Click image to begin learning module.
This learning module can be used as a substitute to the video when using the “Credit Score Millionaire” program materials.
Credit scores are used by lenders to make loan decisions. For example, if you wanted to buy a car but didn’t have all the cash saved up, you can apply for a car loan. The lender will then check your credit score and use that information along with other loan application information to decide two things: 1) if you will be awarded the loan; and also 2)how much you will be charged for the loan. A high credit score, means lower costs and more opportunities.
What a credit score is:
A credit score is a number between 300-850. The higher the score the better, because this indicates that you have successfully borrowed money in the past and paid it back responsibly.
This is where it gets a little confusing, because you need a high score to get good loans, but the only way to build a high score is by getting loans and paying them back responsibly!
Reasons you might need a good credit score:
Even though credit scores were first used for lending, did you know that they are also used by other types of companies and groups to make decisions about you? These include:
Utility companies.
o Example: You’re shopping for a cell phone plan with a contract. The cell phone company will check your credit score to determine if you qualify for the plan.
Apartment rentals
o Example: You’re moving out of your parent’s house. Landlords will check your credit to decide if they want to rent an apartment to you.
Insurance companies (auto, home, and life)
o Example: If you own a car, your auto insurance rates may be much more expensive due to a poor credit score, than it might be with a high credit score.
Elective medical service providers
o Example: You’re tired of wearing glasses, and want to have laser eye surgery to correct your vision. The surgical center will decide if you are likely to pay for this surgery by checking your credit.
Employers
o Example: You apply for a dream job with a large company that promises great pay and benefits. Unfortunately, there are 8 others applying for the same position. The company may “weed out” applicants with poor credit scores.
Costs of a poor score:
Having a poor credit score may result in fewer opportunities for employment, renting apartments, elective medical or utility services. But don’t forget the direct costs of getting loans and insurance. In other words, you can usually still get loans and insurance with a poor credit score, but it will cost much more. On average, this is how much extra a typical person might pay because of a lower score:
850-760: Will get the best rates
760-720: $100 extra
720-680: $300 extra
680-640: $600 extra
640-580: $1000 extra
580-300: $over $1,000 extra
Cosigner:
A cosigner is someone who has already established good credit. If a cosigner adds their name to your loan application, you can often qualify for loans that you couldn’t get on your own. However, cosigners are on the hook if you fail to make payments. This means that if you use a friend or family member as a cosigner and you don’t pay your loan, this person’s score will drop along with yours, and they will have to take over your payments. In short, they will not be very happy with you!
Costs:
Loan costs can come as either loan fees or interest payments. Adding all expenses and averaging this cost over a year is called an Annual Percentage Rate (APR). This number helps you compare the costs of different loans. Keep in mind that credit card costs can be greatly reduced and even eliminated by paying off charged balances within the card’s “grace period” (this period of no-interest borrowing is typically around 2-4 weeks from the time you are billed for purchases).
Scenario:
Sam is living at home and is about to start attending a local community college to earn a degree in computer science. When he finishes school, he hopes to land a job with a big computer company like Apple, Google, or Microsoft. Large companies such as these often check credit scores as part of the hiring process. Once Sam gets a job, he also plans to buy his own home or rent a townhouse, and buy a car. He knows that insurance costs will also make a difference on the total costs of his home and car. A high credit score will be a great help to Sam in landing a job, finding a place to live, buying a car and paying for a new car and insurance.
Which of the following loan(s) would be most cost-effective for building credit during the four years Sam is in school?
Options:
1) Payday loans, to buy groceries every month.
APR: 600%
Grace period on charges: No
Cosigner required: No
Credit score after four years: 510
2) Personal bank loan, to buy groceries every month.
APR: 8%
Grace period on charges: No
Cosigner required: Yes
Credit score after four years: 650
3) Secured Credit Card, to buy groceries every month.
APR: 24%
Grace period on charges: Yes
Cosigner required: No, but refundable collateral cash is required.
Credit Score after four years: 725
4) Traditional Credit Card, to buy groceries every month.
APR: 24%
Grace period on charges: Yes
Cosigner required: Yes
Credit Score after four years: 725
Click on this quiz link to try the quiz AND see the correct answer!
Which loan is best?
Attend the “Build your Credit Score” session at the “Fight Back Financial Series” in Pocatello, ID on May 23. See flyer.
Source: Bingham, A. (2011). The Road to 850: Proven strategies for increasing your FICO credit scores. Layton, UT: CP publishing.
This article may be freely reused and shared according to the creative commons license found here. Luke Erickson is a personal finance educator with University of Idaho Extension. He can be reached at erickson@uidaho.edu for comments or to arrange a free workshop at your location.
