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HSFPP Weekly Update #101—LifeSmarts contest & Survey related to Credit Scores

Message from Bob & Chris: Surveys consistently show that most people do not understand their credit scores and the impact of not paying bills on time could have on their financial well-being, such as how much extra they will have to pay monthly for borrowing money and for insurance premiums. A survey by the Consumer Federation of America revealed people’s lack of knowledge about credit scores, so we’re using it as this week’s article In the New$....

The LifeSmarts Consumer Program began this month, and you can learn more about it through our Website Picks of the Week. The LifeSmarts program is a fun way to reinforce the HSFPP consumer-related lessons in a game show format. Part of this week’s student activity is the LifeSmarts practice quiz. Students will enjoy it because they compete in four-person teams and can enjoy working with their friends.

Website Picks of the Week:

http://ag.ky.gov/cp/lifesmrt/default.htm

The Kentucky Attorney General’s Office provides this LifeSmarts consumer competition page on their website.

http://www.lifesmarts.org/

The official LifeSmarts website provides all the information you will need about the program. You can take a practice quiz and register for the competition there. They also provide tips for students and teachers. This website can be accessed from both tips pages of the Kentucky Attorney General’s website. Along with the HSFPP, LifeSmarts is a great way to learn about consumer issues. Our previous update on the LifeSmarts program (# 31) is available at http://www.ca.uky.edu/fcs/hsfp/UPDATE.HTM.

Activity for Educators:

Have students register to take the LifeSmarts practice quiz at home or on computers at school. Have them print and turn in their results to you.Also have students read the full article In the New$..., then discuss it with them using the questions below.

In the New$... Survey Finds Most Consumers Do Not Understand Credit Scores

From the Consumer Federation of America & Providian Financial:

“Most consumers do not understand the meaning of credit scores, their importance, how to obtain them, and how to improve them, according to the CFA/Providian survey (with a margin of error of plus or minus three percentage points).

· “Only about one-third (34%) correctly understand that credit scores indicate the risk of not repaying a loan, not factors like financial resources to pay back loans or knowledge of consumer credit. This low percentage appears to reflect the misconception that credit scores evaluate factors like income (65%), age (38%), and marital status (37%) rather than one's credit history. ‘Only the record of their past use of credit determines the credit scores of consumers,’ said CFA's Brobeck.

· “More than one-half (52%) incorrectly believe that a married couple has a combined credit score. ‘You cannot raise your credit score by marrying someone with better credit,’ noted Providian's Elias. And, more than two-fifths (43%) incorrectly believe that individuals have only one score. In fact, each of the three major credit bureaus -- TransUnion, Experian, and Equifax -- computes separate scores that usually differ.

· “Few consumers know what constitutes a good score. Only 12% correctly identified the low 600s as the level below which they would be denied credit or have to pay a higher, subprime rate. (One-third thought this level was the low 500s, and 30% said they didn't know.) And, only 13% correctly understand that scores above the low 700s usually qualify them for the lowest rates. ‘It is meaningless to know your score if you don’t know whether it is good or bad,’ said CFA's Brobeck.

· “Many consumers do not have a clear idea how to improve their credit score. Two fifths (40%) don't understand that paying off a large balance on a credit card will improve one's credit score. And, more than one-quarter (28%) believe incorrectly that using a credit card’s full credit line will improve one's score.

· “Moreover, many who try to learn their credit score in the future will be surprised to learn that there is often a charge. Nearly three-quarters (72%) incorrectly believe that they can obtain their credit score for free once a year. (That right was recently established for free access to one's credit report but not for free access to one's score except when applying for a mortgage loan.)”

Source: Excerpted from “Most Consumers Do Not Understand Credit Scores According to a New Comprehensive Survey: Because of High Stakes, CFA and Providian Release Critical Facts Consumers Need to Know About Credit Scoring.” News release. September 21, 2004. Consumer Federation of America & Providian Financial.

To read the full article, go to http://www.consumerfed.org/092104creditscores.PDF

Discussion Questions:

1. Do you think, after reading the article, that it is good for a high school student to have a credit card? Do those of you who have a credit card always make payments on time and in full?
   
2. Based on the article, when do you think would be the best time to have your own credit card? a) in high school; b) in college; c) after college; d) when you have a full time job.
   
3. Explain what credit scores evaluate, as well as a popular misconception about credit scores.
   
4. What kinds of actions will raise or lower your credit score?
   
5. Where can you get your credit report?

Activity for Students:

 Register to take the LifeSmarts Practice Quiz at the following website:

http://www.lifesmarts.org/game/register.html.

Select your own username and password and be sure to remember them. Then take the quiz and print out your results, along with the page with the correct answers to any questions you got wrong, and bring these to class.

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.