View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FEDERAL RESERVE BANK OF ST. LOUIS

ECONOMIC EDUCATION

Credit History and Equal Opportunity
Lesson Authors
	

Eva Johnston, Federal Reserve Bank of St. Louis

	

Genevieve Podleski, Federal Reserve Bank of St. Louis

Standards and Benchmarks (see page 28)
Lesson Description
	

In this lesson, students first learn how credit history and credit scores are determined. Then, to
better understand the protections of the Equal Credit Opportunities Act, they participate in a
card-sorting activity where they evaluate creditworthiness based on borrower characteristics,
determine which characteristics may be legally considered, and sort the applicants from most
likely to least likely to get a loan. Next, they examine a primary source document to see how
information that can be legally used to evaluate credit changed with the act. In an optional
extension activity, students sort cards again to match primary borrowers with cosigners. They
then learn about the pros and cons of cosigning.

Grade Level
	9-12

Concepts
Cosign(er) (in optional Extension)
Credit
Credit bureau
Credit history
Credit report
Credit score
Creditworthiness

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

1

	

Credit History and Equal Opportunity

Objectives
	

Students will
•	

explain what credit is,

•	

explain why credit is desired/wanted,

•	

describe credit ratings/scores,

•	

name the law that protects against credit discrimination and when it was passed,

•	

connect credit history (the outcome of choices) and the ability to get credit,

•	

identify legal and illegal reasons to deny credit,

•	

predict when their credit score/history will be used in their lives, and

•	

discuss the audience for and purpose of historical documents, and if the optional
Extension is used,

•	

define cosigner and

•	

give examples of good and bad reasons to cosign.

Essential Question
	

Who gets credit and why?

Time Required
	

45-60 minutes

Materials
•	

Visuals 1-3

•	

Handout 1, one copy for each student

•	

Handout 2 (game cards), cut apart and sorted into sets A through F

•	

Handout 3, one copy

•	

Handout 4, if you do not use the optional Extension, one copy of Page 1 for each student;
if you do use the Extension, one copy of both Pages 1 and 2 for each student

•	

Handout 4—Answer Key

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

2

Credit History and Equal Opportunity

Procedure
1.	

Begin the lesson by discussing the following:
•	

2.	

What’s the first thing that comes to mind when you hear the word credit? Write answers
on the board. (Answers will vary but may include buy now and pay later, extra credit, a
credit card, not having credit, or a credit report.)

Tell the students that today they are going to learn about who gets financial credit and why.

3.	Define credit as the granting of money or something of value in exchange for a promise of
future repayment. Discuss the following:

4.	

•	

How is credit different from a gift? (Answers should include some variation of “You have
to pay it back.”)

•	

Why do people want credit? (Answers will vary but should include to have things they
want now and pay for them in the future, including big-ticket items, such as a house,
car, or education, that they can’t afford to pay for all at once.)

•	

How do companies decide whether someone will keep their promise to repay? (Answers
will vary but might include mention of a credit history or a credit score.)

Tell the students that they’re going to participate in an activity in which they assess
creditworthiness.

5.	Display Visual 1: Your Credit History. Explain that creditworthiness is the likelihood that someone will keep his or her promise to repay. Information about a person’s creditworthiness is
included in a credit report. Explain the following:
•	

A person’s payment activity over time with various businesses such as banks, utility companies, and lenders make up a person’s credit history, which is documented in a credit
report.

•	

A specialty company called a credit bureau maintains credit reports. The three main
credit bureaus are Equifax, Experian, and TransUnion.

•	

Information from a credit report is used by credit bureaus to produce a credit score,
sometimes known as a credit rating, which is a number that indicates a person’s credit
risk or creditworthiness. The range for scores is 300 to 850. A higher score indicates less
risk and more creditworthiness.

•	

Your credit report or credit score may be accessed by companies considering giving you
a loan or a line of credit, employers considering hiring you, landlords considering renting
to you, and other companies and individuals with a legitimate business need.

•	

Although your income is not a part of your credit history, it is asked for on credit applications and is used to make credit decisions. Financial planners and credit advisors will also
look at your income when giving advice about how to improve your creditworthiness.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

3

Credit History and Equal Opportunity
•	

Credit bureaus evaluate creditworthiness using the 3 C’s of credit: character, capacity,
and collateral.

