Eisenhower High School September 15, 2013

1. Eisenhower High School September 15, 2013

2. Warmup Activity: Deal or No Deal Apply the numbers below to something you have recently purchased. Example: • Let’s say you decide to buy a TV for your dorm room, and it costs $500. You thought it was a great deal you couldn’t pass up. Then, because you don’t have much cash, you decide to make only the minimum payment to pay off your credit card. • Original cost of TV: $500 • Minimum payment each month: $10.00-$12.50 • How long you’ll be paying for your TV: 84 months • How much your TV will actually cost you: $865.43* *This assumes an 18% interest rate and a 2.5% minimum payment calculation. Calculations courtesy of bankrate.com

3. Intro video from Kyle

4. What Is Credit? Credit: A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. • There are two ways the term “credit” is used: • “I’m going to buy this semester’s books with my credit card.” This means you can borrow money to buy things as long as you agree to pay that money back at an agreed-upon time. • “So, I keep seeing commercials saying that I need to get my credit score. What’s that about?” If you pay back loans, credit cards, etc. on time, that helps your credit rating, also known as your credit score.

5. Types of Credit Revolving Credit • There is a limit on the amount you can borrow, and you can borrow as much or as little as you want—up to that limit. • You can repay the money you borrowed all at once or a little at a time. • If you pay back a little at a time, you’ll have to pay interest on your remaining balance (the amount you still owe). • Example: Most credit cards.

6. Types of Credit Installment Loan • Sign a contract to borrow money for a certain amount. • Make monthly payments—the same amount each month—until the loan is paid. • Automatically pay interest, and the amount of interest you pay is built into your monthly payment. • Examples: Car loans, student loans.

7. What Is A Credit Score? • Credit scores are your credit rating. • Factors of your credit score: • How much money you still owe on loans and credit cards. • Whether or not you pay your bills on time. • How long you’ve been building a credit history (longer = better). • Usually, the higher the credit score, the lower the interest rate.

8. Why Do I Need “Good” Credit? • The better your credit score, the less you’ll spend to buy things on credit. • Example: Say you want to buy a $25,000 car, and you want to pay it off in 3 years (36 months). Here’s the difference a good credit score can make in your monthly payments: Credit ScoreAPRMonthly Payment 500-589 (bad) 16.235% $882 720-850 (excellent) 6.098% $762 • Bottom line: If you have really good credit, you’ll save $120 a month on your car payment. If you have bad credit, you’ll pay $4,320 dollars more for your car!

9. Credit Scores: True or False? • Once a bad credit score, always a bad credit score. • False. Your credit score is just a snapshot of what your credit looks like at that time. Gradually, your score can change based on how you handle credit. • A great credit score guarantees that I’ll get a loan. • False. Your credit score is one of the factors lenders use to make credit decisions. Other factors, like income, etc., are also taken into account. • My credit score is going to get worse if I apply for credit. • Maybe, but probably not much. If you apply for multiple credit cards at the same time, your credit score is likely to decrease. But, if you search for, say, the best car loan from several lenders, your credit score won’t be affected much (if at all).

10. Maintaining Good Credit Credit Card Tips • Get one, two max. • Use for emergencies only. • Open one because you need it, not because the credit card company is offering a free T-shirt or koozie. • Set your credit card limit for how much you have in your savings account.

11. Maintaining Good Credit Protecting Your Identity If somebody steals your identity, it can really do a number on your credit score. Here’s how to avoid identity theft: • Look at your credit card and bank statements every month. If there are any unfamiliar transactions, let your financial institution know immediately. • If your credit card or bank statement is late, call your financial institution right away. Sometimes fraudsters will steal your card then change the billing address so you won’t notice. • Give your Social Security number only if you initiated the call or email, and never carry your Social Security card. • Shred any documents that contain personal info. Credit card offers, bank statements and insurance forms are all useful to fraudsters. • Check your credit report once a year to make sure it’s accurate. You can get it for free, once a year, at www.annualcreditreport.com.

12. Back to Good Tips • Pay all your bills on time. • Pay off your debt as quickly as possible. • Set up your bills on an automatic bill-payment system so you always know they’ll be paid by the due date. • Stop using your credit cards and spend only what you have. • Make at least the minimum payment each month. Note: Credit mistakes stay on your credit report for seven years, so make good decisions now to avoid having that long-term drag on your credit.