans, and liens so you are totally debt free C. Make more money D. Get several credit cards and pay the minimum fee each month

Answer #7: A • If you want a good credit score than you need an established history of paying your bills and debt on time. • You could have paid off all your debt but have a default loan in your credit history • This will lower your score • Several open credit cards on your account could lower your score. You could have high debt and also what is called high possible debt

Question 8: 8. How long does your financial history stay on your credit report? A. 1 year B. 5 years C. 10 years D. 15 years

Answer 8: C • Everything car loan, mortgage, and credit card stays on your account for 10 years. • In others a foolish decision could impact your purchasing power for an extensive period of time

Question 9: 8. People who have been debt free for 10 years have… A. A low credit score B. A high credit score C. No credit score

Answer 9: C • Credit reports are calculated on a person’s ability to pay off debt. • If a person does not have any debt the credit bureau has no way to establish whether he or she will pay off debt • They therefore give them a “No Score available” • Each company handles these situations differently • Many ignore the person’s credit report and look instead at how much money they have saved

Question #10: 6. How often can you check your credit report for free? A. Every 6 months B. Once a year C. Once every 2 years D. Once every 3 years

Answer #10: B • You can and should check your credit score once a year • You want to make sure no one else is using your personal information fraudulently • You also want to make sure that your lenders are reporting information about you accurately

Question #11 7. What percent of Americans find errors on their credit reports? A. 20% B. 55% C. 75% D. 95%

Answer #11: C • The most common error Americans find: an account that has been closed is listed as open. • Another 22% find an account that has been duplicated so they have two of those credit cards or home mortgages • Again this would negatively impact your score since it is debt that over extends your budget

Question #12 8. When you find an error on your credit report you should… A. Call the lender B. Call the credit reporting agency C. Call the neutral company listed by the crediting agency D. Call your lawyer

Answer #12: B • It is best to actually write the credit agency • In the letter you should • Report the error • Include the account number • Attach a copy of the inaccurate credit report • Get return receipt to prove your request • According to the law, the credit bureau has 30 days to fix their error • After this time period you can file a complaint with the Federal Trade Commission or your state’s Consumer Affairs Division

Summary: • It is easier to get a high credit score than it is to repair a low credit score • Monitor your credit score each year

Exit Activity: Give Me 5 Summary • Topic sentence: Each American should act responsible with his or her credit report. • As a class we need to identify 5 details that support this claim. • How do businesses use your credit score? • What happens if we have a bad score? • Why should we monitor our credit score each year? • How long does each credit account stay on our account?

What is your Credit Scores?