•	

Married individuals are not automatically responsible for their spouse’s accounts. If spouses
have joint credit accounts, those accounts will appear on both spouses’ credit reports.

6.	

Arrange the class into groups of five or six students. Explain that each group will serve as a
credit advisory team and will evaluate people’s creditworthiness.

7.	

Distribute a copy of Handout 1: Credit Cheat Sheet to each student. Distribute one set (with
eight cards each) from Handout 2: Borrower Cards to each group. (NOTE: To facilitate discussion, there is some overlap between sets.) Explain the following:

8.	

•	

As members of a credit advisory team, your job is to evaluate the credit history of the
individual on each Borrower Card and order the cards from most likely to least likely to
get credit.

•	

Cross out any information on a card that cannot be used to evaluate creditworthiness.
Be prepared to explain why that information can’t be used.

•	

Use Handout 1 to assist in making your evaluations.

•	

You will have 3 minutes to get your cards in order.

Allow 3 minutes for sorting and then discuss the following:
•	

What were some challenges your team had in making your evaluations? (Answers will
vary but may include knowing what information can and can’t be used, staying on task,
or ignoring the information you weren’t supposed to use.)

•	

Whom did you select as being most likely to receive credit? (Answers should include
Adam, Fatima, Dee, and Patricia.)

•	

Why did you select these individuals? (Answers will vary but should include the following:
They paid their bills on time, have income to repay a loan, have assets, or have a good
payment history.)

	

Optional: Display each Borrower Card on the whiteboard and have students discuss
their evaluation of each person.

•	

Did anyone find anything surprising in the information you could or could not use in
your evaluations? (Answers will vary but may include paying bills on time or the number
of credit cards applied for.)

•	

Why do you suppose sex and marital status are information that can’t be used against
you in a credit application? (Answers will vary.)

•	

Would you be surprised to know that all of the information on Handout 1 listed as information that can’t be used against you has been used in the past to make credit decisions?
(Answers will vary; students may deny it or ask for specifics.)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

4

Credit History and Equal Opportunity
9.	

Explain to the students that factors used to evaluate credit have changed over time, and fairly
recently. Congress passed laws in 1974 and 1976 (a decade or more after the Civil Rights Act)
to prevent discrimination in lending on the basis of sex, marital status, race, religion, ethnicity,
or national origin. These are together known as the Equal Credit Opportunity Act.

10.	Display Visual 2: Excerpts. Instruct the students to individually read and compare the two
excerpts. Allow a few minutes for the students to work and then discuss the following:
•	

Which excerpt is easier for you to understand, and why? (Answers will vary; the excerpts
cover the same material, but the Federal Reserve handbook is written in simpler language.)

11.	 Tell the students they will look at pages of a primary source document—a pamphlet—written
shortly after the Equal Credit Opportunity Act was passed. (NOTE: The pamphlet is what’s
known as a primary source document—usable for historical research—because it was created
at the time the law was passed and is an artifact of the time period used to educate the public about how the new law protects their rights as consumers.)
12.	 Distribute one page from Handout 3: Consumer Handbook to each group. Display Visual 3:
Credit in History. Explain that each group received one page from a handbook given to banking
customers in 1979. Instruct the groups to read the pages provided, suggesting that one group
member reads the page aloud, and then discuss within their groups the answers to the questions on Visual 3.
13.	 Allow time for the students to work and then invite each group to report the main topic of
their page and share with the class their answers to the questions.
	

Visual 3: Credit in History—Answer Key
1.	

What surprises you about the rights of credit applicants? (Answers will vary, but students
may talk about how discrimination based on marital status or pregnancy was once allowed
or how recently things have changed.)

2.	

What does your page of the handbook say about what is legal or illegal for a company
to do when you apply for credit? (Answers will vary but may include that it is illegal to
discriminate based on race, while it is legal to consider income when considering a loan
application.)

