What Is the Importance of Having Good Credit?

What Is the Importance of Having Good Credit?

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Grade: 6 Lesson # 5

What is the importance of having good credit?

SS.8.FL.4.4 Explain that lenders charge different interest rates based on the risk of nonpayment by borrowers. Describe why the higher the risk of nonpayment, the higher the interest rate charged by financial institutions, and the lower risk of nonpayment, the lower the interest rate charge.

Correlated Literacy Standards:

style LAFS.6.L.3.6 Acquire and use accurately grade-appropriate general academic and domain-specific words and phrases; gather vocabulary knowledge when considering a word or phrase important to comprehension or expression.

LAFS.6.SL.1.1Engage effectively in a range of collaborative discussions (one-on-one, in groups, and teacher-led) with diverse partners on grade 6 topics, texts, and issues, building on others’ ideas and expressing their own clearly.

LAFS.6.W.2.4Produce clear and coherent writing in which the development, organization, and style are appropriate to task, purpose, and audience.

LAFS.6.RI.1.3Analyze in detail how a key individual, event, or idea is introduced, illustrated, and elaborated in a text

SS.8.FL.4.4 Explain that lenders charge different interest rates based on the risk of nonpayment by borrowers. Describe why the higher the risk of nonpayment, the higher the interest rate charged by financial institutions, and the lower risk of nonpayment, the lower the interest rate charge.

A Good Credit Record Has its Rewards!

Lesson Number : 5

Correlated Florida Standards (See Full Text on Cover Page)

  • LAFS.6.L.3.6; LAFS.6.SL.1.1; LAFS.6.W.2.4;LAFS.6.RI.1.3

Essential Questions

  • What is the importance of having good credit?
  • What is a credit score?
  • What factors influence one’s credit score?

Learning Goals/Objectives

  • Differentiate between good credit and bad credit.
  • Understand “Credit Score” as a measure of one’s creditworthiness.
  • Identify what affects your credit score.
  • Explain ways to improve one’s credit score.

Overview

In this lesson, students will explore the basics of building credit and understand the importance of having good credit and the consequences of having a bad credit.

Materials

  • Handout 1 “Measuring Credit” (Included in Lesson)
  • Handout 2 Exit Slip(Included in Lesson)

Time

  • 50 minutes

Activity Sequence

INTRODUCTION/HOOK( 10 minutes)

Explain to students that in today’s class we will be examining the concept of credit.

  • Give students the definition of credit as defined by Oxford Dictionaries – the ability of a customer to obtain goods or services before payment, based on the trust that the payment will be made in the future
  • Then ask students to explain what this really means, using their own words. Discuss as group

Summarize the idea that if you are trustworthy you will have good credit.

  • Have the class brainstorm the different ways people need to use our credit for future purchases. Ex. Car, home, loans… Create a list of ideas on the whiteboard.

ACTIVITY (35 minutes)

  1. Explain to students that credit reporting agencies evaluate people’s credit and rate them by using a “Credit Score.” Ask students if anyone has heard of a credit score before. Discuss (2 minutes)
  2. Distribute Handout # 1 which will provide students with a graphic showing the range of how credit is measured 350 equaling bad credit and 850 equaling excellent credit. Ask questions about the scale to make sure students demonstrate understanding. ( for example: Do you think a lender would approve a new car loan for someone with a credit score of 400? Why? Or Why not? ) ( 5 minutes)
  3. Using the credit rating scale provided have students answer questions 1-4 in handout (5 minutes)
  4. Discuss as a class what factors could lead to someone having bad credit:

(Examples; missed payments, payments lower than minimum due, excessive loans, long standing debts, car repossessed, home goes into foreclosure) Make sure that students understand the terms repossess and foreclosure. (3 minutes)

5.Distribute Handout #2 Read and discuss. Have students complete question related to credit scores. Allow time for students to share their answers on improving credit scores. (10 minutes)

