Understanding FICO Credit Scores: A Study Guide for Counselors

INTERACTIVE: FICO Credit Scores Interactive: myFICO Credit Score Estimator As a reminder, this pie chart describes how your credit score is calculated using 5 different components of your credit history. You’ve been assigned to be the credit counselor for Sam, Jennifer, and Danielle, whose profiles follow. For each person, follow the directions to understand the impact of certain financial decisions on their credit scores. SAM SPENDTHRIFT is a college junior. He couldn’t wait until he turned 21, so he could apply for a few credit cards. Here are some details about his profile: 1. For each of Sam’s actions, mark whether you think that factor improves (+) or decreases (--) his credit score. # Detail + or -- 1 He currently has 3 credit cards + 1 (cont) He got his first credit card 8 months ago + 2 He doesn’t have any student loans + 3 He has applied for 5 credit cards in the last year (and had 3 applications accepted) + 4 He opened his last credit card 4 months ago + 5 All of his 3 credit cards currently have a balance, as he has had trouble paying off his card each month - 6 He has $4,000 currently outstanding on all his credit cards + 7 He missed a payment in the last three months when he forgot to notify the card company that he had recently moved out of his apartment. He was 30 days behind on making a payment. - 8 He has no cards currently past due + 9 His credit card balances of $4,000 are about 65% of his overall limits - 10 He has never gone through a bankruptcy or other proceeding + 1

2. What do you think Sam’s credit score is (from a range of 300-850)? 450? 3. Now, go to the myFICO Credit Score Estimator and use Sam’s information to complete it. What is Sam’s estimated credit score? fair 4. What does Sam’s score say about his creditworthiness? Good responsibility, but not worthy 5. As his credit counselor, what recommendations would you make to Sam to improve his credit score? Reduce debt and balances 2

Jennifer CREDITSMART is a college senior . Her parents gave her a credit card when she turned 17 by making her an authorized user on their credit card. As an authorized user on their account, she benefited from her parent’s diligent credit card habits. She also has a few student loans in college that she will start repaying after she graduates. Here are some details about her for the profile: 6. For each of Jennifer’s actions, mark whether you think that factor improves (+) or decreases (--) her credit score. # Detail + or -- 1 She currently has 1 credit card + 1 (cont) She got this first credit card more than 15 years ago. This is a great credit score hack; she benefits from the fact that her parents had this credit card for 15 years. - 2 She got her first student loan 3 years ago + 3 She has received one student loan in the last year + 4 She got that student loan over six months ago - 5 Only her three student loans carry a balance, since she and her parents always pay the credit card bill off in full every month + 6 She has $15,000 currently outstanding on her student loans - 7 She (and her parents) have never missed a payment + 8 None of her loans or credit cards are past due (and her parents are always on time with their credit card) - 9 Since she and her parents pay off the bill every month, she has $0 balance + 10 She has never gone through a bankruptcy or other negative proceeding + 7. What do you think Jennifer’s credit score is (from a range of 300-850)? 400-500 8. Now, go to the myFICO Credit Score Estimator and use Jennifer’s information to complete 3

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it. What is Jennifer’s estimated credit score? 745-795 9. What does Jennifer’s score say about her creditworthiness? Really good credit 10. As her credit counselor, what recommendations would you make to Jennifer to improve her credit score? Pay off student loans DANIELLE DEBTFREE is also a college junior. She has always been very cautious with money and thinks her friends with credit cards are crazy. She pays only with cash and debit cards, and while she knows she can handle credit cards given her frugal ways, she doesn’t want to ask her parents to sign off on a credit card for her, as she doesn’t turn 21 for a few more months. 11. For each of Danielle’s actions, mark whether you think that factor improves (+) or decreases (--) her credit score. # Detail + or -- 1 She currently has no credit cards - 2 She has no loans outstanding - 12. What do you think Danielle’s credit score is (from a range of 300-850)? 300 13. Now, go to the myFICO Credit Score Estimator and use Danielle’s information to complete it. What is Danielle’s estimated credit score? No credit 14. What does Danielle’s score say about her creditworthiness? nothing 4

15. As her credit counselor, what recommendations would you make to Danielle to improve her credit score? Get a credit card 5

Alexa Campbell - INTERACTIVE_ FICO Credit Scores

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