Keys to Your Financial Future Module 2-Good Credit: Your score in the game of life Session Outcomes



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Section #2: Credit: Borrowing Money


Estimate of Time:

20 minutes

Pages in Participant Workbook:

4 – 11


Materials Required:

  • Blank flip charts for recording participant responses

  • Markers and tape

  • Scripts for mini-skits (see template following the section)

  • Fake money in $10, and $100 increments

  • Prepared visual aid: Types of Credit (Visual Aid 2.3)

  • Prepared visual aid: How Credit Works (Visual Aid 2.4)

  • Prepared visual aid: Key Terms 1 (Visual Aid 2.5)

  • Prepared visual aid: Key Terms 2 (Visual Aid 2.6)

  • Prepared visual aid: Answers to KEY ACTIVITY—Amortized versus Revolving Credit (Visual Aid 2.7)

Facilitator Instructions


Materials, Visual Aids & Notes

Facilitated Discussion

Use the following talking points and questions to facilitate a discussion.

  • What is an opportunity cost?

After getting a few responses, summarize by stating:



  • The opportunity cost is the cost of what you are giving up when you make a choice. Every choice has opportunity costs. Economists would say the opportunity cost is the cost of the next best alternative you are forgoing when you make a choice.



  • What are the opportunity costs of using credit?

After getting a few responses, summarize by stating:

  • When using credit to buy something, one opportunity cost is that you pay more for that thing. Borrowing money costs more money.

  • Another opportunity cost is that you are obligating future income. When you tie up income you haven’t yet earned, you may decrease your options in the future.


Presentation

Use the follow talking points to present information about types of credit.

  • There are two different major ways to categorize credit.

    • Installment versus revolving

    • Secured versus unsecured



  • With an installment loan, you are approved for a specific loan amount taken out for a specific period of time. The amount you owe each month is calculated when you take out the loan.



  • What are examples of installment credit?

After getting a few responses, summarize by stating:

  • Car loan, home loan, business loan, student loan, personal loan



  • With revolving credit, you are approved for a credit limit. You can borrow any amount up to the credit limit. What you pay back each month varies depending on how much you have borrowed during the month.



  • What are examples of revolving credit?

After getting a few responses, summarize by stating:

  • Credit cards and lines of credit



  • A secured loan means there is another asset pledged against the loan. If you do not pay the loan as outlined in the terms, the lender can collect the pledged asset. This “pledged asset” is called collateral.



  • What are examples of secured loans?

After getting a few responses, summarize by stating:

  • Car loans, home loans, payday loans, car title loans, pawn loans

  • You may want to add that payday loans, car title loans and pawn loans are not loans available at banks or credit unions. They are available from alternative loan providers. You may also want to explain that they will often lend far below the value of the security or collateral, and they often charge very high fees.



  • Unsecured means there is no asset.



  • What are examples of unsecured loans?

After getting a few responses, summarize by stating:

  • Credit card loans, student loans

Mini Skit

Use the following instructions and talking points to facilitate the mini-skit.

  • Ask for two volunteers.

  • Give one volunteer card A. This person is the lender.

  • Give the other volunteer card B. This person is the borrower.

  • Give the lender $1000 in $100 bill increments.

  • Give the borrower two or three tens.

  • Have the participants act out the skit.

  • Ask people the following. Give them time to answer. The correct answers are listed.

  • Why was the loan balance $900 not $890?

  • Because the $10 went to interest and possible fees.



  • What is interest?

  • The cost for borrowing the money. It’s what the bank earns for lending you the money.




  • Why did the person have to pay fees or interest?

  • Paying interest and fees is part of the terms of the loan.

  • It is how the lender makes money. In essence they are renting the money for your use; interest and fees are the rent




  • Who was the lender?

  • Volunteer A

  • Explain that lenders are also called creditors.




  • Who was the borrower?

  • Volunteer B

  • Explain that borrowers are sometimes called debtors.



  • What is the amount the person borrowed called?

  • Principal




  • How much principal did this person borrower?

  • $1,000



  • Explain four more terms:

  • APR: It includes both the interest rate and any fees that everyone getting this loan would have to pay. APR does not include late fees, over the limit fees or other fees applied for not following the terms of the loan. Because fees and interest rates can vary from lender to lender (one may charge higher interest but lower fees, while another may charge lower interest, but higher fees) APR allows you to compare credit more accurately—you can compare apples to apples.

  • Terms: The things you agree to follow when taking out a loan. These include interest rate, kind of interest rate, fees, length of the loan, where payments are due and more.

  • Fixes vs. variable: Fixed interest rates mean the interest rate does not change. If a credit card or loan has a variable interest rate, the interest rate will change as market interest rates change. Market interest rates are based on an index. Commonly, variable rates are based on the prime rate. Currently the prime rate is 3.25%.