14.	 Discuss the following:
•	

Who produced the handbook? (The Board of Governors of the Federal Reserve System)

•	

Who is the likely target audience for the handbook? (Answers will vary but should be
some version of “credit customers,” “consumers,” or “the general public.”)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

5

Credit History and Equal Opportunity
15.	 Explain that the Federal Reserve, as one of the institutions created by U.S. law to oversee banks
(among other duties), created the handbook and other materials like it to help educate consumers about the laws in the Equal Credit Opportunity Act that dictate how banks must treat
their customers. The laws are written as directives to the banks, and this handbook interprets
the law for consumers regarding their rights when applying for credit. Even though laws are
written to protect consumers, consumers may not have the expertise to decipher them.
(Optional) Extension: Credit and Cosigning
16.	 Tell the students that it is time for them to switch hats. Now that they have worked as a credit
bureau team member and know more history of credit evaluation, they will now work (in their
same groups) for a company issuing auto loans—Major Auto Finance. The company has decided
to try a new strategy for loans to help dealerships sell as many cars as possible. Explain the
following:
•	

You will grant loans to pairs of people.

•	

Review the Borrower Cards again.

•	

Choose four pairs of people to receive loans. That is, each pair will receive one loan.

•	

Choose pairs to balance out negatives in one person’s credit history with positives in
another person’s credit history.

17.	 Allow 5 minutes for the students to work and then invite each group to share one pair chosen
and why.
18.	 Discuss the following:
•	

Might real credit companies allow what you just did—let someone else “backup” another
person’s promise to repay a loan? (Answers will vary, and students may not know.)

19.	 Explain that although credit companies don’t randomly match people in this way, it is legal
and relatively common practice to allow “backup” for a loan, which is known as cosigning.
A cosigner is a person with a longer credit history or a better credit score who agrees to be a
second signer on a loan or credit arrangement for a loan sought by a person with a short credit
history or low credit score. A cosigner essentially tells the bank or credit company that they
will be responsible for payments if the primary borrower can’t or won’t pay.
20.	 Discuss the following:
•	

What are some pros and cons of cosigning? Write them on the board. (Answers will vary,
but may include getting a loan or credit you couldn’t get on your own, having someone
help you build your credit [pros for the primary borrower], or being responsible for someone
else’s debt [con for the cosigner].)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

6

Credit History and Equal Opportunity
21.	 Explain that having a relative or friend cosign for a loan or credit can help people get credit
that they couldn’t get by themselves. Having a cosigner helps the primary borrower build a
credit history. Being responsible about payments and spending (in the case of credit cards) is
important because these behaviors are reported in a credit report. Signing on as a cosigner
means you are promising to repay the loan if the primary borrower does not. Know what you
are signing up for before signing anything.

Closure
22.	 Discuss the following to review the main content of the lesson:
•	

What is credit? (The granting of money or something of value in exchange for a promise
of future repayment.)

•	

Why do people want credit? (Credit allows people to have things they want now and pay
for them in the future, including big-ticket items, such as a house, car, or education, that
they can’t afford to pay for all at once.)

•	

How do banks and other credit-granting companies decide who gets credit? (Answers
will vary but should include credit reports or credit scores and may jump to specifics such
as paying bills on time.)

•	

What makes up your credit report? (Information about you including your personal data,
credit accounts, payment history, and public records.)

•	

The Equal Credit Opportunity Act of the 1970s made it illegal to refuse credit based on
which characteristics? (Sex, marital status, race, religion, ethnicity, national origin, receipt
of government assistance, or whether the applicant has made a legal complaint about
credit discrimination.)

If you used the optional Extension, also discuss the following:
•	

What does it mean to cosign for a loan? (You promise to pay if the other person does not.)

•	

What are potentially good and bad outcomes of cosigning? (Answers will vary but may
include the following: A good outcome is that the primary borrow gets a loan that would
be otherwise unattainable; a bad outcome is that the primary borrower fails to pay and
the cosigner is stuck with the debt.)

