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Financial Literacy Club

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Credit & Debt · Lesson 2

Credit Scores

Part A. Vocabulary

Define each term in your own words.

Credit utilization

Hard vs. soft inquiry

Fill in each blank using the word bank.

Word bank: Applying · history · Scores · utilization

Circle the best answer.

1. Which habit has the biggest effect on a FICO Score?
- A. Having a high income
- B. Owning many credit cards
- C. Paying every bill on time
- D. Checking your own score often
Maria has a card with a $1,000 limit. Her statement balance is $900. She always pays on time.
2. What's most likely going on with her score?
- A. Her high utilization (90%) is probably pulling her score down; paying the balance lower should help.
- B. Nothing — only late payments affect a score.
- C. Her score is maxed out because she uses the card so much.
- D. She should close the card to raise her score.
3. A higher income automatically gives you a higher credit score.
True/False
Jordan applies for five store credit cards in one month to get first-purchase discounts.
4. What's the main risk to Jordan's credit?
- A. None — applying is always free.
- B. Several hard inquiries and new accounts at once can lower the score.
- C. Store cards don't show up on credit reports.
- D. Jordan's income will be reported to the bureaus.

Show your work.

Answer in complete sentences.

1. Should landlords and insurers be allowed to use credit information? What are the arguments on each side?
2. Why might someone with a high income still have a low credit score?

Exit ticket

Name

Does checking your own credit score lower it? What kind of inquiry is it?

Financial Literacy Club

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Answer key

Credit & Debt · Lesson 2

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.
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.

1. C. Paying every bill on timePayment 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.
2. 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.
3. FalseIncome isn't part of your credit score. Lenders may ask about income separately, but the score only reflects how you've handled credit.
4. 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.

Answers will vary. Look for reasoning that uses the lesson's key ideas:

No. Checking your own score is a soft inquiry.