For example, a credit card with a variable rate will often be expressed as: “we add 11% to prime rate for purchases and balance transfers.” This would mean that today, the interest rate is 14.25%.

Variable rate credit cards and loans often start with an interest rate below those with fixed rates. This makes them attractive in the short-term for most people. There is a risk, however, that the rates could increase. This can make the payment difficult.



Because the rates vary, the payments change. This makes budgeting for a variable rate loan or credit card payment more difficult.

  • Amortized: Amortized is an accounting term that means the interest has been calculated over the life of the loan so you pay the same amount every month. With each payment, some of it goes to cover the interest payment while some of it goes to cover the principal. Student loans, car loans, small business loans and home loans (also called mortgages) are most commonly amortized. This means they are installment loans.


TRANSITION

Now that you know the key terms associated with credit, you are going to learn a little bit more about how credit works by comparing two examples.

Exercise in Pairs (OPTIONAL)

Use the following talking points to provide instruction for the activity.

  • Instruct participants that they will be using KEY ACTIVITY—Amortized versus Revolving Credit for this exercise.

  • Explain that they will be comparing an installment loan and a revolving loan with the same balance and terms:

    • $1,000 borrowed at 10% over 12 months. The revolving credit requires a 5% payment on the balance owed.

  • Ask participants to look at the installment loan amortization schedule as well as the spreadsheet for a revolving loan payment and answer the questions that follow.

  • Ask participants to share their answers. Compare their responses with the correct answers:

How much total interest is paid for the installment loan?

$54.99

How much interest is paid for the revolving credit?

$45.07 so far.

How much principal is owed on the installment loan after 12 months?

$0

How much principal is owed for the revolving credit 12 months?

There is still a balance of 600.07 left.

Which kind of loan seems like it would easier to manage in your budget? Why?

The installment loans. The payments are predictable and consistent and have an end date.

If the person with revolving credit continues to make payments at this level, how much interest do you think the person will pay?

$144.78

How long do you think it will take to pay off the loan in years?

5 years

TRANSITION

Now that you know how credit works, you are going to look at the trouble with some kinds of credit.

Write participant responses on flip chart.

Page 5

Write participant responses on flip chart.

Types of Credit (Visual Aid 2.3)

Page 6

Write participant responses to each question you ask on flip chart paper.

Page 7

Page 7

Page 7

Distribute scripts for skit to volunteers only.

Fake money in $10 and $100 increments.

How Credit Works (Visual Aid 2.4)

Pages 7 and 8

Key Terms 1 (Visual Aid 2.5)

Pages 7 and 8

Key Terms 2 (Visual Aid 2.6)

Pages 8 - 10

Page 9

Answers to KEY ACTIVITY—Amortized versus Revolving Credit (Visual Aid 2.7)




Section #3: The Trouble with Some Credit (OPTIONAL)


Estimate of Time:

15 minutes

Pages in Participant Workbook:

11 - 14

Materials Required:

  • None

Facilitator Instructions


Materials, Visual Aids & Notes

Case Study

Use the following talking points to provide instruction for the activity.

  • The young people will use KEY ACTIVITY—The Trouble with Credit Case Studies.

  • Divide the group into 3 groups. If you have more than 15 young people, consider doing two group ones, two group twos, etc.

  • Assign group 1, Jamal Visits a Pay Day Lender

  • Assign group 2, Susan Makes Minimum Payments on Her Credit Card Balance

  • Assign group 3, Xander Gets Upside-down in His Car Loan

  • Instruct each group to read the case study, answer the questions and be prepared to share a quick summary of their case study and answer with the rest of the group.

  • Instruct them also to discuss and answer the following: What could the individual have done differently?

  • Have each group present.

  • Compare their responses with the correct answers and share any corrections:

Jamal Visits a Pay Day Lender

How much did he pay to borrow $500 for 6 months?

$300 ($25 x 12 payments)

Does this loan seem like a good deal?

No. He pays more than 50% of the principal to borrow $500 for 6 months.

Note to Facilitator: Here is the formula for calculating the APR:

(Fee/principal x days in year)/term of loan X 100

(25/500 x 365)/14 X 100 = 130.36% APR

Susan Makes Minimum Payments on Her Credit Card Balance

After making her payments for 12 months, how much did she still owe?

$1,746.74

How much principal did she pay off?

$53.26

How much interest did she pay?

$372.85

Does this loan seem like a good deal?

No

  • Add the following after this group’s presentation:

  • Credit cards are really convenient. They let you buy things without having cash on hand. They also keep you from having to carry cash. And if they are stolen there are protections for you.

