CAUTIOUS CONSUMERS 2015 Educurious Partners--All rights reserved UNIT 3 LESSON 9 1

Learning Outcomes Educurious Partners--All rights reserved UNIT 3 LESSON 9 Students will learn how using credit cards can impact their credit reports and credit scores. Students will learn how all of the information on a credit score can affect different aspects of your life.

Lesson Tasks Educurious Partners--All rights reserved UNIT 3 LESSON 9 Discuss the cost of using a credit card to purchase something you really want and only making the minimum payments Discuss the importance of managing credit card payments Complete the Cautious Consumer Higher Payments activity Discuss a scenario illustrating the importance of a good credit score Discuss and define what a credit score is and the range from poor to excellent Discuss why students want a good credit score and how to check it Complete the Cautious Consumer Reflection

The True Cost of Credit What’s something you’ve had your eye on for a while, but just can’t afford? How much does it cost? Click this link to the True Cost Calculator and let’s see how much it will REALLY cost if you charged it to a credit card and only paid the minimum payments. True Cost Calculator True Cost Calculator Assume your APR is 14% Educurious Partners--All rights reserved UNIT 3 LESSON 9

The True Cost of Credit Here’s a typical “wish list” of someone who is just getting his or her own place or someone who just got their first paycheck and wants to spend it all! You can run each of these through the calculator and see what the “true cost” is. Shoes for work: $95 Shoes for work: $95 Couch for apartment: $500 Couch for apartment: $500 Bed + mattress set” $300 for bed, $500 for mattress set Bed + mattress set” $300 for bed, $500 for mattress set iPhone 6, 128 GB: $399 iPhone 6, 128 GB: $399 TV (60” Class 1080p): $1699 normally, $ sale! TV (60” Class 1080p): $1699 normally, $ sale! Educurious Partners--All rights reserved UNIT 3 LESSON 9

The True Cost of Credit If you put all of your expenses on the credit card for the month, but only pay the monthly minimum payment, you’ll end up paying thousands of dollars in interest with no way to pay it all back! Look at the example you chose… How much did it end up costing you on top of the original price? Educurious Partners--All rights reserved UNIT 3 LESSON 9

Higher Payments=Quicker Payoffs Let’s look at what this means for you and your money. You will look at a chart about managing your credit card payments and see how much you might actually pay with interest Educurious Partners--All rights reserved UNIT 3 LESSON 9

Higher Payments=Quicker Payoffs Complete the Cautious Consumers Higher Payments activity Educurious Partners--All rights reserved UNIT 3 LESSON 9

Higher Payments=Quicker Payoffs As you can see in the chart, there are some very high interest rates with some credit cards. People with bad credit are considered a high risk and credit card companies typically charge them higher interest, usually between 18-28%. Next, you will look at why good credit is beneficial and what you can do to protect your credit Educurious Partners--All rights reserved UNIT 3 LESSON 9

What Is a Credit Score? Read the following scenario, illustrating the importance of having a good credit score. The two individuals in the scenario are going to the bank to see if they qualified for their first home loan. They sit down with the banker overseeing mortgages and get some surprising news Educurious Partners--All rights reserved UNIT 3 LESSON 9

Scenario: First Home Loan “This is so exciting! I really feel grown up now! I can’t believe we’re actually going to get our mortgage for our home at the bank today!” “I know! We’re such ADULTS! But we’ve worked hard for this.” “Hi! Welcome to First Ridiculous Bank! How can I help you two today?” “Hi! We submitted a mortgage application and we’re back to discuss the outcome of the application.” “Oh, yes! I remember you both now. Sit here and let’s talk. Hmmm. It looks like your application was denied.” “WHAT!? I can’t believe it! But we both make more than enough money! We even saved up enough for a down payment.” “This is crazy. Can you tell us why?” “Well, you are entitled to a letter explaining why, but the short answer is that you both have lower credit scores than we’d like to see. This could be for several reasons, but the big picture is that you’ll either need a higher score or a smaller loan. We’ll see what we can work out. I’m so sorry.” “What do we do now?” “I don’t know—I never saw this coming.” Educurious Partners--All rights reserved UNIT 3 LESSON 9

Who Is FICO? A credit score is a number calculated by FICO (FICO is an acronym for Fair, Isaac, and Company). Click this link to get a brief description of a credit score and the range of scores. link Educurious Partners--All rights reserved UNIT 3 LESSON 9

Credit Reports and Credit Scores Educurious Partners--All rights reserved UNIT 3 LESSON 9 This infographic illustrates the range from poor credit to excellent credit.

Why Should I Want Good Credit? Excellent credit: Anything in the mid 700s or higher Easy credit approvals for Easy credit approvals for Cars Cars Homes Homes Business loans Business loans Lower interest rates Lower interest rates Some employers will request your credit report in government and financial sectors Some employers will request your credit report in government and financial sectors Some landlords may check your credit reports and refuse to rent or charge higher rent for those with low scores Some landlords may check your credit reports and refuse to rent or charge higher rent for those with low scores Educurious Partners--All rights reserved UNIT 3 LESSON 9

What Can Hurt A Credit Score? Late payments Late payments Bankruptcy Bankruptcy No credit activity for long stretches No credit activity for long stretches No credit established yet No credit established yet Maxing out a credit card Maxing out a credit card Defaulted loans and wage garnishment Defaulted loans and wage garnishment Opening multiple lines of credit Opening multiple lines of credit Educurious Partners--All rights reserved UNIT 3 LESSON 9

Why Should I Check My Credit Score? To be aware of your credit before you make a big purchase To check the accuracy of the information recorded on your report Educurious Partners--All rights reserved UNIT 3 LESSON 9

How Can I Check My Credit Score? Go to Check your credit score by requesting it for free every four months from Equifax, Experian, Transunion Educurious Partners--All rights reserved UNIT 3 LESSON 9

What Can Help a Credit Score? Pay down debts with on-time payments Keep your balances low Eliminate extra balances on multiple cards Don’t apply for multiple lines of credit at once Educurious Partners--All rights reserved UNIT 3 LESSON 9

Review How can using credit cards impact credit reports and credit scores? What are some different aspects of your life in the future that might be affected by your credit score? 2015 Educurious Partners--All rights reserved UNIT 3 LESSON 9 19

Review Answers How can using credit cards positively or negatively impact credit reports and credit scores? Possible answers may include: Possible answers may include: Lower interest rates Lower interest rates More possibilities for types of cards More possibilities for types of cards Not establishing a good line of credit Not establishing a good line of credit Maxing out a credit card Maxing out a credit card What are some different aspects of your life in the future that might be affected by your credit score? Possible answers may include: Possible answers may include: Qualifying for home, car, or business loans Qualifying for home, car, or business loans Employers may request your financial records Employers may request your financial records Landlords may want to see your credit scores before renting to you. Landlords may want to see your credit scores before renting to you. Qualifying for other types of credit cards. Qualifying for other types of credit cards Educurious Partners--All rights reserved UNIT 3 LESSON 9 20

Complete the Lesson… Now complete the Cautious Consumer Reflection Educurious Partners--All rights reserved UNIT 3 LESSON 9 21