Surviving an Economic Crisis, Credit Scores

Learning Goals/Objectives:

• Identify simple steps a person can take to in the case of a job loss.

• Identify simple steps an individual can take to improve their credit score.

Overview:

There are some simple steps an individual or family can do when an economic crisis, such as the loss of a job, strikes. The primary resource for this quick lesson is an interview with a credit counselor about the steps you can take to be prepared for or fix credit problems.

Activities:

1. Introduce the video program by asking the students if they have heard of “credit counseling.” Explain that credit counselors work with people who have debt problems. Credit counselors advise people about spending and budgeting, or they may help them with a plan to reduce their debt.

2. Explain that his three-minute video is an interview with a credit counselor, Mary Hurlburt. Ms. Hurlburt gives some simple tips about dealing with loss of income or accumulated debt.

3. Show the three-minute “Financial Beat” video. http://www.cetconnect.org/VideoPlayer.aspx?vid=3905

4. After the video, ask: What were some of the tips Ms. Hurlburt gave to those who are experiencing financial problems?

• Keep track of your spending. Know where your money goes.

• Think lean - Identify what you can give up if you have less income.

• Ask for help from a credit counselor.

• Involve the whole family in decision-making.

• Make a plan for potential problems.

• Save an emergency fund.

• Be honest with your creditors.

5. Ms. Hurlburt briefly discusses “credit scores.” A credit score is a numerical value determined by a credit rating agency or credit provider based on a person’s creditworthiness (credit use and debt repayment history).

Credit (FICO) scores range from 300 to 850. The higher the score, the better. A FICO score is the most commonly used credit score. A FICO score below 600 may be considered high risk. A FICO score over 690-720 is generally considered to be excellent.

More information: http://www.myfico.com

Online lesson: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

6. What factors determine a person’s credit score?

• How you pay your bills (35%)

• How long you have had credit (15%)

• What you owe – debt ratio (30%)

• New credit – number of credit inquiries (10%)

• Other factors (10%)

7. The last part of the discussion is about what a person should do when they realize they have credit problems. Ask: What was Ms. Hurlburt’s advice?

• Order your free credit reports. (www.annualcreditreport.com)

• Don’t apply for more credit.

• Credit payments should be no more than 30% of your disposable income.

Materials:

This lesson is based on a three-minute streamed video program produced by CET Connect (Greater Cincinnati Television Education Foundation). It is part of a series titled “Financial Beat,” hosted by Chrystal Faulkner, CPA, from Cooney, Faulkner & Stevens, LLC. Ms. Faulkner interviews Mary Hurlburt, a Community Outreach Advocate, with Consumer Credit Counseling Service/Apprisen Financial Advocates.

Ms. Hurlburt provides some practical advice about how people can be better prepared for financial problems and respond to problems in the event of a financial strain, such as the loss of a job. The video program was produced in May, 2009.

Link to the video program: http://www.cetconnect.org/VideoPlayer.aspx?vid=3905

NOTE: The video is preceded by a brief promotional ad for one of the companies that sponsored the production of the “Financial Beat” video series.

Assessment:

Students should summarize the advice they would give to a person experiencing financial problems. This can be by writing a brief essay or giving a thirty second “elevator speech.”