topic 1 assessing and securing credit

professor penny

Credit cards such as Visa, Mastercard, and Discover are defined as revolving open-end credit because they offer a borrowing limit with flexible monthly payments and time periods. You don’t have to pay the entire balance in order to use them each month.

Learning goals

By the end of this topic, you should be able to:

Identify types of credit
Describe the role of credit bureaus

section outline

Topic 1 Assessing and Securing Credit

1.1 Background on Credit

1.2 Credit Bureaus

Content Videos

The Gus A. Stavros Center for the Advancement of Free Enterprise and Economic Education at Florida State University is pleased to offer these resources. They were created by Teaching Professor Joe Calhoun.

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First part

Second part

key point

You don’t need to go into debt in order to create a credit history.

Conversation with Coach Chris

Chris Hogan is the author of two #1 national best-selling books: Everyday Millionaires (2019) and Retire Inspired: It's Not an Age; It's a Financial Number (2016). While visiting Florida State University, he met with Stavros Center Director Joe Calhoun to discuss a variety of topics. In this segment, they discuss debt.

Certified peer mentors

Mentors give presentations to groups about our topics. They also assist other students in personal finance matters and answer questions during individual meetings. To schedule a presentation or an appointment to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.

a topical story

Madison pulled out her credit card and swiped it on the machine. “Thank you, have a good one!” She said to the server behind the counter. She met up with Ethan and Isabella who had already sat at a table outside. Madison slipped her card back into her wallet and hung her purse on the chair.

“Wow look at you Miss Adult-with-a-Credit-Card. How long have you had that? I probably need to hop on that and get one,” Ethan said.

“Not long, maybe a couple months?” She replied.

“I have one too,” Isabella said. “But it’s okay Ethan, it’s a myth that that’s the only way to build a credit history. You pay rent and such, right? That builds it too.”

“Ah gotcha,” Ethan said, seeming confused.

“Now that I’m working steady hours, I got one for some small purchases here and there. Just want to build credit so I’m set up well when I graduate.” Madison explained.

Isabella laughed. “I use mine for anything and everything. A lot better than watching my money disappear from my bank account,” she said.

“You mean your parents’ money,” Ethan said.

“Ethan why do you--”

“You guys sound like an old married couple, chill. Look Isabella I get what you mean, but that’s not great for your credit score. You’re really only supposed to use 50% or so of your available credit. And you definitely don’t want to let all of that build up. You’ll end up with so many fees and lots of interest.” Madison said.

“I’m really not supposed to use it? Then why is it there if I can only use 50%?” she asked.

“If you spend too much of your balance limit, it negatively affects your credit score.” Madison explained.

“So what makes a good credit score? Is it, like, out of ten or something?” Ethan asked.

“No,” Madison started. “A good score is about 700. You get that from responsibly paying off things like rent or your cards. When you pay on time, don’t max out your cards, and have a good, long-standing credit history, it bumps up your score. You really don’t want it to get below 600. That is not the move.” Madison said.

“Oh, why?” Ethan asked.

“If your credit score dips too low, it will make it harder for you to get loans in the future. Those interest rates will be through the roof.” Madison explained.

“Oh, okay I understand. When I pay my rent and utilities on time, that’s helping build my credit too, right?” Ethan asked.

“Yep!”

“So then how do you know what your credit score is?” Isabella chimed in.

“Well, there’s credit bureaus that record and report your credit history. You can request one copy of your credit report per year from each of the three credit bureaus - Equifax, Experian, and TransUnion. And it’s all free to do that which is nice.” Madison said.

“Oh,” Isabella and Ethan said in unison. They both looked like they were seeing stars.

“You good?” Madison laughed at the two of them, looking clueless.

“Yeah, we’re good. Just a lot of information at once.” Ethan piped up.

“You’ll get that hang of all of it.”

(Story created by Jasmine George, Ana Siqueira, Courtney Swanson and Alex Thompson)

related books

These books have a chapter directly related to this topic. Please read them for more details.

Chapter 5: Ramsey, Dave. Dave Ramsey's Complete Guide To Money. Ramsey Press, 2012.

Principles 43, 48 & 49: Siegel, Cary. Why Didn't They Teach Me This in School?: 99 Personal Money Management Principles to Live By. CreateSpace Publishing, 2013.

Chapter 1: Orman, Suze. The Road to Wealth. Penguin Publishing Group, 2010.

Chapter 6 & 7: Lowry, Erin. Broke Millennial: Stop Scraping By And Get Your Financial Life Together. Penguin Publishing Group, 2017.

