Credit Scores — slides
Financial Literacy Club
Credit & Debt · Lesson 2
Credit Scores
What goes into a score, why it matters, and how to build one from zero.
14-minute lesson · learnwithflc.org
Credit Scores · 1 / 23
Financial Literacy Club
Credit & Debt · Lesson 2
Credit Scores
What goes into a score, why it matters, and how to build one from zero.
14-minute lesson · learnwithflc.org
Today's goals
By the end of class, you'll be able to…
- Identify the five factors in a FICO Score and which matter most
- Calculate credit utilization
- Explain how a credit score affects the cost of borrowing
Warm-up
Guess: what's the range for FICO credit scores, and what do you think matters most?
Think, then write your answer.
The big idea
Credit Scores
What goes into a score, why it matters, and how to build one from zero.
Credit & Debt · Lesson 2
A credit score turns your credit report into one number: a quick estimate of how likely you are to repay. The most common, the FICO Score, runs from 300 to 850. Higher means lower risk to lenders.
Credit & Debt · Lesson 2
FICO publishes what goes into its scores. Payment history matters most, followed by how much you owe compared with your limits. The rest comes from how long you've had credit, how often you apply for new credit, and the mix of credit types.
Vocabulary
Credit utilization
How much of your available credit you're using. A $300 balance on a $1,000 limit is 30% utilization. Lower is better.
Credit & Debt · Lesson 2
Your score does not include your income, savings, job, age, race, religion, or where you live. It's only about how you've handled borrowing.
Credit & Debt · Lesson 2
Scores matter because they change prices. A higher score can mean a lower interest rate on a car loan, an easier apartment approval, and smaller deposits for utilities and phone plans.
Vocabulary
Hard vs. soft inquiry
When you apply for credit, the lender makes a "hard" inquiry, which can lower your score slightly for a while. Checking your own score is a "soft" inquiry and has no effect.
Credit & Debt · Lesson 2
Building a score from zero
Pay every bill on time, keep balances low, and don't open lots of new accounts at once. Time does the rest.
See it
According to FICO, payment history makes up 35% of a score, amounts owed 30%, length of credit history 15%, new credit 10%, and credit mix 10%.
Payment history
Amounts owed (including utilization)
Length of credit history
New credit
Credit mix
Real example
Same car, different score
Two buyers each finance a $20,000 car over 5 years. Because of their credit scores, they're offered different rates (hypothetical examples):
- Strong credit, 7% APR: about $396/month, $3,761 total interest
- Weaker credit, 12% APR: about $445/month, $6,693 total interest
Same car. The buyer with weaker credit pays about $2,932 more — just for having a lower score.
Try it together
Try it: see what the rate does
Keep the loan the same and change only the interest rate. Watch the total interest.
Your numbers
Results
Monthly payment
$396.02
60 payments at 7% APR
Amount borrowed
$20,000
Total interest
$3,761
16% of what you pay
Total of payments
$23,761
- Principal (amount borrowed) $20,000
- Interest $3,761
Show year-by-year breakdownHide breakdown
| Year | Principal | Interest | Balance left |
|---|---|---|---|
| 1 | $3,462 | $1,290 | $16,538 |
| 2 | $3,712 | $1,040 | $12,826 |
| 3 | $3,981 | $772 | $8,845 |
| 4 | $4,268 | $484 | $4,577 |
| 5 | $4,577 | $175 | $0 |
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Activity · pairs · 10 min
Score Detective
- Give pairs four fictional profiles. Ana: $300 balance on a $1,000 limit, never late. Ben: $900 on a $1,000 limit, never late. Cai: $100 on a $2,000 limit, one payment 30 days late last month. Dee: no credit cards, one year of on-time student loan payments.
- Pairs calculate each person's utilization (where there's a card).
- Pairs name the factor that most helps and most hurts each person.
- Pairs suggest one change for each person to improve their score.
Check for understanding · 1 of 4
Which habit has the biggest effect on a FICO Score?
- AHaving a high income
- BOwning many credit cards
- CPaying every bill on time
- DChecking your own score often
C. Paying every bill on time
Payment history is the largest factor, about 35% of a FICO Score. Income isn't part of the score at all, and checking your own score has no effect.
Check for understanding · 2 of 4
Maria has a card with a $1,000 limit. Her statement balance is $900. She always pays on time.
What's most likely going on with her score?
- AHer high utilization (90%) is probably pulling her score down; paying the balance lower should help.
- BNothing — only late payments affect a score.
- CHer score is maxed out because she uses the card so much.
- DShe should close the card to raise her score.
A. Her high utilization (90%) is probably pulling her score down; paying the balance lower should help.
Amounts owed — including utilization — is about 30% of a FICO Score. Using 90% of a limit signals risk even with on-time payments. Closing the card would shrink her available credit and could make utilization worse.
Check for understanding · 3 of 4
A higher income automatically gives you a higher credit score.
- True
- False
False
Income isn't part of your credit score. Lenders may ask about income separately, but the score only reflects how you've handled credit.
Check for understanding · 4 of 4
Jordan applies for five store credit cards in one month to get first-purchase discounts.
What's the main risk to Jordan's credit?
- ANone — applying is always free.
- BSeveral hard inquiries and new accounts at once can lower the score.
- CStore cards don't show up on credit reports.
- DJordan's income will be reported to the bureaus.
B. Several hard inquiries and new accounts at once can lower the score.
Each application usually triggers a hard inquiry, and lots of new credit in a short time is a risk signal. A small discount isn't worth it.
Remember
Key takeaways
- FICO Scores run 300–850. Higher = lower risk.
- Payment history (35%) and amounts owed (30%) matter most.
- Keep utilization low — well under 30% of your limit is a common guideline.
- Checking your own score doesn't hurt it. Applying for credit can, a little.
Discuss
Talk it over
- Should landlords and insurers be allowed to use credit information? What are the arguments on each side?
- Why might someone with a high income still have a low credit score?
Exit ticket
Does checking your own credit score lower it? What kind of inquiry is it?
Answer on your exit ticket before you leave.
Nice work today.
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learnwithflc.org/courses/credit-and-debt/credit-scores
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