Assessment
23.	 Distribute a copy of Handout 4: Assessment to each student, including page 2 of the
handout only if you used the extension. Allow time for students to work.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

7

Credit History and Equal Opportunity

Visual 1: Your Credit History

Personal data
Name
Birthdate

Accounts
Types of accounts

Payment history
Public records

Addresses

Amounts owed

Payment habits

Employers

Credit ratio

Late payments

Bankruptcies

Age of accounts

Defaults

Judgments
Tax liens

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

8

Credit History and Equal Opportunity

Visual 2: Excerpts
Equal Credit Opportunity Act Amendments of 1976 (excerpt)
§ 701. Prohibited discrimination; reasons for adverse action
“(a) It shall be unlawful for any creditor to discriminate against any applicant, with respect to
any aspect of a credit transaction—
	

“(1) on the basis of race, color, religion, national origin, sex or marital status, or age
(provided the applicant has the capacity to contract);

	

“(2) because all or part of the applicant’s income derives from any public assistance
program; or

	

“(3) because the applicant has in good faith exercised any right under the Consumer
Credit Protection Act.

SOURCE: Public Law 94-239, 94th Congress, H.R. 6516. Equal Credit Opportunity Act Amendments of 1976, March 23, 1976, 90 Stat 251;
https://fraser.stlouisfed.org/title/1039.

Consumer Handbook to Credit Protection Laws (excerpt)
The Equal Credit Opportunity Act does not guarantee that you will get credit. You must still pass
the creditor’s tests of creditworthiness. But the creditor must apply these tests fairly, impartially,
and without discrimination against you on any of the following grounds: age, sex, marital status,
race, color, religion, national origin, because you are on welfare or Social Security, or because
you exercise your rights under Federal credit laws.
SOURCE: Board of Governors of the Federal Reserve System. “Consumer Handbook to Credit Protection Laws.” December 1978, p. 15;
https://fraser.stlouisfed.org/title/466/item/501067.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

9

Credit History and Equal Opportunity

Visual 3: Credit in History
After reading your assigned page from the 1978 Federal Reserve Bank Board of Governors
handbook, discuss and write down your group’s answers to the following questions:
1.	

What surprises you about the rights of credit applicants?

2.	

What does your page of the handbook say about what is legal or illegal for a company to do
when you apply for credit?

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

10

Credit History and Equal Opportunity

Handout 1: Credit Cheat Sheet (page 1 of 2)
What’s in a credit report?
•	

Personal data: Name, birth date, Social Security number, past and current addresses,
phone numbers, and employers

•	

Credit accounts: Revolving credit accounts (such as a credit card) and installment loans
(such as a car loan), including creditor names, account numbers, and amounts owed

•	

Recent credit inquiries: Who has recently viewed the credit report

•	

Payment history: When bills were paid, including if any were late, how late they were, or
if any are delinquent

•	

Public records: Court judgments, bankruptcies, and tax liens

What information can a bank or other credit-granting institution use to decide whether
to give you credit?
•	

Your tendency to pay bills on time

•	

The length of time you’ve had utility, credit, or bank accounts

•	

How much credit you already have and how much you currently owe

•	

How recently you’ve applied for other credit accounts and for how much

•	

Any collections, judgments, or bankruptcies against you

•	

Your income and assets

What information cannot be used against you in a credit application?
•	

Your sex or marital status

•	

Your religion

•	

Your ethnicity, race, or national origin

•	

Whether you receive government assistance, including housing vouchers or food
supplements

•	

Whether you’ve ever made a legal complaint about credit discrimination

Who can legally access your credit report?
•	

Lenders if you’re applying for credit or have an account with them

•	

Phone and utility companies when you apply for service

•	

Your employer or potential employer (if you agree to let them)

•	

Insurance companies

•	

Government agencies assessing your finances for government benefits

•	

Landlords and rental companies

•	

Banks when you apply to open an account

•	

Anyone else with a legitimate business need

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

11

Credit History and Equal Opportunity

Handout 1: Credit Cheat Sheet (page 1 of 2)
How to Build (or Damage) Your Credit
Build Credit

Damage Credit

Pay your bills.

Don’t pay your bills or pay less than the
minimum amount due.

Pay your bills on time.

Pay late or miss payments.

Keep your credit balance low or zero.

Carry a high balance or max out your credit
cards.

Keep accounts for a long time.

Open lots of new accounts or open and close
accounts frequently.

Open accounts only when you need them.