News Release
April 17, 2013
Contact: Luke Erickson, I Extension Educator, Madison County
Phone: 208-538-9936
University of Idaho Extension to offer “Fight Back” financial series.
Personal Finance Educator, Luke Erickson, of University of Idaho Extension, is offering a “Fight Back” financial series in locations throughout Eastern Idaho. The series consist of three, one-hour classes that focus on three important financial topics. The first hour addresses the top ten scams 2013 that target seniors, the second hour expands on the widespread and pervasive risk of identity theft, and the third hour expands of the previous two classes by teaching how to protect and build your credit.
One participant from a previous class shared, “The information from these classes is so valuable.” Another participant shared, “This was well worth it. I’m glad I came.”
Each of these topics is covered in 50 minute sessions with 10 minute breaks between sessions. Each session costs $3 to attend, OR attend all three for only $6! Low-income scholarships are available.
Hour 1: Senior Scams: The Top 10 Scams of 2013
Hour 2: Identity Theft: The Latest Tricks and Traps
Hour 3: Credit Scores: Myths and Realities
Locations:
April 22, Monday, 6-9pm • Salmon, ID
200 Fulton St. Ste 204
April 25, Thursday, *9am-Noon • Idaho Falls, ID
2925 Rollandet
April 29, Monday, 6-9pm • Driggs, ID
235 S 5th E
May 6, Monday, 6-9pm • Rexburg, ID
134 E. Main St., Ste. 204
May 22, Wednesday, *1-4pm • Blackfoot, ID
583 West Sexton St.
May 23, Thursday, 6-9pm • Pocatello, ID
10560 N. Fairgrounds Rd.
Register to attend your nearest location by calling, 208-359-6216. Persons with disabilities who require alternative means for communication of program information or reasonable accommodations need to contact Luke Erickson 134 E. Main St. (PO Box 580), Rexburg, Idaho or (208)538-9936 or email: erickson@uidaho.edu.
University of Idaho Extension, Madison County
134 E. Main St. (PO Box 580)
Rexburg, ID 83440
208.359-6216; 208.359.3286 fax
guest post by Annie Harrington
KTVB news recently ran a story about a combined initiative between the NFL and VISA called “Financial Football” because Kellen Moore was charged with giving the presentation to local students at Vallivue High School. Although the news probably focused on this story because of Moore’s involvement, the message is not lost; good financial habits start young and there are many things you can do right now as a parent to instill good financial habits in your teens. Here are a few tips!
Start Saving Early
Teaching teens to save their money at a young age is a great way to instill good money management habits for when they’re older. Many banks and credit unions offer savings accounts geared toward teens. Some even require a parent to sign off on fund withdrawals.
Develop Healthy Patterns
It’s probably safe to say we’ve all blown a paycheck or two, but habitually spending all the money you’re paid is usually a mark of money management immaturity. The only way to remedy this financial “disorder” is through a consistent approach to savings. Consider a 10/40/50 approach. Require that your kids give 10% of their income to charity, church or friends in need, put 40% into a savings account or college fund, and use the remaining 50% as spending money.
Set Guidelines
When you reach adulthood you have financial obligations and responsibilities that you need to maintain. Bills like car payments, house payments, medical insurance, cellphones, etc. all need to be paid on time, every time. To instill this same lesson into your teen set guidelines that dictate what their money or allowance is expected to cover. If your teen wants unlimited text messaging on their phone for $10 per month require that they cover that with part of their allowance.
If they want to get a friend a birthday gift, go out to eat, or see the latest movie all of those items should come from their allowance. This gives teens the opportunity to priorities their wants and needs while allowing them to have control over how they spend their money. The key here is that they cover all their needs, while still receiving some of their wants. As long as they are on budget, that’s what matters.
Don’t Play the Waiting Game
As the parent it is your job to teach your teen good money management. You should allow them the freedom to make their own decisions but you should also monitor those decisions. When you see them make a poor decisions discuss the issues surrounding the decision with them immediately. If they spend an extra $10 at a gas station because they felt pressured by friends it will be easier for them to remember how they felt at the time now, than it will two weeks after the purchased happened. This will give you the opportunity as the parent to teach them some real life lessons.
Conclusion
Teaching a teenager money management will help them avoid the pitfalls of irresponsible spending later down the road. Avoid bailing out teens that get into financial trouble. It’s important for them to feel the negative consequences of their actions. If you’ve established firm guidelines the damage from a debt will be minimal, and in reality, a $500 debt now is better than a $5,000 debt later.
