AFI Training Toolkit for Money Smart Module #2: Borrowing Basics  

• An overview of how Money Smart Module #2 is organized. 
• AFI Training Tools that can be used to teach Money Smart Module #2 to different Target Audiences (e.g., people without formal banking relationships, people with existing banking relationships, young people).

To get the most benefit from this Toolkit:

• Order a complimentary copy of the FDIC Money Smart Curriculum and become familiar with its contents. 
• See the key terms and definitions used in the AFI Training Toolkits. 
• Access the Training Techniques and Terminology used in the AFI Training Toolkits.

Overview of Money Smart Module #2: Borrowing Basics

Objectives

At the end of the module, participants will be able to:

• Define credit.
• Explain why credit is important.
• Distinguish between secured and unsecured loans.
• Identify three types of loans.
• Identify the costs associated with getting a loan.
• Explain why it is important to be wary of rent-to-own, pay-day loan, and refund anticipation services.
• Determine if they are ready to apply for credit.

The main body of the module begins with a facilitated discussionabout participants’ knowledge of credit as well as questions about participants’ experiences with credit. Facilitators are to use these responses to define credit and lead another facilitated discussionabout why credit is important. This last question helps to establish a rationale for using credit for those participants who do not have experience using credit.

The module then transitions to an explanation in the form of a presentation of secured versus unsecured credit by defining key terms related to credit. Supplemental Exercise 2.1 (A Little More About Credit) is designed to make this material more accessible to AFI participants. 

The overview of credit is followed by an overview of the types of loans, which covers:

• Consumer Installment Loans are defined as loans used to pay for person expenses. Examples are automobile loans and unsecured loans for short-term needs.
• Credit Cards provide the ability to borrow money for the household, family or other personal expenses on a recurring basis.
• Home Loans are further categorized: 1) home purchase loans, which are made for the purpose of buying a house; 2) home refinance loans, which are made to pay off an existing loan to replace a new loan to get lower interest rates, money for home repairs or money for other personal needs; and 3) home equity loans, which are loans used for any reason secured by the equity in a home.

The section concludes with a fill in the blank exercise on the kinds of loans given situations would require. Supplemental Exercise 2.2 (Installment versus Revolving Credit) is designed to make this material more accessible to AFI participants. 

The third section of the Borrowing Basics module covers the cost of credit. The section begins with an overview of the types of costs typical in a credit transaction, which include:

• Fees: These are charged by financial institutions that offer credit for activities related to approving someone for the credit, servicing the credit, and maintaining the credit relationship. Common examples of fees include: annual maintenance fees for a credit card (or line of credit), penalty fee for charging over the credit limit, or a late fee if the bill is not paid on time.
• Interest: This is the charge from financial institutions for letting a borrower use the money. This is either fixed--the interest rate stays the same throughout the term of the loan or variable--the rate may change during the loan.
• Truth in Lending Disclosures: This is information that financial institutions are required by law to provide to borrowers. These include the amount financed (borrowed), the annual percentage rate, the finance chargeor the total dollar amount the loan will cost a borrower and the total payments or the amount of all of the loan payments together at the end of the term. Also discussed during this section are penalty APR and universal default.

This section of the module concludes with a worksheet that presents three scenarios. Individually or in groups, participants are to determine whether using credit is a responsible choice for each scenario. Supplemental Exercise 2.3 (Understanding Interest and Fees) is designed to make this material more accessible to AFI participants. 

The fourth section of the module focuses on the cost of alternative financial services with a focus on:

• Rent-to-Own Businesses
• Pay Day Lenders
• Refund Anticipation Loans from Commercial Tax Preparers

The material in this section of the module is delivered through apresentation. Supplemental Exercise 2.4 (Using Fringe Banking Services) is designed to make this material a little more accessible to AFI participants.

The fifth section of the Borrowing Basics module focuses on how lenders decide whether to provide credit to borrowers. While there are many versions of the “Cs” of credit (the 8 Cs, the 5 Cs, the 3 Cs, etc.), Borrowing Basics highlights the following 4 criteria that lenders use to make the credit decision:

• Capacity—present and future ability to repay the loan.
• Character—the likelihood that you will repay the loan based on previous bill and debt payment history.
• Capital—the value of your assets and your net worth.
• Collateral—the assets you have available to secure the loan.