  • If your credit card is stolen and you report it, the most you could ever be liable for is $50. In other words, if the person who steals your credit card charges $1,000 on your card before you report it, the most you will ever have to pay is $50.

  • But credit cards get people in trouble. People charge things on credit cards believing they will be able to pay them off at the end of the month. But then at the end of the month other priorities win out over paying off the credit card in full. So a minimum payment is sent in instead.

  • While paying the minimum payment on time keeps you in good standing, this is exactly what credit card companies want you to do. This is where they make a lot of their money.

  • A better approach, if you are carrying a credit card balance, is to pick a fixed amount above your minimum payment and pay that each and every month. You will:

    • Pay off your credit card balance faster

    • Pay a lot less interest

  • If Susan continues to make the minimum payment, it will take her over 100 years to pay it off and she will have paid over $12,000 in interest.

  • If she had paid a fixed amount of $72 per month, it would have taken her 2 years and 9 months to pay off the loan. She would have paid only $588 in interest.

Xander Gets Upside-down in His Car Loan

Does this loan seem like a good deal?

  • No

  • Add the following after this group’s presentation.

  • Getting upside-down is not uncommon when people borrow the full value of an asset or nearly the full value.

  • This can also happen when the value of the asset drops faster than the loan balance.

  • The problem is that when you try to sell the asset, you end up with a net loss—no asset and still owing money.

  • When using credit to leverage an asset, try to avoid borrowing the full amount of the asset. This can help prevent becoming upside-down.

TRANSITION

Understanding how people get into trouble with some kinds of credit is a key to your financial future. Now you are going to look at how credit decisions are made, which is the focus of the rest of this module.

Page 12

Pages 12 - 13

Pages 13 - 14

You may want to work the APR formula out with your participants on a flip chart. If this is something that interests them, give them additional examples to work out. Once they know it, they will always be able to calculate the APR of any kind of credit allowing them to evaluate any kind of credit.

Although there are no visual aids for this information, consider writing important points on flip chart paper.




Section 4: Credit versus Debt

Estimate of Time:

5 minutes

Pages in Participant Workbook:

14 - 15

Materials Required:

  • Blank flip charts for recording participant responses

  • Markers and tape

  • Prepared visual aid: Credit vs. Debt (Visual Aid 2.8)

  • Prepared visual aid: How Credit May Help You (Visual Aid 2.9)

  • Prepared visual aid: When You Owe Money . . . (Visual Aid 2.10)

Facilitator Instructions


Materials, Visual Aids & Notes

Facilitated Discussion

Use the following talking points and questions to facilitate a discussion.

  • What is the difference between credit and debt?

After getting a few responses, summarize by stating:

  • Credit is the ability to borrow money. Debt is the result of using credit. It’s when you owe someone or a business money. Debt is a liability.



  • What kind of asset is credit?

After getting a few responses, summarize by stating:

  • Credit is a productive asset because it can help you get and keep other assets.

  • Having credit may help you:

    • Avoid financial crises—low priced credit may help you deal with emergencies,

    • Get a job—education or training may help you get a good job and student loans may help you get that education,

    • Start a business—a loan for a key piece of equipment, inventory or promotional materials may lead to a successful business,

    • Own a home—most people use a mortgage to finance their own home,

    • Provide for your own family, and

    • Achieve your goals and realize your vision.

  • But credit must be used carefully and wisely. Once you use credit, you owe money.

  • When you owe money, you obligate your future income. Obligations made today with income you have not yet earned, may decrease options for you in the future. The bottom line—use of credit with caution.



  • You will hear financial gurus say: do not use credit! Stay out of debt! But sometimes this is not practical. The best times to use credit are when investing in assets that are likely to increase in value—your training or education, a home or even a well-planned business.



  • Generally, avoid the use of credit for short-term purchases especially if they will create a long-term debt obligation. This commonly happens when pay day loans, rent-to-own arrangements or credit cards are used to buy things. For furniture, clothing, appliances and dinner with friends, use your income or create a small stash of savings to pay for these items.

Write participants responses on flip chart paper.

Page 14

Credit vs. Debt (Visual Aid 2.8)

Page 14

How Credit May Help You (Visual Aid 2.9)

When You Owe Money (Visual Aid 2.10)




Section #5: How Credit Decisions are Made


Estimate of Time:

15 minutes

Pages in Participant Workbook:

15 - 17

Materials Required:

  • Blank flip charts for recording participant responses

  • 4 blank flip charts hung next to each other for role play

  • Markers and tape

  • Large self-adhesive notes (10 for each small group) or brightly colored paper

Facilitator Instructions


Materials, Visual Aids & Notes

Brainstorm

Use the following talking points and questions to facilitate a brainstorm session with the young people.

  • What people or businesses that you know about can be creditors or lenders?