Open accounts all the time.

Have different kinds of well-maintained
accounts.

Only use one kind of credit (e.g., an auto loan,
credit card, or mortgage).

Glossary
•	

Credit: The granting of money or something else of value in exchange for a promise of
future repayment.

•	

Credit history: A person’s payment activity over a period of time.

•	

Credit report: A loan and bill payment history kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a future
debt will be repaid.

•	

Credit score: A number based on information in a credit report, which indicates a person’s
credit risk.

•	

Cosigner: A person, usually a relative or friend with a good credit score, who guarantees
repayment of a loan. If the primary borrower defaults, the cosigner is responsible for
repaying the debt. Having a cosigner can be a way for individuals with a poor or limited
credit history to obtain credit.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

12

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 1 of 6)

Adam

Bianca

• Income over $100,000 a year

• Regularly volunteers at the animal shelter

• Just bought a new house

• Often pays bills late

• Amazing fashion sense

• Income under $30,000 a year

• Has one credit card with a low balance

• Went bankrupt five years ago

A

Chris

A

Dee

• 20 years into 30-year mortgage on house

• Rents an inexpensive apartment

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Has a large stock portfolio (assets)

• Calls grandma every Sunday

• Talented soccer player

• Income under $30,000 a year

A

Elijah

A

Fatima

• Just bought a new house

• Income over $100,000 a year

• Has a large stock portfolio (assets)

• Talented soccer player

• Owes $50,000 in student loans

• 20 years into 30-year mortgage on house

• Regularly volunteers at the animal shelter

• Rents a luxury vacation home

A

Greg

A

Manuel

• College student with a part-time job

• College student with a part-time job

• Has one credit card with a low balance

• Always pays bills on time

• Usually pays bills on time

• Applied for 10 credit cards in the past year

• Always uses reusable grocery bags

• Regularly volunteers at the animal shelter

A

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

A

13

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 2 of 6)

Chris

Dee

• 20 years into 30-year mortgage on house

• Rents an inexpensive apartment

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Has a large stock portfolio (assets)

• Calls grandma every Sunday

• Talented soccer player

• Income under $30,000 a year

B

Omar

B

Patricia

• Rents an inexpensive apartment

• 20 years into 30-year mortgage on house

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Income of $50,000 a year

• Has a large stock portfolio (assets)

• Always uses reusable grocery bags

• Calls grandma every Sunday

B

Greg

B

Helen

• College student with a part-time job

• Amazing fashion sense

• Has one credit card with a low balance

• Income under $30,000 a year

• Usually pays bills on time

• Went bankrupt five years ago

• Always uses reusable grocery bags

• Usually pays bills on time

B

Isaac

B

Nina

• Just bought a new house

• College student with a part-time job

• Always pays bills on time

• Has one credit card with a low balance

• Owes $50,000 in student loans

• Usually pays bills on time

• Always uses reusable grocery bags

• Calls grandma every Sunday

B

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

B

14

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 3 of 6)

Elijah

Fatima

• Just bought a new house

• Income over $100,000 a year

• Has a large stock portfolio (assets)

• Talented soccer player

• Owes $50,000 in student loans

• 20 years into 30-year mortgage on house

• Regularly volunteers at the animal shelter

• Rents a luxury vacation home

C

Greg

C

Helen

• College student with a part-time job

• Amazing fashion sense

• Has one credit card with a low balance

• Income under $30,000 a year

• Usually pays bills on time

• Went bankrupt five years ago

• Always uses reusable grocery bags

• Usually pays bills on time

C

Isaac

C

Juanita

• Just bought a new house

• Owes $50,000 in student loans

• Always pays bills on time

• Rents a luxury apartment

• Owes $50,000 in student loans

• Income of $50,000 a year

• Always uses reusable grocery bags

• Always uses reusable grocery bags

C

Kevin

C

Louis

• Income over $100,000 a year

• Income of $50,000 a year

• Rents an inexpensive apartment

• Rents a luxury apartment

• Went bankrupt five years ago

• Often pays bills late

• Talented soccer player

• Amazing fashion sense

C

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

C

15

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 4 of 6)