The material in this section of the module is delivered through a presentation. This is followed by a checklist of questions to ask before applying for credit and tips for managing credit. Supplemental Exercise 2.5 (How the Credit Decision is Made) is designed to make this material more accessible to AFI participants. Tips and Tools 2: Managing Credit Card Debt is also relevant to this section. 

The Borrowing Basics module concludes with the facilitator presenting a summary of the key lessons for the module:

• Credit and what good credit means.
• Secured versus unsecured credit.
• Three different types of loans—consumer loans, credit cards and home loans.
• The costs of credit.
• The costs of using rent-to-own businesses, pay day lenders and refund anticipation loans.
• How lenders make the credit decision.

Instructor Aids in the Module

The Borrowing Basics module of the Money Smart curriculum includes 2 Instructor Aids.  Each Instructor Aid is explained briefly below. AFI Supplemental Materials are provided in the next section.

• Instructor Aid #1,Practice Exercise: Types of Loans, is an exercise that asks participants to identify which type of loan is most appropriate for different types of purchases. 
• Instructor Aid #2,Practice Exercise: Borrowing Money Responsibly, is an exercise that asks participants to answer a series of questions about when they should and should not use credit.

AFI Training Tools for Money Smart Module #2: Borrowing Basics

The following training tools may be used for different Target Audiences of IDA participants, including people without formal banking relationships, people with existing banking relationships, young people, and new Americans (immigrants, refugees, and asylees).

The AFI Resource Center has developed the following supplemental materials that can be used in conjunction with Money Smart curriculum Module 2 (Borrowing Basics).

The supplemental materials are similar to lessons plans—they provide both content and process instructions to anyone facilitating a Money Smart module. The supplemental materials are meant to be used in conjunction with the Money Smart curriculum and added into the existing flow of the specific Money Smart module. The materials and exercises use interactive training methods such as facilitated group discussion, small group exercises, flip charts, and skits, and focus on topics of particular interest to AFI grantees and clients.

The supplemental activities and exercises may also be used for different target audiences (see link to definitions of Target Audiences). Under each exercise heading, we have indicated for which target audiences the exercise is most appropriate.

For the Borrowing Basics module, the AFI Resource Center has developed the following supplemental exercises and materials:

• 2.1 A Little More About Credit – Provides a more in-depth look at credit—what it is, the difference between secured and unsecured credit, and the connection to net worth. Target audiences: people without formal banking relationships, people with existing banking relationships, young people, new Americans.
• 2.2 Installment versus Revolving Credit – Provides material about the fundamental differences between installment and revolving credit. Target audiences: people without formal banking relationships, people with existing banking relationships, young people, new Americans.
• 2.3 Understanding Interest and Fees – Provides a general discussion about how interest is calculated and the reasons determining the ultimate cost of an item paid for with a credit card is difficult to determine. Target audiences: people with existing banking relationships, young people, new Americans.
• 2.4 Using Fringe Banking Services: A Closer Look – Provides discussion about fringe banking and alternatives. Target audiences: people without formal banking relationships, young people, new Americans.
• 2.5 How the Credit Decision is Made – Provides a participatory way to look at how the credit decision is made by lenders. To be used instead of the materials presented in Money Smart.

We encourage you to print out the materials and adapt them for use with your participants. We also welcome your feedback – please e-mail us comments on the content or quality of the supplemental materials and exercises and let us know what you find most useful.

AFI Supplemental Training Tools

2.1 A Little More About Credit

Purpose: To provide a more in-depth look at credit - what it is, the difference between secured and unsecured and linking this to net worth.

Note: The latter concept is advanced and should be used for participants who need a little more substance on this topic. Objectives: Participants will be able to:

• Define credit.

• Explain the difference between secured and unsecured credit.

• Explain the impact of unsecured credit on household net worth and overall financial stability.

Time Needed: 10 minutes Materials Needed: Chart paper or erasable board; markers Process: Large Group Facilitated Discussion (Part I); Small Group Brainstorming (Part II); Presentation (Parts III and IV)

Part I: Large Group Facilitated Discussion

(Use chart paper to write down responses and the correct definition.)

Ask: What is credit? Solicit responses.

• Credit is the ability to borrow money.

Ask: What is debt? Solicit responses.

• Debt is what you have if you use credit; debt is owing money to someone else.

Part II: Small Group Brainstorming

(Provide a sheet of chart paper and markers to each small group.)

