Grow Your Money: Credit and Interest

Course designed to equip high school seniors with essential financial tools for adulthood.
Module duration: approximately 45 minutes to 1.5 hours.
Key components: definition of credit, interest, credit scores, factors influencing credit scores, and guidance on obtaining a first credit card.

Credit: The ability to borrow money with a commitment to repay, often with interest.
Interest: The fee charged for borrowing money.
Credit Score: A measurement of the likelihood of repaying loans on time, used by lenders.

Two primary credit scores: FICO and Vantage.
Most lenders prioritize FICO scores over Vantage scores for lending decisions.
Scores calculated using data from the three major credit bureaus: Equifax, Experian, and TransUnion.
Calculating methods differ slightly, leading to variances in scores.

New Credit: High number of recent account openings can negatively impact credit scores.
Inquiries from applications lower scores; checking one’s credit report does not affect scores.
Closing accounts does not erase debt history and may negatively reflect on credit reports.
To enhance credit scores, it is advisable to space out loan applications over time, allowing gaps between acquiring different types of credit (e.g., credit cards, student loans, auto loans).

Credit Score Definition: Numerical metric assessing a borrower's likelihood to repay debts.
Score Range: Between 300 and 850, with higher scores reflecting stronger credit profiles.
Key Determinants of Credit Scores:
- Payment History (35%): Consistent, on-time payments boost scores significantly.
- Credit Utilization (30%): Ideal utilization ratio is below 30% of available credit limits.
- Length of Credit History (15%): Longer credit histories generally improve scores.
- Diversity of Credit Types (10%): Having various credit forms (like loans and credit cards) benefits score.
- Recent Credit Inquiries (10%): New credit applications may cause short-term score drops.
Impact of Credit Scores: Influences loan approvals, interest rates, and rental application outcomes.

Zero-Based Budgeting: Allocate every dollar to expenses or savings, ensuring a zero balance remains at month-end.
50/30/20 Rule:
- 50% for essential needs (housing, utilities).
- 30% for discretionary wants (entertainment, leisure).
- 20% for savings and debt repayment.
Envelope System: Physically split cash into envelopes designated for specific spending categories to encourage mindful spending.
Expense Tracking: Utilize digital tools or spreadsheets to analyze spending habits and identify possible savings.

SMART Goals Framework:
- Specific: Clearly defined objectives.
- Measurable: Quantifiable metrics for progress tracking.
- Achievable: Goals should be realistic and attainable.
- Relevant: Goals must align with individual values and life objectives.
- Time-Bound: Goals should have specific deadlines.
Goal Types:
- Short-Term: Targets for under a year (e.g., vacation savings).
- Medium-Term: Goals for 1 to 5 years (e.g., home down payment).
- Long-Term: Plans extending beyond 5 years (e.g., retirement funds).
Regular Goal Review: Periodic reassessment of goals to adapt to life changes.

Debt Snowball Method: Pay off smaller debts first to gain motivation, then tackle larger debts.
Debt Avalanche Method: Focus on paying off high-interest debts first to reduce overall interest expense.
Debt Consolidation: Combine several debts into one loan with lower interest for easier management.
Negotiate with Creditors: Engage in discussions to establish repayment plans or negotiate reduced debts.
Financial Counseling: Consider professional guidance for customized debt management solutions.