Five From the Field

David Picard has over 25 years of experience in the credit card/merchant services industry. He is currently a client executive at Elavon, an innovative, secure, and global partner for payment processing needs. Learn more about Elavon here: https://www.elavon.com/company/about-elavon.html

In this video interview, David will answer the following five questions:

For a young person with no credit, what is the easiest way to get credit?
If a dependent child is listed as an authorized user under their parents’ account, whose credit does the spending activity reflect?
How do the three credit reporting agencies acquire the information about someone’s payment history?
What is the most unusual item you’ve seen on a credit report?
If you cancel a credit card account, how long does that account stay on your credit history?

Mark Mathiason is the Florida Region Sales Manager for Mortgages for Hancock Whitney Bank. He has originated over 3,700 residential home loans since starting in the business in 1989. While Mark is based in Tampa, FL, Hancock Whitney services the Gulf South region. Learn about their services here: https://www.hancockwhitney.com/

In this video interview, Mark will answer the following five questions:

When you’re assessing a credit score, what is the first item you consider?
For someone with a poor credit score, about how long will it take to improve that score?
For someone with a high credit score, how fast can that score be destroyed?
Should a person always accept the higher credit limit when offered by the credit card company?
Which is the better strategy: Having one credit card with a high limit or having two credit cards with lower limits?

additional resources

AnnualCreditReport.com is the ONLY authorized source by the Federal Trade Commission (FTC) for an annual credit report. A copy of what goes into your credit report is available at no money cost. Visit the FTCs Annual Credit Report Links to an external site. site (https://www.consumer.ftc.gov/articles/0155-free-credit-reports) to order your copy. Scroll down the page to “Q: How do I order my free report?” to begin the process.

https://corporatefinanceinstitute.com/resources/knowledge/credit/credit

https://corporatefinanceinstitute.com/resources/knowledge/credit/credit-card-analysis

https://www.igrad.com/articles/credit-card-management-tips

https://www.myfloridacfo.com/YMM/Calculators/CostofCredit.aspx

https://www.youtube.com/watch?v=lcsmT-NQ3Ew

https://www.accesslex.org/lex-talk-money/dont-get-caught-by-the-catch-22s-of-credit

https://www.annuity.org/financial-literacy/

other books

Malkiel, Burton. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing. W. W. Norton & Company, 2020.

Wood, William. Getting a Grip on Your Money: A Plain & Simple Christian Guide to Managing Personal Finances, Eliminating Debt, Spending, Saving & Giving, Investing for the Future. Intervarsity Press, 2002.

Bach, David. Smart Women Finish Rich, Expanded and Updated. Currency, 2018.

Bogle, John. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. Wiley, 2017.

Clason, George. The Richest man in Babylon. Dauphin Publications Inc., 2018.

Hill, Napoleon; Arthur R. Pell. Think and Grow Rich: The Landmark Bestseller Now Revised and Updated for the 21st Century. TarcherPerigee, 2005.

Lynch, Peter; John Rothchild. Beating the street. Simon & Schuster, 1994.

Kobliner, Beth. Get a Financial Life: Personal Finance in Your Twenties and Thirties. Simon & Schuster, 2017.

Orman, Suze. The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying. Currency, 2006.

Bach, David; John David Mann. The Latte Factor: Why You Don't Have to Be Rich to Live Rich. Atria Books, 2019.

Hogan, Chris. Everyday Millionaires: How Ordinary People Built Extraordinary Wealth―and How You Can Too. Ramsey Press, 2019.

important government sites

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The Federal Reserve System performs five functions to promote the effective operation of the U.S. economy (Links to an external site.)

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation's financial system (Links to an external site.)

The National Credit Union Administration is an independent federal agency that insures deposits at federally insured credit unions (Links to an external site.)

Federal Regulation:

The Internal Revenue Service is the nation's tax collection agency and administers the Internal Revenue Code enacted by Congress (Links to an external site.)

The Federal Trade Commission protects consumers and competition by preventing anticompetitive, deceptive, and unfair business practices (Links to an external site.)

The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation (Links to an external site.)

The CFPB is committed to providing consumers with up-to-date information and resources to protect and manage their finances (Links to an external site.)

(Links to an external site.)Other:

Social Security Administration (Links to an external site.)

Department of Education (Links to an external site.)

State of Florida

ECO 3041

ECO 3041 Personal Finance is a 3 credit hour course offered in-person and online each fall and spring semester. The purpose of the course is to provide you with the specific content knowledge of personal finance and to give you opportunities to start using that knowledge to create good habits, make better financial choices, and live a more fulfilling life. It covers material for all 33 topics listed here. See Professor Calhoun's most recent syllabus here. ECO_3041_SP21.pdf

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To schedule a presentation or an appointment with a certified peer mentor to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.