Facilitator Instructions:

• Get participants into small groups.
• Give each group a sheet of chart paper and some markers.
• Give each group two minutes to list as fast as they can all of the reasons people use credit and end up with debt.
• Have each group quickly share their lists, asking groups not to repeat what has been said before.
• Facilitate a discussion about by asking participants if they think there are "good" reasons for using credit and "bad" reasons for using credit.
• Put a "+" next to the "good" reasons and a "-" next to the "bad" reasons.

Ask: What makes a use of credit "good" or "bad'? Solicit responses.

• Share the following thought: In general, people should try to use credit only for long-term items and items that are likely to increase in value.
• Explore with the participants how this definition applies to the list of uses of credit.
• Explain the following points:
  • When you use credit you commit future income to something you get today.
  • This means you are likely to have less income available in the future.
  • Explain that all credit comes at a cost - interest and fees.
  • Explain that they will learn more about this later.

Part III: Presentation

Explain the following:

• Another way to understand the impact of credit is through the difference between secured vs. unsecured credit has on your household's overall financial health.

Ask: What is secured credit? (Write examples on chart paper.)

• Secured credit is credit that has an underlying asset.

• Examples include: an automobile loan, a mortgage, or a secured credit card. Write these on chart paper or erasable board.

• Explain that payday loans are secured in a different way - they commit a future paycheck rather than an asset - to repayment of the loan.

• Explain that unsecured credit is the opposite - it's credit that does not have an underlying asset

• Examples include: Credit card debt, education loans, credit through department store charge cards. Write these on chart paper or erasable board.

Explain the following:

• Looking at the impact of secured and unsecured credit on a household's overall financial health can really help understand the impact of credit.

• Household net worth is one of the best measures of a household's financial health.

• Explain that net worth is all of the assets minus all of the liabilities.

• Be sure to define assets and liabilities and give examples of each. (Write definitions and examples on chart paper or an erasable board.)

  • Assets are things that you own that have value: a house, a savings account, a car.

  • Liabilities are what you owe. Credit card debt, auto debt, a mortgage.

  • Equity: the portion of an asset you own outright without any debt.

  • Net Worth: assets minus liabilities (or all of the equity you have added up)

Show how credit/unsecured credit works using the following example on chart paper or an erasable board. Write one part at a time explaining as you go.

• Explain that most unsecured credit creates a liability without any asset and that this generally causes net worth to go down.

• Explain that net worth is what gives a household an economic cushion.

Part IV: Presentation

Explain the concept of becoming upside down with an asset:

• Generally, people strive to borrow less for an asset than an asset is worth.

• In a house, families work to save for a down payment so they can borrow less and start their path to homeownership in a positive equity position.

• Unfortunately, with the ease of getting credit the past few years and the deregulation requiring less in the way of down payments/borrower contributions, people were taking out more credit than was typical in the past. this created economic insecurity in households.

Show using the following example:

Explain that even if the house should decline in value by 10%, the household would still have equity.

Explain that a slight decrease in the value of the house OR an increase in the interest rate puts this family upside down in their loan.

Explain that this happens in auto loans, too.

Ask participants if they have any questions.

AFI Supplemental Training Tools Money Smart Module #2: Borrowing Basics

2.2 Installment versus Revolving Credit

Purpose: To provide participants with information about the fundamental differences between installment and revolving credit and explain the impact these differences having planning and budgeting.

Objectives: Participants will be able to:

• Define installment credit.
• List the typical kinds of installment credit.
• Define revolving credit.
• List examples of revolving credit.
• Explain the challenges of budgeting when using the revolving credit versus installmentcredit.

Time Needed: 10 minutes

Materials Needed: chart paper or erasable board; prepared flip charts (see Instructor Notes); markers; Handouts 1, 2 and 3 for participants.

Process: Large Group Facilitated Discussion (Part I); Exercise in Pairs (Part II); Presentation (Part III)

Part I: Large Group Facilitated Discussion

(Use chart paper or an erasable board for noting key points.)

Ask: What is installment credit?

Solicit responses.

• Installment credit is when you borrow a specific amount and you pay back a regular amount on a schedule.

Ask: What are examples of installment credit?

Solicit responses.

• Examples of installment credit include: mortgages, auto loans, other consumer loans, and financing for appliances.

Ask: What is the opposite of installment credit?

Solicit responses.

• The opposite of installment credit is revolving credit.

Explain that revolving credit generally means credit card although it includes lines of credit.