Elijah

Helen

• Just bought a new house

• Amazing fashion sense

• Has a large stock portfolio (assets)

• Income under $30,000 a year

• Owes $50,000 in student loans

• Went bankrupt five years ago

• Regularly volunteers at the animal shelter

• Usually pays bills on time

D

Adam

D

Juanita

• Income over $100,000 a year

• Owes $50,000 in student loans

• Just bought a new house

• Rents a luxury apartment

• Amazing fashion sense

• Income of $50,000 a year

• Has one credit card with a low balance

• Always uses reusable grocery bags

D

Kevin

D

Louis

• Income over $100,000 a year

• Income of $50,000 a year

• Rents an inexpensive apartment

• Rents a luxury apartment

• Went bankrupt five years ago

• Often pays bills late

• Talented soccer player

• Amazing fashion sense

D

Manuel

D

Nina

• College student with a part-time job

• College student with a part-time job

• Always pays bills on time

• Has one credit card with a low balance

• Applied for 10 credit cards in the past year

• Usually pays bills on time

• Regularly volunteers at the animal shelter

• Calls grandma every Sunday

D

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

D

16

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 5 of 6)

Isaac

Juanita

• Just bought a new house

• Owes $50,000 in student loans

• Always pays bills on time

• Rents a luxury apartment

• Owes $50,000 in student loans

• Income of $50,000 a year

• Always uses reusable grocery bags

• Always uses reusable grocery bags

E

Kevin

E

Louis

• Income over $100,000 a year

• Income of $50,000 a year

• Rents an inexpensive apartment

• Rents a luxury apartment

• Went bankrupt five years ago

• Often pays bills late

• Talented soccer player

• Amazing fashion sense

E

Manuel

E

Nina

• College student with a part-time job

• College student with a part-time job

• Always pays bills on time

• Has one credit card with a low balance

• Applied for 10 credit cards in the past year

• Usually pays bills on time

• Regularly volunteers at the animal shelter

• Calls grandma every Sunday

E

Omar

E

Patricia

• Rents an inexpensive apartment

• 20 years into 30-year mortgage on house

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Income of $50,000 a year

• Has a large stock portfolio (assets)

• Always uses reusable grocery bags

• Calls grandma every Sunday

E

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

E

17

Credit History and Equal Opportunity

Handout 2: Borrower Cards (page 6 of 6)

Adam

Bianca

• Income over $100,000 a year

• Regularly volunteers at the animal shelter

• Just bought a new house

• Often pays bills late

• Amazing fashion sense

• Income under $30,000 a year

• Has one credit card with a low balance

• Went bankrupt five years ago

F

Omar

F

Patricia

• Rents an inexpensive apartment

• 20 years into 30-year mortgage on house

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Income of $50,000 a year

• Has a large stock portfolio (assets)

• Always uses reusable grocery bags

• Calls grandma every Sunday

F

Isaac

F

Juanita

• Just bought a new house

• Owes $50,000 in student loans

• Always pays bills on time

• Rents a luxury apartment

• Owes $50,000 in student loans

• Income of $50,000 a year

• Always uses reusable grocery bags

• Always uses reusable grocery bags

F

Chris

F

Dee

• 20 years into 30-year mortgage on house

• Rents an inexpensive apartment

• Applied for 10 credit cards in the past year

• Always pays bills on time

• Has a large stock portfolio (assets)

• Calls grandma every Sunday

• Talented soccer player

• Income under $30,000 a year

F

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

F

18

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 1 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

19

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 2 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

20

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 3 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

21

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 4 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

22

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 5 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

23

Credit History and Equal Opportunity

Handout 3: Consumer Handbook (page 6 of 6)

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

24

Credit History and Equal Opportunity

Handout 4: Assessment (page 1 of 2)
1.	

Which of the following is not a legitimate reason for your credit report to be accessed:

	

a.	

A landlord is trying to decide whether to rent an apartment to you.

	

b.	

You are applying for a new cell phone contract.

	

c.	

The company you applied for a job with is trying to decide whether to hire you.

	

d.	

Someone you asked out is trying to decide whether to date you.

2.	

Which of the following can a bank use to legally deny you a loan?

	

a.	

