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Posted: 09/24/2008
Fed resource: Your Credit Rating
Short description: Use Federal Reserve Credit Brochures To Teach Responsible Use of Credit
   
Lesson time: 90 minutes
Materials: credit brochures, internet, sample credit report, newspaper, materials for student presentations, credit card application, credit card "terms of use."
Audience: Middle School, High School
Grades: 6, 7, 8, 9, 10, 11, 12
Subjects: Personal Finance
Concepts: Personal Finance - Borrowing, Credit
Documents: None
Tip/Tool:
Students use the Federal Reserve Bank of Philadelphia’s credit brochures to increase their understanding about issues related to the use of credit. Brochure topics include:
-       How to Establish, Use and   
          Protect Credit
-       Your Credit Rating
-       What Your Credit Report Says
          About You
-       What You Need to Know About
          Payment Cards
Teaching suggestions:
1. Tell students to look in the newspaper for items people can buy with credit, current interest rates offered for “big ticket” items, and which institutions offer loans for those items.

2. Tell students to identify the item for which they would consider going into debt. Select a particular item, such as a $20,000 car, and ask the stduents what the final cost would be if they financed the purchase. (Answers will vary.)

3. Explain that financing the car involves paying interest and the final cost of the car would be the $20,000 plus the interest paid on $20,000 over the life of the loan. Ultimately, the important idea is that the car would cost considerably more than $20,000.

4. Distribute a copy of "How to Establish, Use and Protect Credit" to each student. Divide the students into pairs. Instruct each student to develop a summary of hypothetical borrower’s income and expenses, assets, and credit history. (As an alternative, the instructor can develop profiles of potential borrowers.) Have partners exchange profiles and partner approve or reject the extension of credit according to the criteria explained in “common reasons for denying credit.”

5. Tell student pairs to develop recommendations for each borrower using the brochure information about “how to establish credit” and “improving poor credit.”

6. Distribute a copy of "Your Credit Rating" to each student. Tell student to read the brochure.

7. Distribute copies of a credit report as a model. Discuss as a class how the credit report is used and what negative information would bring a credit score down.

8. Distribute a copy of "What Your Credit Report Says about You" to each student. Tell students to visit the following web site to gain an understanding of what can affect a credit rating: http://moneycentral.msn.com/investor/creditreport/main.asp.

9. Based on the brochure, discuss:
A. What is a credit report?
B. Who is allowed to view credit reports?
C. What information is included on a credit report?
D. Where do credit reporting agencies obtain information?
E. How do errors happen?
F. What should consumers do if they find errors on their credit reports?

10. Distribute a copy of a credit card "terms of use" statement, a credit card application or pre-approved solicitation to each student.

11. Have students compare the APRs for purchases made on credit or for cash advances or balance transfers.

12. Identify the amount of the annual fee, the amount of any minimum or fixed finance charge, transaction fees, late payment fees, and exceeding credit limit fees.

13. Distribute a copy of "What You Need to Know about Payment Cards" to each student.

14. Assign each student one of the 22 questions in the brochure, and have them brief the class with a summary of the answer to the assigned question.

15. An alternative approach to the credit brochures is to assign one brochure to one of five groups and have them create a presentation to the class about the content of the brochure. Develop a rubric to evaluate the presentations.

Submitted by: Sara Messina
Federal Reserve Bank of Atlanta, Jacksonville Branch