Have your students asked you, “What’s a credit score?” Do your students understand how credit scores are calculated? If not, they are not alone. Credit scores remain a mystery to many U.S. consumers. Understanding why we have a certain credit score requires knowledge of several factors, including payment history, amount owed, length of credit history, new accounts opened, and types of credit used.
According to Money Magazine, the average credit score for adults aged 18-29 in the U.S. is 652, which is considered to be in the “fair” range. Most Americans don’t enter the “good” range until they are aged 50-59 years old, with an average credit score of 709. This gap can put younger consumers at a disadvantage when trying to take major life steps such as buying a home or purchasing insurance.
Although our credit scores can have a significant impact on decisions we make in our adult lives, many students leave high school without an in-depth understanding of what credit is and how to responsibly manage it. As educators, we owe it to our students to teach them good credit habits as early on as possible. Cementing these skills early will ensure students are well-equipped to make smart financial decisions when they are on their own.
On that note, here are a few tips to share with your students to help them begin their adult lives on the right foot:
Start with a Secured Credit Card
After making an initial deposit to the card, students won’t be able to spend more than their secured card deposit. Encourage your students to use their card for only certain kinds of expenses, such as gas purchases, to limit their spending to manageable levels.
Ask a Parent to Cosign.
If a parent is willing to cosign their child’s first credit card, it makes it much easier for students under 21 to obtain their first account and start building credit. Parental involvement can also help students establish a regular payment history and use their card responsibly.
Pay Off the Full Balance
Students are often surprised to learn that the minimum payment due on their credit card typically only represents 2-3% of the total balance, and that a typical APR (annual percentage rate) can easily climb above 15-20%. Educating students on how to read a credit card bill, identify their APR, and find their current balance is a great way to establish good habits and encourage students to pay off their credit card bill in its entirety each month.
Focus on Prevention
It’s important for students to understand that it’s much easier to make good choices now than it is to try to repair their credit later. If you have a personal story to share that underscores the importance of establishing good credit, even better! I often hear teachers say that they wish they would have known more about credit scores before they were out in the world on their own, and sharing these experiences with your students can help them avoid the same pitfalls.
Need a Lesson?
If you’re looking for a lesson to help introduce your students to credit, EVERFI provides no-cost online resources about credit scores at both the middle school and high school level that make it easy to get these conversations started with your students:
- In the Ways to Pay module from FutureSmart (grades 6-8), students go through an online simulation in which they help a college student save for an end of summer trip while managing day-to-day expenses. Along the way, they examine the benefits and costs of gaining access to credit, learn positive strategies for using credit, and identify the components that can affect a credit score.
- For high school students, the Credit Scores module from EVERFI Financial Literacy (grades 9-12) is an engaging way to give students real-world practice in skills such as reading a credit card bill, exploring a credit report, and selecting appropriate options to improve their credit score.
After completing an online lesson focused on credit scores, don’t be surprised if your students have several follow-up questions regarding their own financial plans. Students start to consider how their credit scores could affect their ability to get a car loan or apply for an apartment. The most common question that I hear related to credit scores is: “What can I do to start establishing good credit now?”
“It seems that so often students reflect back on high school and mention that they learned things that they can’t use in their daily lives. I can unequivocally state that these lessons are absolutely beneficial in their lives, and as a teacher, I am appreciative that I have access to it.” – Matt Hawk, Special Education Teacher at Minnesota Online High School
Diana Bravo is a K-12 Schools Manager in Minnesota, Wisconsin, and Iowa. Prior to joining EVERFI, she was a curriculum coordinator and a third-grade teacher at the American School in Quito, Ecuador. In her free time, Diana volunteers at the Minnesota Literacy Council where she enjoys teaching critical skills to adult ESL students in her neighborhood.