After getting a few responses, add the following if not mentioned:

  • friends,

  • family members,

  • clothing stores,

  • gas stations,

  • automobile dealers,

  • banks,

  • credit unions,

  • credit card companies,

  • payday lenders,

  • rental stores (rent-to-own),

  • and more.



  • Why do they lend money or extend credit?

After getting a few responses, summarize by stating:

  • It is how they make money or it helps them make money (an auto dealer offering financing; without it they would sell fewer cars, but they also profit from the terms of the financing).

Role Play (Optional)

Use the following talking points and questions to facilitate the role play.

Note to Facilitator: You can present the 4 Cs if time is a concern. This is less engaging, but saves time.

Note to Facilitator: You can get props for the role play. You can also give each team a large cardboard table tent onto which they can write their bank’s name.

  • Tell the young people they are going to do a role play and that each table is the credit committee at a bank.

  • Their role is to get information from you (the facilitator role playing the borrower) to make a decision as to whether to lend you (the facilitator role playing the borrower) money.

  • They should write each question they come up with on a large, self-adhesive note (5” X 8”) or individual pieces of paper with markers.

Note to Facilitator: Instead of having the young people brainstorm ideas in their books or on a flip chart, use individual self-adhesive notes or paper. This saves time in that you are not rewriting their contributions AND you can organize them into the “C” categories: Capacity, Capital, Collateral and Character.

  • Instruct them to “think like a banker” and give them 3 – 4 minutes to generate their questions.

  • Once they are done, collect questions from groups using round robin technique not to repeating ideas already shared.

  • Organize them into one of the four categories without revealing the categories. For example, if a group said: “Do you have the money to pay back the loan?” this question is about Capacity and would go on the first blank flip chart. If a group said: “Do you normally pay your bills on time?” this is about character and would go on the fourth blank flip chart.

  • Put the name of each category above the appropriate grouping of questions and define the 4 C’s as you do this.

Capacity--Do you have the financial ability to pay back the loan?

Capital--Do you have other assets that can be used or sold to cover the loan?

Collateral--Do you have an asset that can be pledged against the loan?

Character--Are you likely to pay back the loan as agreed?

  • Explain that all of the information they get about someone wanting to borrow money comes from one of two places:

The application for credit

The credit report



Note to Facilitator: You can go back through some or all of the questions they generated and determine whether they are answered on the application or the credit report. You can label each question appropriately.

TRANSITION

Now that you know the 4 Cs of credit decisions, you are going to learn a little more about two of these: Capacity and Character

Page 15

Write participant responses on flip chart paper.

Page 15

Write participant responses on flip chart paper.

Page 16

Hang 4 blank flip charts.

You will have one flip chart for each C. You will not write the category on until after participants have shared their questions. They come up with the ideas, as they share them you categorize them and then once you are done collecting and organizing participant responses, you write the category at the top of the respective flip chart.

Keep these 4 flip charts posted for the remainder of the training. You can refer back to them as you cover other aspects of credit where appropriate.




Section #6: Capacity


Estimate of Time:

20 minutes with optional activity

10 minutes without optional activity

Pages in Participant Workbook:

17 - 21

Materials Required:

  • Blank flip charts for recording participant responses

  • Markers and tape

  • Prepared visual aid: Debt to Income Ratio (Visual Aid 2.11)

  • Prepared visual aid: Gross Income (Visual Aid 2.12)

  • Prepared visual aid: Debt to Income Limits (Visual Aid 2.13)

  • Prepared visual aid: How to Use the Debt to Income Ratio (Visual Aid 2.14)

Facilitator Instructions


Materials, Visual Aids & Notes

Large Group Exercise

Use the following talking points and questions to facilitate the large group exercise.

  • Creditors use something called the debt-to-income ratio to make sure you aren’t taking on too much debt.

  • Here is how to calculate it:

Monthly debt payments divided by your monthly gross income.

  • What is gross income?

After getting a few responses, summarize by stating:

  • Gross pay is what you earn before any deductions are taken. Deductions are taken for federal income tax, Social Security, Medicare, state tax, local tax and insurance. There are other deductions that may be taken out of your paycheck. These are covered in section 3.



  • Net pay is what you have left after all of the deductions are taken out. It’s what you take home.



  • Review KEY ACTIVITY—Understanding the Debt to-Income Ratio.



  • Summarize Leon’s story while you do the math on a flip chart or white board.

  • Leon is 24 years old. His monthly debt payments include an auto loan and credit card payments. His monthly debt payments total $485. His monthly gross income is $1,870. His debt to income ratio is:

$485 (monthly debt payments) divided by $1,870 (monthly gross income) = .2593 or 26% (debt to income ratio)

  • This means that 26% of his gross income goes to cover his debt payments right now. Another way of thinking about this is that for every dollar he earns, $0.26 goes to cover debt. That leaves $0.74 of every dollar to cover his other expenses.



