A Tale of Two Credit Scores (please answer all the questions)

Staring at the two student files on her desk, Juliana knew that she only had a few minutes to review them before her afternoon meetings. Her role as peer financial advisor at her college was to help students with their financial issues. Both students were coming to her with one simple request: to teach them how to increase their credit score. Young peoples credit scores continue to lag behind their elders, as this chart indicates:

Exhibit 1: Credit Scores by Age

Opening the first file for her 2:00pm appointment, she immediately noticed that Samantha Snedeker, a college senior, had what credit experts would call a thin file. As this term suggests, a consumer with a thin file has little borrowing history, which often makes it difficult for them to receive a credit score. And without a credit score, it makes it difficult for them to borrow and establish a credit history. Its a classic chicken or egg problem, which is probably why Samantha had sought out Julianas guidance in the first place.

As Juliana reviewed the handwritten notes from her first meeting, she noted the following:

Excellent budgeting skills; uses an app to track all of her spending and keeps to her $200/month budget.

History of being responsible with her money and has avoided any debt except for a $5,000 federal student loan.

Not required to repay her student loan until after graduation.

Attitudes toward debt come from her parents, who have paid off their credit cards every month and have excellent credit scores.

Samanthas interest in credit scores came from an article she read (Smart Credit Blog: Whats the best way to build my credit score?) that discussed ways to build a credit score and the importance of having a good credit score.

Answer This:

Use three adjectives to describe Samanthas money habits.

Should Samantha be worried about her credit score? After all, she is still in college.

Now that she had analyzed Samanthas file, Juliana still had to come up with some recommendations for moving Samantha from having a thin file to having a good credit score. However, before she could get started, Samantha appeared in the doorway, ahead of schedule and distraught...

.as she waved this letter in her hand:

Exhibit 2: Rental Application Denial Letter

Ronnie DeLandlord

Magnolia Gardens Apartments

Tampa, FL

March 10, 2017

Dear Samantha,

I regret to inform you that we are unable to approve your application at this time. Your application has been denied for the following reasons listed below:

Insufficient Credit File

Insufficient Credit References

No Credit File

We wish you the best of luck in finding an apartment.

Sincerely,

Ronnie DeLandlord

Samantha choked to get her words out:

How could this happen to me? How could they not rent this apartment to me? I have always been responsible in all aspects of my life, including my personal finance. I have a great job lined up after graduation in Tampa and loved this apartment complex. How can they not believe that I will be able to make the monthly rent payment? What can I do to fix this?

Juliana needed to find a way to console this distraught student, fast! She quickly did a web search regarding college students and building a credit history and skimmed articles searching for three ideas that would help Samantha with her situation.

Answer This:

3. Do the same Google search as Juliana and find three ideas to help Samantha, build her credit history, file, and score. Be sure to take into consideration key details you know about Samantha from her case file as well as her apartment renting goal.

Idea	Explanation	Source

As they reviewed the chart together, Samantha had a calm come over her, as they now had a plan to get her credit score where it needed to be so she could rent an apartment. As Samantha walked out the door, Juliana hustled to review her next file.

The name: James Grant. The thickness of his file told a very different story of financial habits. Juliana reviewed her notes from their first meeting:

Never had a budget. Not sure where his money is going.

With 3 credit cards (that his parents cosigned on) he has run up a total of $3,500 in debt. Paying minimum off every month and bumping up against $4,000 total credit limit. Average interest rate on credit cards is 23.2%.

Loses track of his cell phone bill and rent checks and pays about of those bills on-time. Angry about the late fees, penalties, and higher interest rates that keep appearing on his bills.

Motivated now to be more financially responsible since he saw how difficult life has become for a friend of his who recently graduated with poor money habits.

Interviewing for several part-time jobs (will work 10 hours per week) for state min $10/hour.

Parents are currently providing enough money to cover his basic needs (tuition, room and board and books) while in college, but James is responsible for his spending money.

Answer This:

4. Use three adjectives to describe James money habits.

5. What would you anticipate James credit score to be?

6. What factors in his profile led you to that conclusion?

James has said he responds well to detailed plans; he just doesnt know where to start since he has fallen into this financial abyss. He knows that he wants to leave college in 24 months with 1) an improved credit score and 2) no credit card debt. Juliana opens the spreadsheet that she has created for Jamess financial plan and starts crunching some numbers ahead of the meeting.

Answer This:

7. As long as hes hired by someone, roughly how much can James earn in a month from his part-time job? Assume that his net pay is $8/hour and assume 4.5 weeks per month (~31 days).

Spreadsheet instructions: First, open the spreadsheet and make your own copy. Adjust the Monthly Credit Card Payment amount in Cell B14 in order to get the Credit Card Balance paid off in 2 years (24 months). Cell F44 needs to be at or close to 0 (Zero) in order for credit card to be paid off in full.

8. Using the spreadsheet provided, calculate what the monthly payment on his credit cards would need to be in order to have them completely paid off in 24 months (his graduation date).

9. As youve already seen, James is no financial whiz, so hes not necessarily going to understand exactly what this spreadsheet is calculating if you just show it to him. Create a bulleted list to explain to him how the spreadsheet is working and what it represents.

10. What percentage of his monthly earnings from his part-time job will James need to devote to bill pay in order to pay off his credit card balance by graduation? How much will he have left over every month to spend?

11. Conduct internet research and develop three recommendations for James to help him, specifically, improve his credit score. Recall the five factors that go into a credit score and develop recommendations for James based on the debt payoff spreadsheet above and other details from Jamess case file.

Credit Score Factor	Specific Action James Should Take	Source

James enters the room and is relieved to see Juliana has created the spreadsheet and his next three action steps -- he promises to follow her plan to the tee!

As James exits, Juliana reflects on her counseling sessions for the day and tries to forecast where her two clients will be in a few months time.

Answer This:

12. Do you think Samantha or James will be more successful in achieving an improved credit score and meeting their credit goals before college graduation? Explain.