Teaching credit scores to students can be a challenge for teachers. Credit scores are a complicated and sometimes opaque process that often leads to more questions than answers for students. Over the past two years I have come up with a two-pronged approach to teaching credit: oversimplification and analogies. Together these two approaches give students enough knowledge to enter the world of credit scores confidently and independently.
A good credit score starts by avoiding debt. If you need to borrow money only borrow money you can pay back.
This was my parents very simple advice for maintaining a good credit score. You can’t have a bad credit score if you only borrow money you can pay back. The reason I start off with this oversimplification is because often students overestimate the importance of credit cards and how credit cards can help their credit score. With 43% of Americans paying $1,292 in credit card interest each year, it has become increasingly more important for students to balance their desire for a good credit score with the realities of credit card debt. Below is the talk track I use to present my oversimplified version of credit scores:
“Your credit score is a number that indicates how risky people think it is to loan you money. A lower score means people think you are less likely to pay back money loaned to you. A higher score means people think you are more likely to pay back money loaned to you. It’s important to know that all financial and credit-related actions contribute to your credit score. That means paying phone bills, utility bills, students loans and credit card bills on time; don’t spend more than you can afford.”
Next, the analogy.
Your credit score is like a report card, except it’s really hard to change a bad grade.
I love the analogy to a report card because students have been getting report cards since they were 5 years old. Report cards share similar features to a credit report:
- Nearly everything counts towards your report card
- Your grades are based on the actions you take (or don’t take) at school
- Grading is out of your hands
- Sometimes you can be confused on where you went wrong
Although this is not the perfect analogy (what is, right?), it helps students connect credit scores to their reality. Moreover, it provides a starting point for discussion and allows students to ask meaningful questions. Below is the talk track I use when introducing the analogy to students:
“A credit score is like your financial report card. Similar to how your work in class is measured by a report card, all of your financial actions are measured in your credit score. The key to a high credit score is to make sure that you pay back all of your bills and debt on time. If you pay everything back on time (usually within 30 days) your credit score will go up, slowly but surely. If you do not pay everything back on time your credit score goes down.”
I find my oversimplification and analogy strategy is great place for students to start thinking about their credit score. But the truth is most of us don’t have knowledge deep enough to answer all our students’ questions about credit. That’s why I follow up with EVERFI Financial Literacy, specifically Lesson #4 on Credit Scores, after I introducing the topic.
Clark is a schools implementation manager in Brooklyn, New York. He is a life-long learner who loves thinking and discussing the future of education.