CAREER CLUSTER Financial Literacy INSTRUCTIONAL AREA Credit and Debt PERSONAL FINANCIAL LITERACY EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Identify the primary organizations that maintain and provide consumer credit records 2. Explain the value of credit reports to borrowers and to lenders 3. Summarize factors that affect a particular credit scoring system.
INTERVIEW SITUATION You are to assume the role of Sally/Steve, a Credit Counselor at Consumer Credit Counseling. Your company provides individual counseling, advocacy, community education, and financial management programs to help individuals and families gain the knowledge and skills in managing their finances. After receiving counseling, clients are better able to solve current financial difficulties, prevent future problems and implement the attitude and actions needed to pursue financial success. Casey Berka, a client (judge), has come to your office for an appointment to talk about how to better understand his/her credit rating and how to improve it. Casey Berka, 50, recently lost their spouse a little over a year ago, is concerned about a financial problem: a low credit score. Unfortunately, years of overspending and late credit card payments have damaged Berka s credit history. Casey recently checked his/her credit score on www.myfico.com and received a mediocre rating of 530 (scores range from the 300s through the 800s, with those over 720 considered excellent). Casey also learned that it will take seven years from the date that the late bills were originally due for negative information to drop off his/her record. Casey has the following debts: a mortgage a car loan one well-known major credit card that is maxed out three store credit cards that carry a balance Casey has just applied for another store credit card to save 20% on a large purchase in a department store. Casey was denied this latest credit card which is what prompted him/her to make an appointment with you. Casey needs to understand what he/she needs to do to rebuild his/her credit history and improve his/her credit score. You will explain in a role play to Casey (judge) what he/she needs to understand so that he/she can begin to rebuild his/her credit history to a higher score. Casey (judge) will begin the roleplay by greeting you and thanking your for taking time to meet with him/her to help him/her. After you have presented your ideas and have answered Casey (judge s) questions, Casey (judge) will conclude the role-play by thanking you for your helpful information. 2
JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Interview Situation 4. Judge Situation Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE SITUATION CHARACTERIZATION You (judge) are to assume the role of Casey Berka, a client (judge), who has come to the office of Sally/Steve (participant), who is a Credit Counselor at Consumer Credit Counseling. This company provides individual counseling, advocacy, community education, and financial management programs to help individuals and families gain the knowledge and skills in managing their finances. After receiving counseling, clients are better able to solve current financial difficulties, prevent future problems and implement the attitude and actions needed to pursue financial success. Casey has made an appointment to talk about how to better understand his/her credit rating and how to improve it. Casey Berka, 50, recently lost their spouse a little over a year ago, is concerned about a financial problem: a low credit score. 3
Unfortunately, years of overspending and late credit card payments have damaged Berka s credit history. Casey recently checked his/her credit score on www.myfico.com and received a mediocre rating of 530 (scores range from the 300s through the 800s, with those over 720 considered excellent). Casey also learned that it will take seven years from the date that the late bills were originally due for negative information to drop off his/her record. Casey has the following debts: a mortgage a car loan one well-known major credit card that is maxed out three store credit cards that carry a balance Casey has just applied for another store credit card to save 20% on a large purchase in a department store. Casey was denied this latest credit card which is what prompted him/her to make an appointment with you. Casey needs to understand what he/she needs to do to rebuild his/her credit history and improve his/her credit score. Steve/Sally, (the student) will explain in a role play to you, Casey (judge), what you need to understand so that you can begin to rebuild your credit history to a higher score. You, Casey (judge) will begin the role-play by greeting the student and thanking him/her for taking time to meet with you to help you in your financial mess. After the student has presented his/her information and has answered your, Casey s, (judge s) questions, you, Casey (judge) will conclude the role-play by thanking the student for his/her helpful information. You are not to make any comments after the event is over except to thank the participant. FYI: Background information and Answers to listen for throughout the role play: FICO, or Fair Isaac Corp., is the industry leader in credit scoring. Its credit score the FICO score is used by more than 90% of lenders. Scores will range from 300 to 850, the higher the better. It is calculated as follows: Payment history (35%): Are payments made on time? Any negative public records, such as bankruptcies, foreclosures, liens, lawsuits, etc.? When you make a late payment, your credit score will take a hit. How much? That depends. The FICO score takes into consideration how late the payment is, how much was owed, how recently the late payment occurred and how many late payments you ve made. Generally, payments late by only a few days will not be reported (but you will likely incur a late-payment penalty from your card issuer, so always make your payments on time). Credit utilization (30%): How much is owed on all of the accounts? How much is owed on specific types of accounts, such as credit cards? How much is owed in proportion to how much credit a person has available to them in total? In general, the more debt you carry in relation to your credit limit, the lower your score will be. Balances are often reported mid-billing cycle, so pay attention to your utilization at all times, not just after you ve made your monthly payment. 4