• Revolving credit means you can borrow over and over again up to a limit. You pay back a minimum amount based on the amount you have borrowed. This total changes from month to month.

Ask: Which kind of credit do you think is easier to budget?

Solicit responses.

• Installment credit is easier to budget. You know what you owe each month from now until the time the debt is completely paid off.

Part II: Exercise In Pairs

Distribute Handout #1 for Exercise 2.2.

Have people answer the following questions in pairs and write their answers on an erasable board.

• What is the amount of principal borrowed?
• What is the interest rate on the loan?
• How long is the term of the loan?
• What is the monthly payment?
• How much of the monthly payment goes to interest of the first payment?
• How much of the monthly payment goes to interest of the eighth payment?
• How much interest is paid during the life of the loan?

Distribute Handout #2 for Exercise 2.2.

• What is the difference between this payment schedule vs. the first?
• What is the total interest paid?
• How many months does it take to pay the loan?
• Where do you think the extra $400 came from in March to apply to the loan?

Make additional comments about applying extra resources to early principal payments and how this saves money.

Explain that in the case of a typical auto loan: $10,000 at 8% for 4 years, making just two extra payments a year saves $197.11 in interest and cuts 4 months off of the loan.

Part III: Presentation

(Use chart paper or an erasable board for writing key points.) Explain the following:

• With revolving credit, the amount you owe changes from month to month.
• With a credit card, they generally require (and people often pay) the minimum.
• This is generally 2.5% of the outstanding balance.
• By paying only 2.5% of the outstanding balance, it takes a long time to pay off the loan.
• If someone borrowed $5000 on a credit card with a 23.99% rate of interest and paid only the minimum it would take over 250 monthly payments to pay that principal down in full. That original $5000 would cost an additional $4000 in interest. And they would be tying up future income for over 20 years.
• And, the situation becomes worse as more charges are made with the credit card periodically driving the principal amount back up.
• This is the danger of revolving credit:
  • The amount you owe changes from month to month.
  • Paying the minimum means you'll pay for a long time on even relatively small amounts of principal.
  • And, you're tying up future income for years to come.

The AFI Resource Center thanks Inger Giuffrida for allowing us to adapt and use materials in this tool that she originally developed.

AFI Supplemental Training Tools Money Smart Module #2: Borrowing Basics

2.3 Understanding Interest and Fees

Purpose: To provide participants information about how interest is calculated and the reasons determining the ultimate cost of an item paid for with a credit card is difficult to determine.

Objectives: Participants will be able to:

• Define interest.
• Describe the kinds of fees financial service providers charge for different credit related services.
• Define APR.
• Calculate interest.
• Explain the impact of compounding on credit card balances.

Time Needed: 10 minutes

Materials Needed: Chart paper or erasable board and markers. This exercise also uses a Power Point presentation. If you don't have a projector for the Power Point presentation , you can transfer the information from the Power Point to an erasable board or chart paper.

Process: Facilitated Discussion (Part I); Presentation (Part II); Facilitated Discussion (Part III)

Part I: Facilitated Discussion

Use slides 1, 2, and 3 of the Exercise 2.3 Power Point presentation.

Ask: What is interest?

Solicit responses. Explain:

• Interest is money paid at a rate of percentage on principal (slide 1).
• If you are saving, the financial institution pays you interest for the money you have in the account (slide 2).
• If you are borrowing money, you pay interest for the money you borrow. It's a fee for the money you borrow (Slide 3).

Ask: Can anyone list some of the fees that financial institutions charge when you borrow money?

Write responses on chart paper or erasable board. Define or discuss as each one is stated. Add these if not stated:

• Application fee - flat rate charged to submit loan application; varies by financial institution.
• Credit report fee - flat rate charged to pull credit report; varies by financial institution.
• Loan processing fee - fee charged to cover the costs of underwriting the loan.
• Loan closing fee - fee charged to cover the cost of completing the loan.

There are also:

• Late payment fees if a payment is not made on time.

For mortgages, there are a lot of fees commonly called closing costs and include:

• Appraisal fee
• Tax related service
• Underwriting fee
• Wire transfer fee
• notary fee
• Attorney fee
• Document preparation fee

Part II: Presentation

Use slides 4 and 5 of the Exercise 2.3 Power Point presentation.

