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I was thinking about this question recently for two reasons: 1) the $23 million fine that CFPB handed down to a few credit reporting agencies for deceptive marketing around credit scores and 2) As fewer millennials choose credit compared to debit, the number of credit invisibles increase. So, what can we learn from this article from the Atlantic (approximately 10 minutes in length)?
- Chicken or the egg problem with credit: “If you think about the credit-invisible population in this country, their ability to enter the financial mainstream and access affordable credit instead of payday lenders and pawnshops and check-cashing services is tied to what’s in their credit report,” says Michael Turner, the president of the Policy and Economic Research Council. “They’re caught in the credit catch-22: In order to qualify for credit you have to have already had credit.”
It’s a new year which makes it a good time to review your credit report. I went to annualcreditreport.com, answered a few questions to verify my identity and proceeded to my credit report. As I completed my review, I couldn’t help but notice the offer about getting my credit score (can you say cross-selling opportunity?). When I clicked on the button…
What’s the catch?
Students are often confused about this distinction between debit and credit cards. Here are some resources that help show the ways in which they differ:
- Video: When You Should Use Credit Over Debit Cards (WKRG.com)
- See if your students pick up on the inaccuracy in the video. The reporter says “If you lose money using your debit card, you’ll likely never get that money back.”
Answer: Tens of thousands of dollars when looking at long-term loans like mortgages.
Great chart recently released by myfico.com (hat tip Motley Fool) demonstrates how current interest rates on mortgages vary based on credit scores:
Here’s a quick mini-activity for students to see how much a low credit score could cost them:
Answer: About 1 in 5 between the ages of 23 and 27.
Hat tip to Laura Matchett of NGPF for pointing out this informative Forbes article. As for the reasons why they are being rejected:
Hat tip to Laura Matchett of NGPF for pointing out this awesome infographic from Credit.org that explains the importance of having a good credit score by demonstrating how the cost of a home loan, auto loan, insurance and credit card interest rates varies based on these three digits. Just projecting this image on a screen (or maybe using as a handout because of the small print) could lead to a great discussion about credit scores: