Money Talks…Should I Be Charging? is a series of two newsletters designed for teens. The goals of these newsletters are to assist teens in understanding how credit
works and how to maintain good credit, how to obtain credit, what to do if they are denied credit, safety tips when using credit cards, and how to avoid credit card
scams. Comments regarding these newsletters can be addressed to: Consumer Economics Department, University of California Cooperative Extension (UCCE), 135
Building C, Highlander Hall, Riverside, CA 92521. Author: Katherine Wassenberg, freelance writer; Development Team: Margaret Johns, Charles Go, Shirley Peterson, and
the UCCE Money Talks Workgroup; Graphic Designer: Kerry Decker, UC Riverside. 2006
Answers to the
Credit Facts & Fiction Quiz
1. FICTION If you are still in high school or working at your first job, you will
probably find it hard just to get credit. It takes a long time to build a credit
history, especially a good one. But don’t worry, read “Obtaining Credit” on page 3
to find out how to start building good credit now.
2. FICTION If you get credit to buy everything you want now, you’ll be shocked when
it is time to pay it all back and might even find yourself in financial trouble. Read
“Maintaining Good Credit” on page 4 to learn how to keep a good credit history.
3. FACT Until you are 18 years old you cannot enter into a contractual agreement. In
other words, you can’t get credit in your own name.
4. FACT When a lending institution gives you credit, they are letting you borrow
their money. You are expected to pay it all back plus interest or a fee.
5. FACT The lending institution that gives you credit is running a business, which
means they are making money. They make money by charging you a fee or
interest to use their money.
6. FACT To make sure you pay back all the money you borrow, your lending
institution will require you to sign a legally binding contract. Read “The Credit
Contract” on page 3 to find what is in this contract.
7. FACT The Equal Credit Opportunity Act prohibits such discrimination.
8. FACT While not everyone can obtain a copy of your credit history, employers and
landlords can. They often use this information to determine your character and
your likeliness to pay your rent or act responsibly at a job.
9. FICTION Charges for credit and credit offers vary among financial institutions. It
is a good idea to speak to various institutions to find the best credit option for
you.
10. FICTION Your credit report contains identification and employment information,
payment history, a record of who has requested your report, and public record
information. Credit reporting agencies are not permitted to include gossip in
your report.
CREDIT FACTS & FICTION QUIZ
OBTAINING CREDIT
THE CREDIT CONTRACT
MAINTAINING GOOD CREDIT
I F Y O U A R E
DENIED CREDIT
m o n e y t a l k s 4 t e e n s . o r g
Keys To Credit
Chris Wants a New Sound System
Chris wanted to buy a new sound
system for her truck. When she went
to Super Stereo Warehouse to check
out how much a system with HD radio
was going to cost, she realized that the
total price of the system, with
installation, was going to be $200
more than what she had saved. Chris
was able to save $400 from money she
had received for graduating from high
school and working a part-time job.
The salesperson at the stereo shop told
her that she can charge the rest on a
credit card. Chris went home to think
about it. Her brother told her that it
was a good idea, but Chris didn't have
a credit card. She didn't even know
how to get credit.
Read further to see how someone like
Chris can learn about credit. (Story
continued on page 4.)
Publication 21632
This publication has been anonymously peer reviewed for technical accuracy by University of California scientists and other qualified professionals. This review process was managed by the ANR Associate Editor for Youth Development.
To simplify information, trade names of products have been used. No endorsement of named or illustrated products is intended, nor is criticism implied of similar products that are not mentioned or illustrated.
ANR Publication 21632
©2006 by the Regents of the University of California
Division of Agriculture and Natural Resources
All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the written permission of the publisher and the authors.
The University of California prohibits discrimination or harassment of any person on the basis of race, color, national origin, religion, sex, gender identity, pregnancy (including childbirth, and medical conditions related to pregnancy or childbirth), physical or mental disability, medical condi-
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Inquiries regarding the University's nondiscrimination policies may be directed to the Affirmative Action/Staff Personnel Services Director, University of California, Agriculture and Natural Resources, 1111 Franklin Street, 6th Floor, Oakland, CA 94607-5201, (510) 987-0096.
T E E N G U I D E
If You Are
Denied Credit
What if you do everything you can to build your credit
worthiness and you are still denied credit? Sometimes you
just need persistence, try another lending institution or
keep using your local business credit card and try again in a
couple months. Also you should look at your credit report,
which lending institutions, employers, and landlords access
to view your credit history when reviewing your
application. This report generally contains identification
and employment information, payment history, a record of
who has accessed your report, and public record
information. If you were denied credit, you can request a
free copy of your credit record from the lending institution
or Consumer Reporting Agency. Check your credit report for
inaccuracies, which may have affected your ability to get
credit. Also look to see if there is any accurate negative
information; if you made a mistake before, you can start to
fix it now! Remember everyone makes mistakes but if you
follow the “Keys to Maintaining Good Credit” (page 4) you’ll
be on your way to a good credit history.
Sh
ou
ld
Y
ou
Ev
en
H
av
e
Cr
ed
it?
This is a question only you can answer. A lot of people
use credit poorly and find themselves in financial
trouble, which can follow them for up to ten years,
especially when they have many credit cards or lines of
credit. It is important to be able to track spending
carefully and know how much debt you can handle to
avoid spending more money than you realize. If you are
not ready for credit, saving for purchases can help you
learn to track your money.
Do you think that you might like to buy a car, go to college, or
take a trip faraway? If so, right now is the time to be
considering the ins and outs of credit. Most people will need
some type of credit to reach their life goals. Take the
following “Credit Facts and Fiction Quiz” to see how much
you already know about credit.
FACT FICTION
¨ ¨
1. As a high school student working at your first
job, you have probably built a credit history.
¨ ¨
2. Taking out a loan is a good idea because it
will give you the money you need to buy what
you want right now.
¨ ¨ 3. You must be 18 years old to obtain credit in
your own name.
¨ ¨
4. If you are using credit, you are actually using
someone else’s money.
¨ ¨
5. Credit usually costs you money.
¨ ¨ 6. You will have to sign a “legally binding”
contract to use credit.
¨ ¨ 7. It is illegal to be denied credit because of
your sex or race.
¨ ¨
8. It is important to have a good credit history
because employers and landlords may use
your credit history when deciding whether to
hire or rent to you.
¨ ¨
9. All financial institutions charge the same
interest and offer the same types of credit.
¨ ¨
10. Your credit report contains personal
information about your behavior obtained
from your neighbors.
It is no secret, using credit will cost
you money.You will have to pay
interest on your credit balance and
may have to pay an annual fee for a
credit card. Also, most companies
will charge you extra for late
payments and if you spend more
than your credit limit.
What is Credit?
Credit is the opportunity to get something now and
pay for it later. How you use credit is tracked by a
Credit Reporting Agency (CRA).The file they compile
on you, your credit report, will determine whether
you get credit and the interest rate you will be
charged for credit.
52
answers on page 6
Obtaining Credit
When you apply for credit, the one question all lending
intuitions will try to answer is: Are you creditworthy?
They decide if you are creditworthy based on your ability
to meet all your financial obligations, your savings and
assets, your employment history, and your past financial
history. While you cannot receive credit in your own
name until you are 18 years old, it is a good idea to start
proving your financial responsibility before applying for
credit. Remember that building creditworthiness is a
process that takes years. By starting now, you will be able
to get credit when you need it. The “Keys to Building
Credit” graphic is a good guide to building your credit
foundation. Remember the
sooner you pay off your
balance, the less you
will have to pay.
Chris’s Sound System (Cont.)
Money T@LKS. Chris, how did you learn about credit?
Chris: I talked to my mom. She told me that credit is a promise to pay
something back to a creditor who loans you money and that because I was
just starting out I should try to establish credit by getting a gas card or store
credit card.
Money T@LKS. So…what was the first thing you did to establish credit?
Chris: I got a card with AA Gas Station and have been making payments
regularly on it to establish my credit. I have paid the bill on time for the last
six months.
Money T@LKS. Did you ever get a new sound system for your truck?
Chris: Actually, I am thinking about moving out of my mom’s house and
moving into an apartment with some friends from college using the money I
was going to use for my sound system. Now that I have established credit,
hopefully, the apartment manager will see that I pay my bills on time and
rent me an apartment.
Just as important as building creditworthiness is keep-
ing it! By maintaining a good credit history, you will
be able to get money when you really need it—to buy
a car, finance a house, or in case of an emergency. But
if you don’t maintain a good credit history, you could
have a hard time renting an apartment, getting the job
you want, even establishing a telephone line. Even
scarier, a bad credit history can follow you for seven to
ten years! Follow these “Tips for Maintaining Credit” to
keep your credit history great:
! Create a realistic budget and stick to it.
!Have as few credit cards and loans as possible so
you won’t forget how much you owe. Also, lending
institutions don’t like to see your money spread too
thin; if you have too many loans, you may not be
able to get another.
! Pay more than the minimum payment. If possible,
pay off your entire credit card balance every
month.
! Comparison shop for credit and obtain only the
credit you need.
!Keep track of what you owe, so you won’t have
more debt than you realize.
! Contact your lending institution immediately if
you realize you are having problems making your
payments; they can work out a modified payment
plan. But even better, don’t get a loan that you are
not 100% sure you can pay.
The most important thing you can do to build a
good credit record is to pay your bills on time!
The Credit Contract
When a lending institution or company decides to
give you credit, they will require you to sign a legally
binding contract. This contract will provide all of
the details of your agreement. Items that may be
found in your contract include:
4 The amount of money they loaned you
4 The amount of your down payment, if you give
one, and the remaining balance
4 The amount of the finance charge—the percentage
of interest that is charged over a billing period
4 The annual percentage rate—the percentage of
interest that is charged over a year
4 Any other charges included
4 The number, dollar amount, and due dates of
payments
4 The charge for a late payment
4 A description of the collateral held by the
lending institution—an item of value, like a car,
that you will give the lending institution if you
cannot pay your loan.
If you do not like the details of the agreement, you do
not have to sign the contract. Someone with a good
credit history should help you look it over. However,
once you sign the contract you are legally obligated
to fulfill your financial responsibilities.
4 3
If these steps don’t
work, consider
asking a
responsible relative
with a good credit
history to co-sign a credit
application with you. After a
year of making payments, ask the creditor to
transfer the account into your name only.
Obtaining Credit
When you apply for credit, the one question all lending
intuitions will try to answer is: Are you creditworthy?
They decide if you are creditworthy based on your ability
to meet all your financial obligations, your savings and
assets, your employment history, and your past financial
history. While you cannot receive credit in your own
name until you are 18 years old, it is a good idea to start
proving your financial responsibility before applying for
credit. Remember that building creditworthiness is a
process that takes years. By starting now, you will be able
to get credit when you need it. The “Keys to Building
Credit” graphic is a good guide to building your credit
foundation. Remember the
sooner you pay off your
balance, the less you
will have to pay.
Chris’s Sound System (Cont.)
Money T@LKS. Chris, how did you learn about credit?
Chris: I talked to my mom. She told me that credit is a promise to pay
something back to a creditor who loans you money and that because I was
just starting out I should try to establish credit by getting a gas card or store
credit card.
Money T@LKS. So…what was the first thing you did to establish credit?
Chris: I got a card with AA Gas Station and have been making payments
regularly on it to establish my credit. I have paid the bill on time for the last
six months.
Money T@LKS. Did you ever get a new sound system for your truck?
Chris: Actually, I am thinking about moving out of my mom’s house and
moving into an apartment with some friends from college using the money I
was going to use for my sound system. Now that I have established credit,
hopefully, the apartment manager will see that I pay my bills on time and
rent me an apartment.
Just as important as building creditworthiness is keep-
ing it! By maintaining a good credit history, you will
be able to get money when you really need it—to buy
a car, finance a house, or in case of an emergency. But
if you don’t maintain a good credit history, you could
have a hard time renting an apartment, getting the job
you want, even establishing a telephone line. Even
scarier, a bad credit history can follow you for seven to
ten years! Follow these “Tips for Maintaining Credit” to
keep your credit history great:
! Create a realistic budget and stick to it.
!Have as few credit cards and loans as possible so
you won’t forget how much you owe. Also, lending
institutions don’t like to see your money spread too
thin; if you have too many loans, you may not be
able to get another.
! Pay more than the minimum payment. If possible,
pay off your entire credit card balance every
month.
! Comparison shop for credit and obtain only the
credit you need.
!Keep track of what you owe, so you won’t have
more debt than you realize.
! Contact your lending institution immediately if
you realize you are having problems making your
payments; they can work out a modified payment
plan. But even better, don’t get a loan that you are
not 100% sure you can pay.
The most important thing you can do to build a
good credit record is to pay your bills on time!
The Credit Contract
When a lending institution or company decides to
give you credit, they will require you to sign a legally
binding contract. This contract will provide all of
the details of your agreement. Items that may be
found in your contract include:
4 The amount of money they loaned you
4 The amount of your down payment, if you give
one, and the remaining balance
4 The amount of the finance charge—the percentage
of interest that is charged over a billing period
4 The annual percentage rate—the percentage of
interest that is charged over a year
4 Any other charges included
4 The number, dollar amount, and due dates of
payments
4 The charge for a late payment
4 A description of the collateral held by the
lending institution—an item of value, like a car,
that you will give the lending institution if you
cannot pay your loan.
If you do not like the details of the agreement, you do
not have to sign the contract. Someone with a good
credit history should help you look it over. However,
once you sign the contract you are legally obligated
to fulfill your financial responsibilities.
4 3
If these steps don’t
work, consider
asking a
responsible relative
with a good credit
history to co-sign a credit
application with you. After a
year of making payments, ask the creditor to
transfer the account into your name only.
If You Are
Denied Credit
What if you do everything you can to build your credit
worthiness and you are still denied credit? Sometimes you
just need persistence, try another lending institution or
keep using your local business credit card and try again in a
couple months. Also you should look at your credit report,
which lending institutions, employers, and landlords access
to view your credit history when reviewing your
application. This report generally contains identification
and employment information, payment history, a record of
who has accessed your report, and public record
information. If you were denied credit, you can request a
free copy of your credit record from the lending institution
or Consumer Reporting Agency. Check your credit report for
inaccuracies, which may have affected your ability to get
credit. Also look to see if there is any accurate negative
information; if you made a mistake before, you can start to
fix it now! Remember everyone makes mistakes but if you
follow the “Keys to Maintaining Good Credit” (page 4) you’ll
be on your way to a good credit history.
Sh
ou
ld
Y
ou
Ev
en
H
av
e
Cr
ed
it?
This is a question only you can answer. A lot of people
use credit poorly and find themselves in financial
trouble, which can follow them for up to ten years,
especially when they have many credit cards or lines of
credit. It is important to be able to track spending
carefully and know how much debt you can handle to
avoid spending more money than you realize. If you are
not ready for credit, saving for purchases can help you
learn to track your money.
Do you think that you might like to buy a car, go to college, or
take a trip faraway? If so, right now is the time to be
considering the ins and outs of cre
