Foundation Concepts:

1. There are three national credit reporting bureaus:  Experion, Equifax and TransUnion.  They collect data on your payment history on credit cards and loans that you have.  Other regular monthly payments that you make, like rent, cable, etc, are not reported to the bureaus unless you miss payments – that is, they report bad behavior, but not good behavior.  The reports note who you owe money to, how much you owe, your history of payments (on time or not) and any missed payments.
   
   
2. You are entitled to get a free copy of your credit report once a year from each of the three bureaus.  The report is available from www.annualcreditreport.com .  Do not be fooled there are other websites out there, like “freecreditreport.com”  that tries to trick you into thinking they are the free site.  They are not.  They will charge you for their services. You are also entitled to get a free copy of your report any time you have been turned down for credit.
   
   
3. In addition to your report, you also have a credit score.  The score is a numerical representation of the narrative provided in the report.  The higher the score the better risk you are perceived to be, and the lower interest rate you will be charged.  This differential in interest rate can literally amount to thousands of dollars over the life of a loan. 
   
   
4. Your credit score is not written in stone, it is a moving rating, that is affected by the choices you make.  The number one way to improve your credit score is to pay your bills ON TIME, EVERYTIME.  The second most important thing you can do, is to keep your credit usage below about 35% of the credit available to you.  Most negative credit entries will be removed from your credit report after seven years; bankruptcy will be on your report for 10 years, and debts to the government like student loans, tax arrears or child support will be on your report until you die.  

Discussion Questions:

Why were Tommy and Alicia unable to get the 0% financing they had expected?  How much per month additional was their bad score going to cost them?  How much per year?  How much will their bad credit add to the cost of the car overall?

What factors influenced the credit score that they each had? 

• Why did Tommy give up trying to pay off his old debts? 
• Why was Alicia so surprised that her score was not better?

What steps did Uncle Bill recommend they take to improve their credit scores? 

Do you agree with the decision Tommy and Alicia made at the end?  What if they were buying the car not by choice, but out of necessity?  What other choices might they make?

If 30% of your credit score is based on the amount of available credit you are using, what will be the impact of canceling some of your old cards that you never use?