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>> Our credit scores. If they made a movie about FICO scores, they'd call it "The Good, the Bad,
and the Ugly." Where do these scores come from? In 1958, the Fair Isaac
Corporation, FICO, introduced the first credit scoring system as a way to quantify credit risk.
In 1970, they expanded that system to bank credit cards. Today, credit scores from major American credit bureaus are
widely used to determine credit worthiness. Pretty much all of our financial transactions, payment history,
amounts owed, length of credit history, new credit, and types of credit, have an impact on our scores.
But it's important to remember that scores are like snapshots. They capture where we are at a moment in time, and can be
changed for worse and for better. Lots of people leave high school without having learned how
to be critical consumers. Then they start college or work with no real understanding about finances and credit, and they
say, "I wish I'd learned that back in school."
At Appleton East High School, Carol VanCamp's students learn that their credit score is like a grade for financial behavior.
>> All right, today we're going to talk a little bit about credit. We've already talked about
some credit scores, but just to review we will start with our FICO scores and knowing what your credit score is.
As we talked about in class, your FICO score or your credit score can go anywhere from 300 to 850.
Why is your credit score so important? We already now that our financial institutions
use this to determine your interest rate. Auto insurers use this for figuring out
what your premium might be. Employers will use this to figure out if you are a good hire or not.
And landlords will use this to figure out if you are a good tenant, if you're going to be a good tenant.
What is the most common way you will start your credit score? What happens when you go into the common area at school,
and they offer you your free shirts, or your free hats or your free coolers? >> You get a new credit card.
>> Very good. So that is going to help create your credit score whether it be a good one
or a bad one. >> It may help raise your credit score if you use it wisely. >> Good answer.
>> Carol shares some surprising facts about students' credit card use. >> What do you guys think about
five credit cards, that was the average. >> That's too much. >> I'm thinking one, maybe two.
>> One, maybe two, is good. This is Eric's recommendation. >> What could they possibly need five credit cards for?
>> That 10% off, we've talked about those kickbacks. And then be aware of a couple of things.
First is those fees. Later on, we'll be looking at different credit card applications, credit card terms
and conditions, and you will see those fees and how they get racked up. It's very small writing.
And it's very small writing for a reason, because they don't want you to read it.
And most people don't read it, but you want to be a smart consumer and read it. >> Smart consumers know
their credit scores before shopping for big ticket items. Carol refers to a handy website. >> And you can actually use this
website at any time to figure out what is the going rate for your credit score, but you need to know your
credit score to do this. If you look at this person out here who doesn't have a hot credit score,
they have the 15.32% interest rate, more than double of the person with a good credit score.
>> Carol introduces her students to Rachel and Eric, two people who have very different credit ratings
although each has been pre-approved for a 0% credit card for six months. >> 0%, no interest,
for the first six months. Because Rachel has a good credit score, after 6 months her APR will go up to 7.99%.
Eric's credit score isn't so hot so after the first six months his will go up to 21%. So if you guys want to grab
your stuff. >> So that her students can fully understand the price Eric pays for his low credit
rating, Carol has them use the online calculator in the computer lab. >> He would pay
like $200 in interest as opposed to $2,000. >> Make sure he pays off his credit card payments on time.
>> And all he has to do is pay $5 more per month. >> So by not having good credit how much is this costing Eric?
>> $1,523. >> How did you get that answer? >> I took Eric's score and then subtracted Rachel's.
>> Eric's score? >> I mean total interest. >> Eric's total interest. So the $1,944 minus $421
and what was your answer? >> $1,523. >> Very good. >> Carol asks her students
what advice they would give to Eric about his credit card use and credit score. >> He could even call
into his credit card company and try to get them to lower his APR so it would be less money for him to pay
on his next bills. Then if you threaten to tell them that you'll get rid of their credit card,
they're most likely to give you a discount, because they don't want to lose you as a customer.
>> All these smart consumers we have here. Andrew, What would you tell Eric to do?
>> If the credit card company won't lower his rate he could transfer his balances to a different credit card,
and possibly pay it off faster that way with less interest. >> These students have uncovered the importance of personal
credit scores and how they can affect everyday life. >> When you miss payments, your credit score is going
to go down, and that's going to affect your credit history in the future. >> Your credit score can
determine what you pay for auto financing, credit cards, and mortgages, or even whether you can get a job
or rent an apartment. >> Things aren't going to be going the way they should.
>> Financial Literacy. You can teach it!