Learning ObjectivesStudents will be able to:
| National Standards for Personal Financial Education Managing Credit
|
Distribute to Students Lesson Resources: CALCULATE: Impact of Credit Score on LoansExit Ticket:
| Plan Your Unit Choose the unit plan for the course you are using: Share with the community: |
Learning ObjectivesStudents will be able to:
| National Standards for Personal Financial Education Managing Credit
|
Distribute to Students Lesson Resources: CALCULATE: Impact of Credit Score on LoansExit Ticket:
| Plan Your Unit Choose the unit plan for the course you are using: Share with the community: |
Answer the question on the first slide in the space 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 on the last slide.
How long does it take to establish your first credit score?
ARTICLE: Why It Is Important To Establish Credit While You’re Young 📷9 min Your credit report can have a significant impact on what happens when you make various financial decisions. Read the section titled “Why should young people care about their credit score?” Then, answer the questions.
Your credit score impacts many aspects of your life, and it might come into play sooner than you expect. One factor that goes into determining your credit score is your length of credit history. So, the longer you have credit, the better your chances of achieving a higher score will be that’s why it’s so important to start building credit while you’re young. Here are the top 7 ways your credit report is used, how it can impact your life as a young adult and why it’s important to have a good credit score:
Leasing an apartment When you’re ready to sign the lease on your first postgrad apartment, your potential landlord may check your credit report to ensure that you’re a responsible person who pays their bills on time. Having good credit could make your application stand out. But having bad credit could lead to them rejecting your application, requiring a creditworthy cosigner or requesting a higher security deposit.1
Setting up utilities Utilities companies often ask for your Social Security number to check your credit. A poor credit history could make it difficult to get services, and not having any credit history may require you to pay a deposit.2
Applying for a job When you’re applying for jobs, your future employer might look into your credit report to make sure you’re a responsible, trustworthy employee. This is especially true for positions that deal with bank transactions, bookkeeping or management of company accounts. In fact, 29% of employers use credit checks when hiring for certain positions.3
Buying a car Unless you’re buying a car outright with cash, you’ll need to secure financing. If you don’t have any credit established, you may need a creditworthy cosigner to assist with the purchase. If you have poor credit, you may receive a high interest rate, ultimately increasing the total price of your car. Or worse, you could simply be denied all together. In contrast, if you have good credit, there’s a higher likelihood you’ll receive better rates and pricing for your new vehicle.4
Buying a house Buying a house may seem like something very far into the future, but establishing a good credit history early will help you qualify for a mortgage down the road. Additionally, good credit can help secure better rates, which could result in tens of thousands of dollars in savings over the life of a 30-year mortgage.5
Getting a cell phone Aside from the monthly service fees cell phone providers charge, many people are choosing to finance their devices as well. While many college students are on their parents’ cell phone bills, it can be a harsh reality after graduation if you’re expected to have your own account. As soon as you need your own plan or want to upgrade your device, carriers will look into your credit history in order to make sure you’ll make your monthly payments.6
Receiving better interest rates on credit cards and loans When applying for a credit card or loan, credit card issuers and lenders will look at your credit history to determine your eligibility and interest rate. The higher your credit score, the more likely you’ll be approved for the credit card or loan and the better interest rate you can receive. This will be particularly useful if you have student loans and are looking to refinance them. The lower your interest rate, the less interest you’ll pay, meaning you’ll pay down the principal of the loan faster.
Do you think you would be more likely to lease an apartment or buy a house when you decide to live on your own? In either case, why is it important to have a good credit report?
Do you think your credit report is a good indicator for whether or not you're a good candidate for the things listed in the article? If so, explain why. If not, explain what other things you think should be considered.
VIDEO: How to Start Building Credit from Scratch 📷7 min You need experience with credit in order to build your score, but in many cases you need a good score to access credit. So how do you get started? Watch the video to learn more. Then, answer the questions.
How does opening a checking account with a bank help you build credit even though it doesn’t directly impact your credit score?
How does a secured credit card benefit someone new to using credit while also reducing the risk taken by the card issuer?
If you take out a loan with a co-signer, what is your responsibility and how is the co-signer impacted?
CALCULATE: Impact of Credit Score on Loans
Credit Scores:
Sam: 625
Jessica: 800
Danielle: 685
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.
Select AUTO LOAN at the top of the calculator. Then, enter the following information:
Loan Amount: $21,000
Loan Type: 60-Month New
Sam:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen shot the calculator!
Jessica:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen Shot the Calculator!
Danielle:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen Shot the Calculator!
What is the difference in APR paid by Sam and Jessica?
How does that APR difference impact their monthly payments and total interest?
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 to determine how much the loan is going to cost Sam, Jessica, and Danielle.
Credit Scores:
Sam: 625
Jessica: 800
Danielle: 685
Select MORTGAGE at the top of the calculator. Then, enter the following information:
Loan Amount: $250,000
Loan Type: 30-Year-Fixed
Sam:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen shot the calculator!
Jessica:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen Shot the Calculator!
Danielle:
Estimated Score:
APR:
Monthly PMT
Total Interest Paid:
Total Amount Paid:
Screen Shot the Calculator!
If someone asked you, “Why should I bother worrying about my credit score?” What would you say?
All of the following purchases can be impacted by your credit report EXCEPT…
Getting your own cell phone plan
Leasing an apartment
Applying for a mortgage to buy a house
Buying a TV with cash
Jane needs a cosigner for her loan. Which person would be the best for her to ask to be her cosigner?
Her cousin, who has several fancy cars and must be rich
Her grandfather, who lives on a tight budget
Her sister, who shows her she has a credit score of 735
Her neighbor, who says sharing the loan will allow him to remodel his garage at the same time
How does the interest rate on a loan compare for someone with excellent credit compared to someone with poor credit?
Interest rates are the same regardless of credit score
Interest rates are lower for someone with excellent credit
Interest rates are higher for someone with excellent credit
Interest is not charged for someone with excellent credit