Your race, payment history, and income

	

b.	

Your payment history, income, and recent inquiries into your credit

	

c.	

Your race, gender, and religion

	

d.	

Credit inquiries into your credit, your religion, and where you live

3.	

What are three things you can do to establish good credit?

4.	

What are three things you can do to harm your credit score?

5.	

Why did the Federal Reserve make the “Consumer Handbook to Credit Protection Laws”?

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

25

Credit History and Equal Opportunity

Handout 4: Assessment (page 2 of 2)
6.	

How can having a cosigner help build your credit?

7.	

How can being a cosigner hurt your credit?

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

26

Credit History and Equal Opportunity

Handout 4: Assessment—Answer Key
1.	

Which of the following is not a legitimate reason for your credit report to be accessed:

	

a.	

A landlord is trying to decide whether to rent an apartment to you.

	

b.	

You are applying for a new cell phone contract.

	

c.	

The company you applied for a job with is trying to decide whether to hire you.

	

d.	

Someone you asked out is trying to decide whether to date you.

2.	

Which of the following can a bank use to legally deny you a loan?

	

a.	

Your race, payment history, and income

	

b.	

Your payment history, income, and recent inquiries into your credit

	

c.	

Your race, gender, and religion

	

d.	

Credit inquiries into your credit, your religion, and where you live

3.	

What are three things you can do to establish good credit?

	

Answers will vary. For possible answers, see the “Build Credit” section under “How to Build
(or Damage) Your Credit” on Handout 1.

4.	

What are three things you can do to harm your credit score?

	

Answers will vary but may include bankruptcy. For other possible answers, see the “Damage
Credit” section under “How to Build (or Damage) Your Credit” on Handout 1.

5.	

Why did the Federal Reserve make the “Consumer Handbook to Credit Protection Laws”?

	

Answers will vary but may include to help the public understand their legal rights granted
under the Equal Opportunity Credit Act, to inform people about their credit options, or to
make sure banks are following the law.

6.	

How can having a cosigner help build your credit?

	

Answers will vary but should express that if you have no or bad credit, having a cosigner can
help you get access to credit you wouldn’t otherwise have and help you build your credit
history.

7.	

How can being a cosigner hurt your credit?

	

Answers will vary but should explain that a primary borrower who doesn’t make full or timely
payments on the cosigned credit account will damage both the primary borrower’s and the
cosigner’s credit scores.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

27

Credit History and Equal Opportunity

Standards and Benchmarks
National Standards for Financial Literacy
Standard IV: Using Credit
Credit allows people to purchase goods and services that they can use today and pay for those
goods and services in the future with interest. People choose among different credit options that
have different costs. Lenders approve or deny applications for loans based on an evaluation of the
borrower’s past credit history and expected ability to pay in the future. Higher-risk borrowers are
charged higher interest rates; lower-risk borrowers are charged lower interest rates.
	
•	
		
		

Benchmark 12.5: Lenders make credit decisions based in part on consumer payment 	
history. Credit bureaus record borrowers’ credit and payment histories and provide that 	
information to lenders in credit reports.

		
		
		

Benchmark 12.6: Lenders can pay to receive a borrower’s credit score from a credit
bureau. A credit score is a number based on information in a credit report and assesses
a person’s credit risk.

		
Benchmark 12.12: Consumers who use credit should be aware of laws that are in place 	
		
to protect them. These include requirements to provide full disclosure of credit terms such 	
		
as APR and fees, as well as protection against discrimination and abusive marketing or 	
		collection practices.
C3 Framework for Social Studies Standards
Historical Sources and Evidence
	
•	
		

Benchmark D2.His9.9-12: Analyze the relationship between historical sources and the 	
secondary interpretations made from them.

	
•	 Benchmark D2.His.11.9-12: Critique the usefulness of historical sources for a specific
		
historical inquiry based on their maker, date, place of origin, intended audience, and 	
		purpose.

© 2018, Federal Reserve Bank of St. Louis. Permission is granted to reprint or photocopy this lesson in its entirety for educational purposes,
provided the user credits the Federal Reserve Bank of St. Louis, www.stlouisfed.org/education.	

28


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102