Begin by explaining APR:

• APR stands for annual percentage rate. (slide 4)
• APR is the interest rate + all of the fees for the loan expressed as a percentage of the loan. (Slide 4)

Ask: Which is higher, the APR or the interest rate?

Solicit responses. Explain:

• APR is generally higher than just the interest rate and was developed to show the true cost of credit.
• APR allows you to compare one loan to another without fear of hidden fees - they are all represented (except late payment or default fees) in the APR. (Slide 5)
• APR is required by the Truth in Lending Act, a law developed to protect people in credit deals. (Slide 5)

Part III: Facilitated Discussion

Use slides 6, 7, and 8 of the Exercise 2.3 Power Point presentation.

Explain the following about interest:

• You have already learned about compound interest - it's when interest earned on principal starts to earn interest and then you earn money.
• In savings, compound interest works for you - your money grows. (Slide 6)

Ask: What do you think happens with credit cards?

Solicit responses. Explain:

• Compound interest works against you; you end up paying interest on interest if you hold onto balances and pay only the minimum. (Slide 7)
• Explain that this is a key point to remember. This is why the credit card industry calls people who pay off their credit card balance in full "dead beats." They don't make any money from people who don't carry balances and pay interest on interest. (Slide 8)

The AFI Resource Center thanks Inger Giuffrida for allowing us to adapt and use materials in this tool that she originally developed.

AFI Supplemental Training Tools Money Smart Module #2: Borrowing Basics

2.4 Using Fringe Banking Services - A Closer Look

Purpose: To provide participants with an understanding of the reasons people use fringe banking services, the costs of using them, and alternatives to using them.

Objectives: Participants will be able to:

• List fringe banking service providers. Explain the reasons people use them.
• Describe the costs associated with using their services or products.
• Identify alternatives for using their services or products.

Time Needed: 20 - 30 minutes

Materials Needed: chart paper or an erasable board; prepared flip charts (see examples following); handouts; stickers or Post-It notes.

Process: Large Group Facilitated Discussion (Part I); Nominal Group Technique/Table Talk (Part II); Presentation (Part III); Small Group Exercise (Part IV)

Part I: Large Group Facilitated Discussion

(Use an easel pad to write down responses and the correct definition.) Ask: What is a check cashing service?

Solicit responses.

• A check cashing service is a business that lets you cash checks for a fee.

Ask: Why do people use check cashing services?

Solicit responses.

• More convenient than banks - located near where people live or work.
• More convenient than banks - open hours banks are not.
• No account needed.
• Little paperwork needed.
• Little personal information needed.

Explain: Check cashing operations are just one of many businesses that are often called fringe banking service providers, predatory financial service providers, or alternative financial service providers.

Ask: What are other examples of fringe financial service providers that you know about or have experience with?

Solicit responses and write examples down on chart paper as people name them.

• Payday Loan Companies - businesses that make loans against a future paycheck
• Check Cashing Operations - business that will cash checks for a fee
• Pawn Shops - businesses that give you loans against personal property
• Finance Companies - businesses that can make short term, small loans
• Commercial Tax Preparers - businesses that prepare a tax return for a fee and provide a refund anticipation loan
• Rent-to-Own Stores - businesses that provide loans for the gradual purchase of household furniture and appliances

Depending on familiarity of group, facilitate a discussion using the following process:

Part II: Nominal Group Technique and Table Talk

(Hand out stickers to participants. Small Post-It notes may also be used.)

• Using the list of businesses developed from the previous exercise, ask participants to put stickers by those businesses they have used.
• Comment on the distribution of the stickers and review reasons people use those businesses.
• Ask people to share their experiences with these businesses in small groups.
• After 7 - 10 minutes, ask people to share their experiences with larger group.

Part III: Presentation

(Write key points on chart paper or erasable board)

Explain the following about fringe financial service providers:

• They focus on providing transaction and lending services.
• They do not provide depository services.
• They tend to charge higher rates for the similar services that banks and credit union offer.
• They do not require as much information for providing services or making a loan.
• They offer very short-term and small loans.
• They are also open later.

Fringe financial services are called predatory because they tend to target people who:

• Have low income.
• Are inexperienced using financial services.
• Are unable to access services at banks or credit unions due to lack of documentation or negative ChexSystems ratings.
• Are unable to get conventional credit because they have no credit history or bad credit history.

Often the terms used by fringe financial services are confusing

• The terms also vary from company to company.
• These differences make it hard for people to compare rates and "shop" for better rates.

