Credit Tips and Traps
[Modified from the Bergen Record financial literacy curriculum]

Grade 11-12
Consumer and Personal Finance

Name: Dr. Barbara O'Neill, CFP
Agency: Rutgers Cooperative Extension
Name: Dr. Celia Hayhoe, CFP
Agency: Virginia Cooperative Extension Lesson Plan: Phyllis Garnant, NJDOE

Students will be able to:

1. Describe the 3 major types of consumer credit.
2. Explain the advantages and disadvantages of using credit.
3. Categorize ways to begin building a credit history.
4. Identify the characteristics of a person whom creditors would view as a good credit risk.
5. Define key terms in credit contracts and agreements.
6. Compare credit terms and charges.
7. Briefly discuss credit balance calculations methods.

 **Goal/Overview/Purpose/Summary**

Credit and credit card usage is a topic being widely advertised to students completing high school and entering employment or post-secondary education. Young adults need examine concepts related to credit and credit card use before they initiate personal use that could affect their long-term future.

 **Activity**

1. Complete the following activity:

   Now that Jane and Tommy have their name on a loan, they are building credit. Their parents decide to help them build more credit by making them each an authorized user on a gas credit card. This is revolving credit and can only be used at the particular gas station. Jane and Tommy are required by their parents to pay off the gas card each month when it comes due.

• What does revolving credit mean?
• What happens if they do not pay the full balance of their gas credit card each month?

One year later...Jane and Tommy want to know what their credit report looks like. With the help of their parents, they apply online (through the Internet) at the credit bureau, Equifax.com. The next day they are each able to access their credit reports online. Jane and Tommy both have good credit, they have not been late for any of the payments, but Tommy notices that his name is misspelled on his credit report. He contacts the credit agency, and they request that he send a copy of his driver's license to the credit agencies, and they will look into the mistake and notify Tommy when the problem is fixed. Tommy mails the copy of his driver's license along with a letter stating the mistake and the change that needs to be made. Two weeks later Tommy receives a new copy of his credit report with his name spelled correctly.

• What steps should Tommy take since he found errors on the credit report from one credit bureau?
• What are some additional reasons for checking a credit report?

2. Discuss positive and negative comments people make about credit.

3. Read pages 8-11 in Money…What Young Adults Need to Know from the Web site (http://www.nj.gov/njded/aps/cccs/career/resources.htm).

4. Visit the Federal Reserve Board's Web site, http://www.federalreserve.gov/pubs/shop, and review the information on their publication, "Shop: The Credit Card You Pick Can Save You Money." Using terms from this Web site, look at different credit card advertisements in the newspaper.

• How many different annual percentage rates did you find?
• Compare newspapers during the week and over the weekends.

5. Using these same advertisements, visit the American Banking Association's Web site, http://www.bankrate.com/brm/calc/creditcardpay.asp, and use their online calculator to determine how much interest will cost you for the advertised credit cards, based on their annual percentage rates.

6. Visit Bank Rate, http://www.bankrate.com/brm/default.asp. Use this site to create a list of credit cards that best meets your needs based on goals, type of card, and class of card. Also, this site has great calculators so you can compare two credit cards based on factors such as average balance, annual fees, introductory rate and other factors; and to compute compound interest and the percent return on an investment.

7. Develop a checklist for reviewing Web sites with information about credit and credit cards. Use the checklist to assess 3 or more Web sites Sites may be found through use of search engines and/or indexes. Some sites include the following:

• http://www.federalreserve.gov/pubs/shop
• http://www.nfcc.org
• http://www.nolo.com/lawcenter/ency/index.cfm/catID/734BECB6-ADDE-4041-EC595AF30EA15CE
• http://www.truthaboutcredit.org

8. Form teams of students to debate some of the following:

• There are "credit card junkies" just like people having additions to drugs, alcohol or tobacco.
• Credit cards cause people to overspend.
• Credit cards are for emergencies only.
• Teens should have personal credit cards.
• Credit card companies only send applications to people who can afford to pay.
• Consumers should use credit cards for unnecessary items. Filing for bankruptcy is the best way to get a fresh start.
• The best way to avoid credit problems is not have credit cards.

9. Research and develop a flyer/public service announcement on protection laws for credit cards if they are lost or stolen.

10. Divide class into cooperative teams to develop scenarios for specific groups of people describing characteristics that would make them good credit risks. Exchange scenarios and analyze the situation for credit worthiness.

11. Review several credit applications and compare the types of information being requested. Applications may be secured from lending institutions, mail applications, or online resources.

12. Research three alternatives to using credit. Develop a list of pros and cons for each alternative.

13. Arrange for someone from a credit counseling service to speak to the class on how the service works, who can benefit from the service, and specific duties the person performs. Include information about education, experiences, etc. needed for employment in such a position.

14. Visit a personal finance magazine Web site such as www.money.com or www.smartmoney.com to use the credit card calculators to solve problems.

** Assessment **
(must "match" objectives!; include rubric if possible).

 Complete the Credit Learning Extensions activities under "Credit Tips and Traps". (http://www.nj.gov/njded/aps/cccs/career/resources.htm)

** Additional Info **

Additional activities:

• Research and report on difference between straight bankruptcy and Chapter 13 of the Bankruptcy Act.
• Research debt collection practices and consumer rights.
• Investigate credit problems- warning signs, diagnosis, and treatment.
• Write a letter (imaginary) concerning a billing error related to a credit card. The problem could be charges for goods and services not ordered or received or failure to credit payment to the account.