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5/23 FA 8.6 Why your Credit Score Matters

Last updated over 2 years ago
28 questions
Note from the author:

OBJECTIVES & STANDARDS

Math Objectives
  • Analyze data presented in a relative frequency histogram
Common Core Math Standards
  • Link to all CCSS Math
  • CCSS.HSS.ID.A.1
Personal Finance Objectives
  • Understand why interested parties may want to check your credit score
  • Assess the impact of a high or low credit score on interest rates and loan outcomes
  • List ways to boost a low credit score or begin to gain a credit history if you have no score
National Standards for Personal Financial Education
Managing Credit
  • 1b: Compare the cost of borrowing $1,000 using consumer credit options that differ in rates and fees
  • 7b: Assess the value to a potential lender of the information contained in a credit report
  • 8b: Explain how a borrower’s credit score can impact their cost of credit and their ability to get credit
  • 8c: Recommend ways that a person can increase their credit score
  • 9a: Explain how landlords, potential employers, and insurance companies use credit reports and credit scores in decision making
  • 9b: Provide examples of benefits associated with having a good credit score

OBJECTIVES & STANDARDS

Math Objectives
  • Analyze data presented in a relative frequency histogram
Common Core Math Standards
  • Link to all CCSS Math
  • CCSS.HSS.ID.A.1
Personal Finance Objectives
  • Understand why interested parties may want to check your credit score
  • Assess the impact of a high or low credit score on interest rates and loan outcomes
  • List ways to boost a low credit score or begin to gain a credit history if you have no score
National Standards for Personal Financial Education
Managing Credit
  • 1b: Compare the cost of borrowing $1,000 using consumer credit options that differ in rates and fees
  • 7b: Assess the value to a potential lender of the information contained in a credit report
  • 8b: Explain how a borrower’s credit score can impact their cost of credit and their ability to get credit
  • 8c: Recommend ways that a person can increase their credit score
  • 9a: Explain how landlords, potential employers, and insurance companies use credit reports and credit scores in decision making
  • 9b: Provide examples of benefits associated with having a good credit score
Intro

QUESTION OF THE DAY: What's the average credit score needed to rent an apartment?

Write your answer to the question below. Then, compare your answer to the answer on the second slide. Finally, follow your teacher’s directions on how to answer the follow-up questions below.
1

Take a guess: What’s the average credit score needed to rent an apartment?

1

In a competitive rental market, where demand for apartments exceeds supply, how could a high credit score be toward your advantage?

Learn it 1

INFOGRAPHIC: Why Does Your Credit Score Matter?

What? An apartment lease isn’t a loan or line of credit. Why would apartment owners want to check your credit score before renting to you? Turns out, it’s not just lenders who can ask to see your credit history. Review this infographic and answer the questions.

1

If they’re not lending you money, what motivation would these other people or businesses have to request your credit score?

1

Does this seem fair? Why or why not?

Practice It
CALCULATE: Impact of Credit Score on Loans
In the previous lesson, you did an activity to estimate the credit scores of 3 characters with different credit histories. In this follow-up activity, you’ll learn how their credit scores impact the cost of borrowing. Follow your teacher’s directions to complete the activity.

Now, assume that each of the three students has graduated from college, maintained their credit score, secured a $50,000/year job, and now wants to go car shopping. Use the FICO Loan Savings Calculator to determine how much the loan is going to cost Sam, Jessica, and Danielle.
Enter the following information into the calculator:
  1. Type of Loan: 60-month new auto
  2. State: National
  3. Loan Principal Amount: $21,000
  4. Current FICO Score Range: Varies by person
  5. Push Calculate
15
Estimated Score
Sam_______
Jessica _______
Danielle_______

APR (~interest rate)
Sam_______
Jessica_______
Danielle_______

Monthly Payment
Sam_______
Jessica _______
Danielle_______

Total Interest paid
Sam_______
Jessica_______
Danielle_______

Total Amount Paid
Sam_______
Jessica_______
Danielle_______
1
What is the difference in APR paid by Sam and Jessica?_______
1

How does that APR difference impact their monthly payments and total interest?

1

Hypothesize: What if they were buying a car with a $42,000 principal instead?

Now, let’s see how Sam’s, Jessica’s, and Danielle’s credit scores would impact a mortgage. This time they’re each trying to finance $250,000 of a condo using a 30-year fixed mortgage. Use the FICO Loan Savings Calculator and enter the following information:
  1. Type of Loan: 30-year Fixed
  2. State: National
  3. Loan Principal Amount: $250,000
  4. Current FICO Score Range: Varies by person
  5. Push Calculate
15
Estimated Score
Sam_______
Jessica _______
Danielle_______

APR (~interest rate)
Sam_______
Jessica_______
Danielle_______

Monthly Payment
Sam_______
Jessica _______
Danielle_______

Total Interest paid
Sam_______
Jessica_______
Danielle_______

Total Amount Paid
Sam_______
Jessica_______
Danielle_______
1

If someone asked you, “Why should I bother worrying about my credit score?” what would you say?

Learn it 2

EDPUZZLE: Boost Your Credit Score

Let’s say you, like the image above, have a credit score of 575. Based on the Question of the Day, you’re more likely to secure an apartment lease if your score is 65 points higher. What can you do? Complete this EdPuzzle or answer the same questions below to find out some options you’ve got.
1

What is the advantage of paying your credit card bill in full each month?
A. You earn interest on your line of credit and maintain a good credit score
B. There is no advantage to paying your credit card bill in full each month
C. You decrease your credit limit and the temptation to spend while also maintaining a good credit score
D. You do not have to pay interest or additional fees and maintain a good credit score

1

One way to maintain a good credit score is to keep your credit utilization low. What is credit utilization?
A. A percentage calculation showing how often you use your line of credit during a given month
B. The amount of times you have paid your bill on time during that current year
C. The ratio of your outstanding credit balance to your credit limit
D. Your liability amounts compared to the amount of your assets

1

Select all of the ways to build and maintain a good credit score.
A. Pay your bills in full each month
B. Pay all of your bills on time
C. Keep your credit utilization low
D. Open new lines of credit each month

VIDEO: How to Start Building Credit from Scratch

What if, instead of a low credit score, you’ve got NO credit score? That’s quite common if you’re a teenager without any credit already in your name. Watching this video will help you answer the questions that follow.
In most cases, banks do not report your banking actions to the credit bureaus, yet the video says that having a checking account could help you gain access to credit.
1

How does the video say a checking account might be helpful?

1

Why else might a checking account be convenient as you try to build credit?

1

If you have no credit history, why might a bank be more likely to issue you a secured credit card rather than a typical unsecured credit card?

1

Franklin mentions to his friend Yasmin that he’s planning to open a secured credit card. Yasmin says, “Isn’t that basically the same thing as using a prepaid or gift card?” Is Yasmin right? Explain.

1

While the video discusses finding a cosigner for a loan, you can do the same with a credit card. In that case, it’s called opening a “joint account.” Bryce’s aunt offers to open a joint credit card account with him, saying it will help Bryce build his credit history. What are some details Brcye and his aunt should work out before opening a credit card together?

1

Applying for and receiving federal student loans does not require a credit check. If a federal student loan was the first type of credit you had access to, how could that help or hurt your credit score?

MATH CONNECTION - RELATIVE FREQUENCY HISTOGRAMS

GRAPH: Comparing FICO Credit Scores

The last two videos might have you thinking it’s pretty difficult to achieve a high credit score, and depending on your personal circumstances, it might be. But, when you look at the overall US population that has a credit score, you find that scores are higher than you might imagine.
The chart shown below is a relative frequency histogram. While the y-axis of many histograms shows the count, or pure number of data points that fit into a given bar’s category, a relative frequency histogram tells you the percent of data that falls into each bar. Review this relative frequency histogram to answer the questions that follow.

1

Does this relative frequency histogram have a normal distribution? How can you tell?

1
In 2022, approximately what percent of people had a credit score between 800 and 850?_______
1

Generally speaking, a “poor” FICO credit score is below 580 points. If you round that up to 599 so that it better fits the information in this graph, what percent of the population is considered to have poor credit in 2022?

1

What range of credit scores saw the largest increase between 2020 and 2022? How large was the increase?

1

Describe how the distribution of FICO credit scores has changed between 2018 and 2022.

1

What impacts might this change in credit scores have on the typical American household’s finances?

Exit Ticket
1

While lenders check your credit score in order to set appropriate loan terms, including interest rate, why might other entities, like apartment rental companies or potential employers, also want to view your credit score?
A. They, too, are lending you money
B. They use your credit score to set your rent or salary
C. They want to know if you are wanted for any crimes or outstanding warrants
D. They are trying to assess how financially responsible you are

1

Zinn has had a credit card for the last year but otherwise has no credit history. He is interested in boosting his credit score before applying for an auto loan in approximately 14 months. What would help improve his score?
A. Adding his brother, who doesn’t have a credit history, as an authorized user on his credit card
B. Applying for 3 additional credit cards this month
C. Maxing out his credit card balance up to his credit limit, and then paying it down slowly over time
D. Asking his credit card company to raise his credit limit, but then not increasing his spending on the card at all

1

Why is it often easier to get a secured credit card than a more typical unsecured credit card?
A. Your initial deposit is equal to the credit limit, so the company knows you can never truly default and leave them without money to repay the balance
B. You have to undergo a much more rigorous background check before you even apply, so they know you are creditworthy
C. A secured credit card is the same as a gift card or prepaid card, so you can get one at most drugstores or grocery stores
D. Secured cards require two or three cosigners for each account, so the company is sure someone will be able to pay the balance every month

The End!