Credit Scores as Important to Teens as SATs

by Scott Horsley

May 19, 2006 

By the time they turn 18, about one in five high school students already has a credit card. And they're not shy about using it. Credit card debt among young people roughly doubled during the 1990s. And so did the number of 18- to 24-year-olds filing bankruptcy.

Federal bankruptcy Judge John Hargrove got tired of seeing bankruptcy filings from such young debtors. So he's giving high school students in San Diego, Calif., a crash course in using credit wisely. Hargrove's program is called CARE, which stands for "Credit Abuse Resistance Education."

"It's not bad to have a credit card. It's just wise to know what you're doing," says bankruptcy attorney Jeffrey Schreiber, who participated in a recent CARE presentation along with Hargrove.

Below is a quiz Hargrove uses in the program.

Credit Abuse Pop Quiz

Take a quiz about buying on credit and test your consumer knowledge.

1. TRUE or FALSE: The ability to obtain a job, car and/or home loan critically depends on your credit history and score.
 
2. What does FICO stand for?
a) Federal Insurance Credit Organization
b) Fair Isaac Corporation
c) Financial Income Credit Office
d) Fair Interest Consumer Organization
 
3. What is a FICO score?
a) It keeps a report card of your late payments and debt.
b) It punishes consumers for going over their credit limit.
c) It's a three-digit number that determines the interest rate you will pay on your credit cards, car loans and home mortgages or whether you will be able to get a cell phone or have your application for a rental apartment accepted.
d) It offers credit cards.
 
4. What is the biggest factor in determining your credit rating with lenders?
a) income level
b) home ownership
c) amount of debt
d) FICO score
 
5. The average amount of time it takes to "clean up" a negative credit history is:
a) 2-3 years
b) 12 years
c) 7 years
d) 10 years
 
6. TRUE or FALSE: A higher FICO score puts you in line for a lower interest rate on a loan or credit card.
 
7. TRUE or FALSE: High school students are considered to be one of the "easier" targets by credit card companies because the companies know that students are uninformed and ready to spend.
 
8. TRUE or FALSE: The only way to avoid credit card debt is to never use your credit card.
 
9. TRUE or FALSE: You will never have to pay interest on your credit card if you pay your balance each month.
 
10. Always use cash, not credit cards for:
a) emergencies, food, and movie tickets
b) food, movie tickets and anything less than $10.00
c) Internet shopping, emergencies and gas
d) gas, anything less than $50.00 and movie tickets
 
11. If you charge $5,000 on a credit card at 20 percent and make the minimum monthly payment of 5 percent of the balance, how long will it take you to pay off the balance?
a) 6 months
b) 1 year
c) 7 years
d) 120 months
 
12. By the end of a college student's freshman year, he/she will have accumulated an average of _________ in credit card debt alone.
a) $1,500.00
b) $500.00 - $800.00
c) $500.00
d) $50.00
 
13. What will you owe if you pay your credit card balance after the due date?
a) a late penalty
b) interest on your entire balance
c) both of the above
d) neither of the above
 
Source: Credit Abuse Resistance Education (CARE) Program

Quiz Answers

1) True

2) B

3) C

4) D

5) C

6) True

7) True

8) True

9) False  *If you take a cash advance off your credit card, you will have to pay interest on that cash advance.

10) B

11) D

12) A

13) C