  • What other expenses does he have to cover with that $0.74?

After getting a few responses, summarize by stating:

This means he has $0. 74 of each dollar for everything else including:

    • Taxes

    • Rent

    • Renter’s insurance

    • Utilities

    • Cell phone, service and data plan

    • Computer and internet service

    • Clothes

    • Food

    • Transportation

    • Entertainment

    • School related expenses

    • And so on



  • Review debt-to income limits using the visual aid.



  • The debt-to-income ratio is a great tool not only for lenders, but for you too!

  • You can use your debt-to-income ratio to:

  • Figure out whether to take on new debt—should you buy a new car or stick with this old car for a little longer?

  • Make a goal for your debt level—can you get your debt-to-income ratio down to 25% by the end of the year?

  • Keep track of how you are doing paying down debt—how much has your debt-to-income ratio decreased in the past 6 months?

  • Debt-to-income ratio is a measure of your financial health. Just like your blood pressure reading tells you how much pressure there is on your heart, your debt-to-income ratio can tell you how much pressure your debt has on your income.

TRANSITION

Remember these are limits or maximums NOT targets. You want to make sure you are BELOW these limits. And the further below them, the more financial stability you will have.

Exercise in Pairs (Optional)

Use the following talking points and questions to facilitate the exercise in pairs.

  • With a partner, calculate the debt-to-income ratio for Maria and Dakota using KEY ACTIVITY—Using the Debt-to-Income Ratio.

  • Answer the questions that follow each mini-case study.

  • Be prepared to share your answers.

  • Compare their responses with the correct answers and share any corrections:

Maria

What is her debt-to-income ratio?

(285+140+225)/2100 = .31 or 31%

Based on only her debt-to-income ratio, should she take on an auto loan?

No

What else would you want her to consider before making this decision?

Find a less expensive car; see about lowering student loan payment through Income Based Repayment if car is a necessity.

Dakota

What is his debt-to-income ratio?

(165 + 295 + 820)/2950 = .43 or 43%

Based on his debt-to-income ratio, should he take on mortgage (home loan)?

Maybe. His career has lots of growth potential. He also has a lot in emergency savings.

What else would you want him to consider before making this decision?

Find out how much longer on car payment. If it’s almost paid off, the mortgage should not stretch him

Summarize using the following:

  • You have learned about the 4 Cs of credit and now you have had an in depth look at Capacity.

  • Remember, capacity looks at whether you can you handle debt from your current resources.

  • This section gives you the information and skills to complete Keys to Your Financial Future Step 2.1: Calculate Your Debt-to-Income Ratio.

  • If you do not have debt or income, you can skip this section of your asset building plan for now.

  • Remember, looking at and keeping track of your debt-to-income ratio is like your personal financial blood pressure. Make sure you are keeping it below those thresholds so you are not putting too much pressure on each paycheck to pay off debt.

  • This is a key to your financial future.

Debt to Income Ratio (Visual Aid 2.11)

Page 18

Page 18

Gross Income (Visual Aid 2.12)

Page 18

Work out calculations on flip chart or white board. You can ask participants to read the story so you can do the math.

Record participant responses on flip chart paper.

Page 19

Debt to Income Limits (Visual Aid 2.13)

How to Use the Debt to Income Ratio (Visual Aid 2.14)

Pages 20 and 21

Work out calculations on flip chart or white board if participants are unclear about how to get the answer.

Page 21




Section #7: Character Part 1: Credit Reports


Estimate of Time:

30 minutes

Pages in Participant Workbook:

23 - 45


Materials Required:

  • Blank flip charts for recording participant responses

  • Markers and tape

  • Handout: Example credit reports (there is one in the book, but you can use other examples)

  • Prepared visual aid: Why Credit Reports ARE Important (VA 2.15)

  • Prepared visual aid: The Credit Reporting Agencies (VA 2.16)

  • Prepared visual aid: Can You Have a Credit Report if You are Under 18? (VA 2.17)

Facilitator Instructions


Materials, Visual Aids & Notes

Presentation

Use the following talking points and questions to lead a presentation.

  • There are two parts of character you are going to learn about for the rest of the session: your credit reports and your credit scores.

  • A credit report is just a record of some of your bill paying history.

  • You should NOT have a credit report if you are under 18.



  • Can you have a credit report if you are under 18?


After a few responses, summarize by stating:

  • Yes. If someone has used your identity fraudulently.

  • Unfortunately this does happen.

  • As a young person in care, the risk to this happening to you may be even greater because so many people have access to your personal information.

