Unit 6: Credit Section 1: Your Credit Score
I CAN: • Define Credit • List and describe the 5 C’s of credit • Explain how bureaus report credit worthiness • Evaluate the importance of good credit as it relates to prime rates
Credit • Paying interest to borrow money so you can buy what you want NOW! • The amount of interest you pay for this money will depend on TRUSTWORTHY you are. • Your CREDIT SCORE is the number assigned to you to measure how trustworthy you are. Approximately: 350-850
Your credit score = the 5 C’s of Credit • Character: borrower's reputation • Capacity: measures a borrower's ability to repay a loan by comparing income against recurring debts • Capital: lender will consider any capital the borrower puts toward a potential investment, because a large contribution by the borrower will lessen the chance of them not repaying the loan • Conditions: the interest rate and amount of principal, will influence the lender's • Collateral: property or large assets they could take if you fail to pay
How do you get a credit score? • A credit bureau (company that collects data to measure your trustworthiness, like transunion, experian, or equifax) • They create a credit report (summary) and it shows your creditworthiness (trustworthiness) to creditors, landlords, etc… • If you want a Prime Rate (very low interest rate), you have to show you are trustworthy by having a HIGH credit score • A freerider (someone who doesn’t pay back loans) would have a very high interest rate because their credit score is too low
To Improve your score: • Pay bills on time. • Get current and stay current. • Don’t open a lot of new accounts too rapidly. • Correct mistakes. • Shop for loan rates within a focused period of time. • Keep balances low on revolving credit. • Pay off debt. • Check your credit report.
CAN I? • Define Credit • List and describe the 5 C’s of credit • Explain how bureaus report credit worthiness • Evaluate the importance of good credit as it relates to prime rates I can prove this by completing activities: 2.1, 2.2, 2.8, and challenge 2-B