Length of credit history (15%): How long ago your first credit account opened? What about the newest credit account? What is the average length of all of credit accounts? As a rule, people with longer credit histories will have better credit scores than those with short credit histories. However, taking this into account, the FICO score reallocates the importance of each of these five categories depending on your particular overall credit picture. So those with short credit histories can still have good credit scores. Types of credit in use (10%): What types of credit accounts does a person have? Is there only one type of account, like credit cards? How many and what variety of accounts you have will have an effect on your credit score, but not much of one. The truth is, it s hard to estimate exactly what impact this will have, because how many accounts are too many really depends on your overall credit picture. Also, if you recently closed accounts and think they are gone forever, think again. Their histories will still affect this part of your FICO score. New credit (10%): Have the person applied for new credit recently? Did the person apply for multiple new credit accounts in a short period of time? How many hard inquiries has the person had in the last year? As a general rule, it s not wise to apply for multiple credit accounts in a short period of time, especially if you have a short credit history. One additional inquiry may have little or no effect on your credit score, but applying for a lot of new credit will affect the average length of your credit accounts, which can lower your credit score. While credit inquiries sit on your credit report for two years, they affect your FICO score for only 12 months. The calculation we ve described is known as an algorithm, or the formula that translates the raw data from your credit report into a numerical score. FICO has its own algorithm, but there are other algorithms used for free and/or proprietary scores. Because FICO is the most widely used scoring model, you shouldn t rely on free and non-fico scores for an accurate snapshot of your creditworthiness. They re likely a good indication of your credit health, but your lenders are probably not looking at these scores. (http://www.nerdwallet.com/blog/tips/creditscore/comparing-credit-scores/) How to get your FICO score You can obtain your FICO score and more through myfico, the company s consumer division. You ll be able to purchase one-time scores and reports, or ongoing scores and reports. If you choose the ongoing option, you can cancel at any time with a phone call. 5
You can also obtain your scores from any of the three credit reporting bureaus, TransUnion, Equifax and Experian, at a price. Pay attention to the type of score you re buying, you ll want to purchase FICO scores, not proprietary scores. Certain credit card issuers have begun offering complimentary FICO scores as part of their benefits. The following issuers provide free FICO scores on a monthly or daily basis: Discover: Provides complimentary TransUnion FICO score Barclaycard US: Provides complimentary TransUnion FICO score First National: Provides complimentary Experian FICO score Citi: Provides complimentary Equifax FICO score online Chase: Slate customers will receive complimentary access to a FICO score within the first few months of 2015 Bank of America: Will provide complimentary FICO score later in 2015 o You may also be able to get your free FICO score if you borrow from certain lenders, like Sallie Mae, Hyundai, Kia and PenFed. Thanks to Wall Street reforms, you are able to get your FICO score for free if you are denied a loan or insurance because of it. The reforms are meant to make borrowing practices safer and more transparent for citizens, to crack down on abusive lender practices and to ban unfair rate hikes on credit cards. Bottom line: For the credit score most likely used by potential lenders, you ll want to obtain your FICO score from one, two or all three of the major credit reporting bureaus. Understand what makes up your FICO score and practice good credit habits to build up an excellent score. To monitor your credit building efforts, check if one of your lenders offers a free FICO score or purchase your scores from the bureaus. (http://www.nerdwallet.com/blog/tips/creditscore/comparing-credit-scores/) *** Anyone can get a free credit report from each of the credit reporting bureaus one time per year per bureau. https://www.annualcreditreport.com/index.action 6
During the course of the role-play, you are to ask the following of EACH of your participants: 1. Are there any other areas that a negative credit score can affect me financially other than my ability to borrow money or buy something on credit? a. Possible Solutions: higher insurance rates, ability to rent an apartment, possible employment or lack of being hired, etc. 2. Do I need to have a credit rating? a. Possible Solutions: no, not if you have enough cash to purchase everythinghouse, cars, items, etc. However, most people do not have enough cash to pay outright for their houses or vehicles, so a credit history is essential for them to be able to borrow money or purchase on credit). After the student has presented his/her information and has answered John s (judge s) questions, John (judge) will conclude the role-play by thanking the student for his/her helpful information. You are not to make any comments after the event is over except to thank the participant. 7
Evaluation Form Information JUDGE S EVALUATION INSTRUCTIONS The participants are to be evaluated on their ability to perform the specific performance indicators stated on the cover sheet of this event and restated on the Judge s Evaluation Form. Although you may see other performance indicators being demonstrated by the participants, those listed in the Performance Indicators section are the critical ones you are measuring for this particular event. Evaluation Form Interpretation The evaluation levels listed below and the evaluation rating procedures should be discussed thoroughly with your event chairperson and the other judges to ensure complete and common understanding for judging consistency. Level of Evaluation Exceeds Expectations Meets Expectations Below Expectations Little/No Value Interpretation Level Participant demonstrated the performance indicator in an extremely professional manner; greatly exceeds business standards; would rank in the top 10% of business personnel performing this performance indicator. Participant demonstrated the performance indicator in an acceptable and effective manner; meets at least minimal business standards; there would be no need for additional formalized training at this time; would rank in the 70-89 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with limited effectiveness; performance generally fell below minimal business standards; additional training would be required to improve knowledge, attitude and/or skills; would rank in the 50-69 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with little or no effectiveness; a great deal of formal training would be needed immediately; perhaps this person should seek other employment; would rank in the 0-49 th percentile of business personnel performing this performance indicator. 8
PERSONAL FINANCIAL LITERACY EVENT, 2016 JUDGE S EVALUATION FORM DISTRICT EVENT Participant: I.D. Number: INSTRUCTIONAL AREA: CREDIT AND DEBT Did the participant: PERFORMANCE INDICATORS 1. 2. 3. 4. 5. Identify the primary organizations that maintain and provide consumer credit records Explain the value of credit reports to borrowers and to lenders Summarize factors that affect a particular credit scoring system Reason effectively and use systems thinking? Overall impression and responses to the judge s questions Little/No Value Below Expectations Meets Expectations Exceeds Expectations 0-1-2-3-4-5-6-7-8 9-10-11-12-13 14-15-16-17-18 19-20-21-22 0-1-2-3-4-5-6-7-8 9-10-11-12-13 14-15-16-17-18 19-20-21-22 0-1-2-3-4-5-6-7-8 9-10-11-12-13 14-15-16-17-18 19-20-21-22 0-1-2-3-4-5 6-7-8-9-10 11-12-13-14 15-16-17 0-1-2-3-4-5 6-7-8-9-10 11-12-13-14 15-16-17 TOTAL SCORE Judged Score 9