  • A law was passed that makes it mandatory that your case worker review your credit report each year starting at age 16 so any issues generated on your reports can be cleared up by the time you leave care.



  • Why are credit reports important?

After getting a few responses, summarize by stating:

  • Many individuals and businesses use them to make decisions about you!

  • A bank or credit union may use them to decide whether to give you a loan.

  • A credit card company may use them to decide whether to give you a credit card.

  • A landlord may use them to determine whether to rent an apartment to you.

  • A potential employer may use them to determine whether you will get a job.

  • An insurance company may use them to determine whether to give you insurance coverage and the rates you will pay for coverage.

  • A utility company may use them to figure out how much deposit you must pay before they will turn on your electric or gas.

  • A cell phone provider may use them to determine what plans you may be eligible for and the rates you will pay.

  • Finally, credit scores are completely based on information in your credit reports. The more positive the information in your credit reports, the higher your credit scores will be. You will learn more about credit scores later in this section.



  • There are three companies that collect this information and sell it to others. They are called Credit Reporting Agencies (CRAs) or Credit Bureaus.

  • They are: Experian, Equifax and TransUnion.



  • If you are over 18, you can order a credit report from any of these companies any time. You can order them from their websites. You can call them. You can write to them. You should review your credit reports from all three credit reporting agencies because they do not all have the same information.

  • You can also get one free report each year from all three credit reporting agencies through www.annualcreditreport.com. This is because of a law called the FACT Act.

  • To get yours, you will need to give them your:

    • Name

    • Address (and your previous two or three most recent addresses)

    • Birth date

    • Social Security Number

  • You will also be asked a series of security questions. Examples of the security questions include:

    • The name of a street you lived on before your current address.

    • The monthly payment for a loan you have.

    • The name of a creditor or lender you have a loan with.

  • The security questions are generally based on information in your credit.

  • If you have been the victim of fraud or identity theft, the security questions could be a problem—you may be asked about a loan or credit you know nothing about barring access to your report.

  • After you receive one free report from each credit reporting agency, there is usually a fee for any additional reports in a year unless:

    • You have been denied credit, a job or an apartment based on your credit—then you get a free report from the credit bureau that gave the information that led to your denial. You must request the report within 60 days of the denial.

    • You are receiving public assistance—then you are allowed an additional free report.

    • You are unemployed and planning to look for a job within the next 60 days.

    • Your report is inaccurate because of fraud including identity theft.



  • If you are under 18, there is no way to access your report through www.annualcreditreport.com. This is because the credit reporting agencies “do not knowingly create a credit file for anyone under 18.” There are some exceptions (where you could have a credit report):

    • If you are an emancipated minor, in some states you may be able to enter credit contracts before you are 17

    • If you are an authorized user on someone’s credit card

    • If you have student loans

    • If your identity has been stolen and used by someone else to get credit—loans and credit cards—or other services—cell phone plans, medical services, utilities or cable service

  • If you suspect fraud or identity theft or want to ensure you do not have anything on your credit report before you turn 18, you will need the help of a parent, guardian or case worker.

  • Use the instructions in your workbook to contact each of the credit reporting agencies to get your report.

  • You will need to include:

    • Cover letter including full name, birth date and addresses for the previous 5 years

    • Proof of current address

    • Copy of the birth certificate

    • Copy of the Social Security Card

    • Copy of parent or guardian identification card

    • If legal or court appointed guardian, a copy of documentation showing this relationship

  • You can also call them or go through their websites.

Summarize using the following:

  • One of the most important things you will do to maintain your financial health is order and review your credit report from each of the credit reporting agencies—Transunion, Experian and Equifax once per year.

  • You must order all three because they may have different information on them.

  • Some people recommend ordering one of them every 4 months. This ensures you are keeping a regular eye on what is going on with your credit. You only need to start this habit when you turn 18 OR if you have been a victim of identity theft or fraud.

  • To get you started on this habit, complete Keys to Your Financial Future Step 2.2: Order Your Credit Report.

  • Once you do get your credit report, complete Keys to Your Financial Future Step 2.3: Credit Report Review Checklist.

  • Once you are done completing the checklist, clip it to the credit reports you have reviewed and put them in a safe and secure place. If you do not have a safe or secure place, talk to staff here at the Opportunity Passport™ Site or your caseworker.

Reading a Credit Report

Use the following talking points and questions to facilitate the exercise on reading a credit report.

Note to Facilitator: The credit report contained in the participant workbook is in the tools section for this module. The answers to the questions the young people are to answer are included below.

  • Explain each of the main sections of the report.

  • Have the young people circle and label each section of the report as you review each section:




    • Personal Information. This includes your name and any variations of your name you may have used, your social security number, your current address and phone number, your previous addresses and phone numbers, and sometimes employment information.

