3.1 Why your Credit Score matter? - A

Financial Algebra Second Edition

Slide 1

3-1 Why your Credit Score matter?

Learning Goals

The students will be able to:

• Name the components of a credit score and how they’re calculated
• Describe how credit score impacts the ability to borrow money
• Understand the implications of a thin file and how they can build credit and improve their score
• Summarize the rules contained in the Equal Credit Opportunity Act

Financial Algebra Second Edition

Slide 2

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Very important:


Every section is identified with a letter.

Please, do the same on your answer sheet.

Write the corresponding letter and then answer the

questions.

Financial Algebra Second Edition

Slide 2

A) VIDEO: What Is A Credit Score?

Watch the video on how FICO scores are calculated.
Then, answer the questions. ( to turn in on paper)

1.What is the scale for minimum to maximum possible credit score?

2. Why is it better to have a high credit score than a low one?

3. Explain how your payment history is used as a measure of your creditworthiness.

4. Does the method for calculating credit scores seem fair to you? Why or why not?

Financial AlgebraSecond Edition

B) VIDEO: What is Credit Utilization

How Is My Credit Utilization Ratio Calculated?

The previous video showed that credit history has the largest impact on your credit score and late payments should be avoided whenever possible. Just behind credit history in terms of impact on your credit score is your credit utilization. Watch the video and read the article to learn more.
Use the following information, along with the video and article to answer some questions, and turn it in on paper.

Ozzie has a Visa with a $2000 limit and a balance of $450; a store credit card with a $500 limit and a $200 balance; and a joint card with his mom with a $5000 limit and a $700 balance.

Financial Algebra Second Edition

1)

What’s Ozzie’s credit utilization on:

a. His Visa?

b. His store credit card?

c. The joint card with his mom?

2) What’s Ozzie’s overall credit utilization?

3) Ozzie works extra hours one week and receives an extra $75 in his
paycheck. Which debt should he put that money toward? Why?

Financial Algebra Second Edition

C) Community Credit: Utilization To turn in

The recommendation is to keep your credit utilization rate below 30% (on average and on each account). But, what percent of Americans achieve this goal? Use the map to answer the questions.

1)

In 2018, what percent of adults, nationally, had a credit utilization rate of below 30%?

2) Using your answer to question 1 and your knowledge of how credit scores are calculated,
make a hypothesis about the average American credit score.

3)

How does the percent of people under the 30% utilization rate in your state compare to the national rate?

4) Find your county within your state. How does your county’s percentage compare to your
state’s percentage of borrowers under 30% utilization?

5) Nationally, there is only one state where over half of the borrowers have credit utilization
rates under 30%. Why do you think that’s the case?