6. Read the scenariosbelow to the class and have the students discuss which person probably has the lowest credit score? ( 3 minutes)

a.A person who has missed four minimum credit card payments;

b,A person who has had two car repossessions;

c.A person who has a $200,000 house loan

7.Which of thepeople possibly has a bad credit score? ( 3 minutes)

a.A person who owes money for a house, car, and loan;

b.A person with five credit cards;A college freshman with $15,000 in student loans;

c.Neither of them

8. Have students brainstorm as to why it might be important for them to have a good credit score in the future (references, employment, apartment/home rental, credit for :education; car loans; home loans, etc)

(4 minutes)

CLOSURE( 5 minutes)

Revisit Essential Questions and discuss. Distribute Handout # 3Exit slip 4 question survey Handout “Credit Basics.”

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING

  • Have students research a credit card company and write down what type of information is need to apply for a credit card. Then, describe what penalties could be acquired if payments are not made.

Sources/Bibliographic Information that contributed to this lesson:

Handout 1

Name______

Measuring Credit

As a consumer with beginning credit, as you start to build it, your number will reflect a number known as your credit score. The score range from 350 being the lowest and 850 being the highest. Credits scores are ranked based on the amount of credit you have compared to the amount of payments you make towards the loaned amount. Depending on the amount of payments you make, determines how high your score will go. Consistent payments improve your overall credit score, and missed payments will lower your score.

Using the credit rating scale above, answer the following questions:

1. What would a credit score of 600 be considered?

a. Excellent b. Good c. Fair d. Bad

2. What would a 435 credit score be considered?

a. Excellent b. Good c. Fair d. Bad

3. Write the range of scores described as “good” credit.

______

  1. Write the range of scores described as “bad” credit.

Handout #2

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Credit scores are designed to measure the risk of a person defaulting on a credit agreement. This risk is determined by considering several factors.

35% of your score is dependent upon your payment history: They check to see if your credit report has any: information showing that you might be a bad credit risk- Bankruptcy, lawsuits, repossessions, foreclosures, and late payments.

30%:How much debt you have: This category considers the number of accounts with balances, amount owed across different types of accounts, and the amount paid down on installment loans.

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15%:length of credit historyThis area looks at how long you have had the different accounts: As a credit history ages it can have a positive impact the score.

10%:types of credit used (installment,revolving,consumer finance,mortgage): Consumers can benefit by having a history of managing different types of credit.[7]

10%:recent searches for credit: How often consumers apply for a credit card or loan can hurt scores, especially if done in great numbers.

(Information above adapted from Wikipedia )

Based on the information above, answer the following question.

Suppose that your credit score is 650. You have 5 credit cards. You make a $100 per month payment on each card. In the past year, you have been late on your Visa payment 3 times. Your credit card debt is about $5,000. You are thinking about applying for another credit card and a car loan.

You have applied for a loan to add a swimming pool to your home. The lender has called you and told you that your credit card score (650) is too low to qualify for the loan. Ms. Lila Loan Officer says you MUST improve your credit score to 710 in order to qualify for the pool loan. You REALLY want a swimming pool before the hot summer months.

What can you do to improve your credit score? (You may have to do more than 1 thing)

______

Handout3

Name______

Exit Slip

Select all that apply.

  1. Credit score measures the following:
  1. The likelihood the person is to pay back the loan
  2. A reflection of whether or not the has made payments in the past
  3. Whether or not a person is trustworthy with money
  4. All of the above
  1. In which cases would you need credit:
  1. Application for a loan
  2. Application for credit card
  3. Application for a mortgage to purchase a home
  4. All of the above
  1. A bad credit score means:
  1. The person is not trustworthy
  2. Annual income is low
  3. You are a young adult
  4. You don’t make smart choices
  1. A good credit score means:
  1. Annual income is high
  2. You have a lot of credit cards
  3. You are trustworthy
  4. You make smart choices

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