  • Public Records. This includes bankruptcies, liens (right to property until a debt is paid; liens are often placed because of unpaid taxes), garnishments (court order allowing money, assets or wages of someone to be seized to satisfy a debt) and other judgments resulting from court actions.

  • Account Information. This section includes the names of all of the accounts opened under your name and information, account numbers, creditor contact information, balances, payment status, account types, terms, dates opened and payment patterns. This is where most information on a credit report is. This is also the section where you are likely to see whether someone else has stolen your identity.

  • Accounts in Collection. Some credit reports separate accounts that are in collections. If an account has gone to collections, this means the creditor has given up trying to get payment from you. They have given the account to a special department that handles delinquent payments. Or they have sold the debt to a collection agency or lawyer to collect. Special laws apply to debts that have been sold to collection agencies or lawyers.

  • Inquiries. Companies look at your credit reports when you apply for credit. They also review your accounts or use the information to offer you a special promotion.




  • Have the young people answer the questions in KEY ACTIVITY—Reading a Credit Report. Following are the correct answers to share once participants have had time to answer in pairs or small groups.

  1. Whose credit report is this?

Maria Williamson (Note: She is 21 years old as of this past January)

  1. Where does the person live?

3456 1st Street

Des Moines, IA 63072

  1. How many places has the person lived?

3 including her current address. This may not have all of her addresses on file.

  1. Has the person had a bankruptcy?

No. This would be in the public records section of the credit report.

  1. Has the person had an account in collections? If yes, what is the account?

Yes. With Results Collection for an unpaid department store charge. $489 was placed with collections. The balance is $350-this is what is still owed.

  1. How many credit accounts does this person have open?

Two accounts

Easy Auto Finance (an automobile loans; this is also an installment loan—see the “I” in account rating number).

National Credit Card (a credit card; this is a revolving loan—see the see the “R” in account rating number).

  1. What is the balance on each account?

Easy Auto Finance: $7,097.75

National Credit Card: $1,475

  1. How many are late? How late are they?

One is late, Easy Auto Finance.

See payment patterns section: 3211111

1 = paid as agreed

2 = 30 to 59 days past due date

3 = 60 to 89 days past due date

4 = 90 to 119 days past due date

5 = 120 or more days past due date

9 = charged off to bad debt

  1. Overall, do you think this person’s credit looks good or does it look like it needs work?

Needs work. Person must immediately get current with auto payment or run the risk of losing the vehicle (it may become repossessed)

  1. Would you extend more credit to them? Why or why not?



Review an Example

Use the following talking points and questions to share the example of taking care of mistakes on your credit report.

  • Getting mistakes fixed on your credit reports is your responsibility once you are 18 or over. While in care, you can get the support of your caseworker. At any age, you can get support from this Opportunity Passport™ site.

  • If you are under 18 and in care, this responsibility will be the child welfare system’s starting in January 2013. However, since it is about your future, you may want to keep track of what is going on with your credit.

  • To take care of mistakes, you must contact the credit reporting agency.



  • Read through Molly’s example.

  • Ask participants the following about the example dispute resolution letter:



  • What information does Molly include in her letter?

After getting a few responses, summarize by stating:

  • She includes a clear description of exactly what she is disputing:

  • The information indicating I made late payments to Super Cell Phone Provider and owe them a balance is incorrect. In April, May, June and July of 2011, these payments are marked late. These payments were made on time. I also have no outstanding balance.”




  • What information does Molly include with her letter?


After getting a few responses, summarize by stating:

    • A copy of her credit report with disputed items highlighted.

    • Information from her bank indicating when the payments were made using online bill payment.



  • How long does the credit reporting agency have to investigate and respond?

After getting a few responses, summarize by stating:

  • 30 days

Summarize using the following:

  • Use the example dispute resolution form or the form available through the credit reporting agency websites to file a dispute IF YOU HAVE A MISTAKE ON ONE OR MORE OF REPORTS.

  • Use Keys to Your Financial Future Step 2.4: Disputing Errors on Your Credit Report to file your dispute.

  • You will need to keep these records—the letters you send, the original supporting documents for your dispute and responses from the credit reporting agencies and creditors in a safe and secure place. If you do not have a safe or secure place, talk to staff here at the Opportunity Passport™ Site or your caseworker.

  • Even if you use the online form (not recommended), be sure to print it out so you have evidence and records of when you filed the dispute.

  • Send dispute via certified mail with signature confirmation.

Note to Facilitator: If you have young people concerned about fraud, you can go into fraud alerts and credit freezes using the following information from the FTC below. Visit the www. FTC.gov website or the Privacy Rights Clearinghouse to learn more about fraud alerts and credit freezes.