Annie Harrington is a small business owner and freelance writer who is also keenly interested in all aspects of finance and design, including how to personalize checks.
Click here to download PDF
According to a recent report by Fox Business, there is one new identity theft victim every three seconds in the U.S. There has also been an increase in the number of major U.S. companies targeted by foreign governments and terrorists.
In 2010, personal identifying information stolen from third party institutions was used for an average of 95 days before being shut down. The good news is that in 2012 the average term of use has been cut nearly in half, down to 48 days. So, while the likelihood of a company or institution losing your information to hackers is sharply up, at least response times for shutting down illegal activity are improving.
One of the most sought after pieces of personal information is the social security number. While this number was created solely for the purpose of tracking your social security benefits; businesses, employers, schools, and pretty much every public entity has been using them for decades because they are unique, unchanging identifiers. In other words, it’s easy to use with vast computer databases. Yet, the widespread use of the number has led to ample opportunities for crooks to steal it and impersonate you in the marketplace. They get the goods and you get the bills.
The key thing about compromised social security numbers is that they often lead to new account fraud, as opposed to existing account fraud, making them relatively harder to detect and therefore potentially more damaging. It should be no surprise then that incidents of new account fraud were up considerably in the past year. Here are the differences between existing and new account fraud.
Existing Account Fraud: This occurs when a debit card, credit card, or other account information is compromised and used illegally to purchase things with that specific account. In this example, the fraud can be identified when the victim checks his monthly statement, or when he logs into his online account. This means the fraud is usually detected and dealt with relatively quickly. The chances of severe loss are relatively low.
New Account Fraud: This occurs when a person’s social security number, along with easily found information like a name, address, telephone number, birth date, etc., are used to open a brand new account in the victim’s name. The victim usually won’t know of the fraud until he checks his credit report, or more often, when he is denied a loan due to a poor credit score caused by missed payments on the fraudulently opened accounts. Those whose social security numbers are compromised are five times more likely than the average to become victims of identity theft, and are more likely to suffer significant losses.
While there isn’t much you can do once a company or third party organization has your social security number, you can be diligent in checking your free credit reports at the FTC mandated website: annualcreditreport.com, or putting a freeze on your credit.
Some good news is that University of Idaho Extension is staying up to date on identity theft, and continually providing education on ways to minimize risk and losses due to identity theft. Over the last year ID theft protection workshops were taught in many Southern Idaho locations including Rexburg, Idaho Falls, Jerome, Twin Falls, Meridian, and others.
Participants of these workshops indicated that they learned valuable new information as illustrated by these few selected responses:
· I learned ways to minimize identity theft risk.
· Don’t give information unless you initiate contact.
· How identity thieves can use information in arrests.
· I learned what to do if I am a victim of ID theft.
· New types of identity theft and what is happening in Idaho.
Participants were also asked to list one change that they planned to make as a result of the class. Responses included:
· Be more careful with personal information, where it’s carried and who it is shared with.
· Get a new shredder and be vigilant with it.
· Pull credit report on my pre-teen children [to check for ID theft].
· I will check my credit report three times a year instead of only one time as I have been doing.
· I will be much more careful in how many cards I carry.
· Spread what I have learned today.
There were also some significant knowledge and behavior changes among participants as well.
| Before | Knowledge | After | Increase |
| 86% | I know what identity theft is. | 99% | 13% |
| 47% | I know how identity theft occurs. | 94% | 47% |
| 53% | I know the consequences of identity theft. | 94% | 41% |
| 28% | I know how to determine if I am a victim of identity theft. | 86% | 58% |
| 32% | I know how to reduce my risk for identity theft. | 88% | 56% |
| 18% | I know what to do if I am a victim of identity theft. | 85% | 67% |
|
Before |
Behavior |
After |
Increase |
|
86% |
I regularly obtain my credit report and check it. |
99% |
13% |
|
47% |
I am careful to whom I give personal/financial information. |
94% |
47% |
|
53% |
I limit identification information and number of credit cards I carry. |
94% |
41% |
Luke Erickson teaches tips on Identity Theft
If you missed last year’s workshops that’s ok, it’s not too late to sign up for our 2013 programs! Check out our spring financial series called, “Fight Back.” Identity theft protection workshops will be taught along with senior scam tips, and credit score information. Arm yourself with the information you need to protect yourself and fight back against scammers and thieves.
This article may be freely reused and shared according to the creative commons license found here. Luke Erickson is a personal finance educator with University of Idaho Extension. He can be reached at erickson@uidaho.edu for comments or to arrange a free workshop at your location.
Click the image to download the PDF.
Luke E.
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