Page 29

Page25

Why Credit Reports ARE Important (VA 2.15)

Page 27

The Credit Reporting Agencies (VA 2.16)

Page 27

Page 28

Page 28

Page 29

Page 29

Can You Have a Credit Report if You are Under 18? (VA 2.17)

Page 29

Page 38

Page 41

Pages 35 and 36 (example credit report)

Page 33

Page 33

Page 34

Page 34

Page 35

Pages 35 - 37

Page 43

Write participant responses on flip chart paper.

Pages 42 and 43

Page 42 and 43

Pages 44 and 45

A fraud alert is a tool for people who’ve had their identity stolen – or who suspect it may have been stolen. With a fraud alert in place, businesses may still check your credit report. Depending on whether you place an initial 90-day fraud alert or an extended fraud alert (which lasts up to 7 years), potential creditors must either contact you or use what the law refers to as “reasonable policies and procedures” to verify your identity before issuing credit in your name. However, the steps potential creditors take to verify your identity may not always alert them that the applicant is not you. A credit freeze, on the other hand, will prevent potential creditors and other third parties from accessing your credit report at all, unless you lift the freeze or already have a relationship with the company. Some consumers use credit freezes because they feel they give more protection. Credit freezes and fraud alerts are mainly effective against new credit accounts being opened in your name, but will likely not stop thieves from using your existing accounts, or opening new accounts such as new telephone or wireless accounts, where credit is often not checked..





Section #8: Repairing, Building and Maintaining Good Credit


Estimate of Time:

20 minutes

Pages in Participant Workbook:

45 – 52; 59 and 60

Materials Required:

  • Blank flip charts for recording participant responses

  • Markers and tape

  • Other supplies for teach back

  • Prepared visual aid: Instruction for Teach Back (Visual Aid 2.18)

  • Prepared visual aid: Credit Building and the Opportunity Passport™ (Visual Aid 2.19)

Facilitator Instructions


Materials, Visual Aids & Notes

Teach Back by Creating Commercials, Billboards, Raps or Jingles

Use the following talking points and instructions to facilitate the teach back.

  • Put the participants into three groups.

  • Explain to them that they will have 10 minutes to prepare a commercial highlighting the key points of their group’s assignment—it can be a poster/billboard, a rap or jingle or some other way to creatively and memorably convey the information quickly to the rest of the group.

  • Assign group 1, Repairing Credit (pages 45 – 48); group 2, Building Credit (pages 49 - 50; group 3, Maintaining Good Credit (page 51).

  • Instruct participants to use the materials in their workbooks.

  • After 10 minutes, have each group present.

  • Consider having some kind of reward for the groups for their effort and creativity.

Note to Facilitator: Rewards or prizes for this activity or others can include: Least expensivePayDay candy bars, 100 Grand Bars, bag of chocolate coins

More expensive prepaid debit cards, financial books, gift cards for iTunes or apps, restaurant or movie gift cards, budgeting software, Amazon.com gift card.
Summarize using the following:

  • Use the information from the commercials and the information in your workbook to complete Keys to Your Financial Future Step 2.5: Credit Repair or Building Plan.

  • Consider meeting individually with staff if you need to repair your credit history, build your credit history and/or plan to use your Opportunity Passport™ Matched Savings for credit repair or building.

Presentation

Use the following talking points to present information about credit and the Opportunity Passport™.

  • Because good credit is such an important productive asset, you can use your Opportunity Passport™ Matched Savings to repair or build credit.

  • It means you can apply your matched savings to:




  • Repair your credit history and improve your scores by paying for:

    • accounts you may be late on

    • debts in collections

    • accounts you risk becoming late on or

    • dealing with legal or other issues resulting from identity theft




  • OR to build your credit history and improve your scores, you can use your matched savings to:

    • secure a credit builder loan to build credit

    • secure a credit card to build credit




  • Before deciding to use your Opportunity Passport™ Matched Savings to build credit, be sure you have:

    • Ordered your credit report

    • Reviewed your credit report with Opportunity Passport™ Staff or someone they have referred you to

    • Considered other asset building opportunities you may be giving up if you use your Opportunity Passport™ Matched Savings for credit repair or building.

Summarize using the following:

  • Good credit—having a good credit history and positive credit scores—is a productive asset.

  • Good credit can help you get and keep other assets.

  • Investments of time and money now to deal with credit issues may make credit accessible, loans more affordable, jobs more available, insurance affordable and renting an apartment possible.

  • Having good credit—having a good credit history and positive credit scores—is a key to your financial future.




Instruction for Teach Back (Visual Aid 2.18)

Pages 45 - 51

Page 52

Credit Building and the Opportunity Passport™ (Visual Aid 2.19)

Pages 59 and 60

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