Part IV: Small Group Exercise

Explain:

• Often people are told to avoid these service providers.
• This advice is unrealistic as they serve a need.
• It's better to think about when you might feel like you will need to use these services and identify alternatives.

Ask participants to complete the Handout below in small groups. Review small group work as large group after 10 minutes.

The AFI Resource Center thanks Inger Giuffrida for allowing us to adapt and use materials in this tool that she originally developed. These materials were also presented as part of Money Smart Series 1: Bank on It.

AFI Supplemental Training Tools Money Smart Module #2: Borrowing Basics

2.5 How the Credit Decision is Made

Purpose: To provide participants with a participatory way to learn about the credit process.

Objectives: Participants will be able to:

• List the questions a lender would want to have answered before lending money to someone.
• Define and differentiate capacity, capital, character, and collateral.
• Explain where lenders find information about a borrower.

Time Needed: 20 minutes

Materials Needed: 4 pieces of chart paper or erasable board

Process: Role Play with Small Group or Large Group Discussion (Part I); Facilitated Discussion

Part I: Role Play

Background Information for the Facilitator

You will role play someone who wants to borrow money. The participants are to role play members of a credit committee. You can either have participants get into small groups to develop a list of questions and then solicit these from groups one at a time in the large group - group 1, what is one question you want to have answered by me before lending me money; group 2, what is a question you have . . ., etc. Or, you can just get ideas from individuals in round robin format.

As participants ask questions, you should put them on one of four pieces of chart paper based on the category they fit in: capacity, capital, character and collateral. You DO NOT want to share the category names until AFTER this exercise. Just categorize and then after you have heard from all groups or individuals, explain what each category is and write the category name at the top of each flip chart. For example, group 1 says they want to know:

"Do you have the income pay for the loan?" You would write this on flip chart 1: Capacity. Group 2 may then say: "Have you ever missed paying bills?" You would write this on flip chart 3: character.

If you are not fully familiar with credit and the source documents lenders use to make these decisions, you may want to avoid using this exercise as it requires you to "think on your feet" with respect to categorizing questions answered in the credit decision process. Explain the following:

• We are going to do a role play.
• I am someone who wants to borrow money.
• You are members of a credit committee.
• Your job is to ask me questions so you learn everything you need to know about me so you feel comfortable about lending me money.

Option A: You have 5 minutes in your small group, your credit committee, to list all of the questions you need to have answered. I will solicit your questions one at a time from groups

Option B: You have a minute to think about questions you would want me to answer. Then I will solicit them from you one a time starting with INSERT NAME.

Additional Background for Facilitator

Here are a list of questions that may be asked categorized into the four charts:

Chart 1--Capacity

• How much income do you make?
• Can you afford this loan payment in addition to your other debts and obligations?
• What are your monthly expenses?
• What kind of job do you have?
• How long have you been at your job?

Chart 2--Capital

• Do you have any money saved?
• Do you own a house?
• Do you have investments or other assets?
• How many credit accounts do you have open?
• What is your credit score?
• Have you ever lost a home to foreclosure? A vehicle to repossession?

Chart 3--Collateral

• Do you have assets to repay the loan?
• Do you have assets to secure the loan?

Chart 4--Character

• Have you paid your debts and bills in the past?
• How long have you lived in your current location?
• Have you ever declared bankruptcy? If yes, when?
• Do you have any outstanding debts, judgments or liens?

Once every group or individual has provided at least one response and the ideas are exhausted from the participants role playing as credit committee members, congratulate the group for so many ideas.

• Then ask them if they can guess the category names based on the groupings of questions.
• After a few guesses, write the appropriate category name on each flip chart at the top.
• Explain that lenders use the 4 Cs to determine whether to extend someone credit.

Part II: Facilitated Discussion

Ask: Where do you think creditors get this information about someone applying for credit?

Solicit responses, then explain that there are three places most of this information can be found:

• Credit application
• Credit report
• Personal financial statement, which is generally part of the credit application

Go through the questions identified on the charts and indicate where the information is generally found by creditors--write it on the chart paper by each question using a contrasting color marker.

Explain:

• Explain the role of the credit reporting agency.
• List the major agencies on a flip chart - Equifax, Experian and TransUnion.
• Explain how an individual's information gets to these agencies (businesses subscribe to report and receive credit reports on individuals).
• Explain the many ways credit reports are used beyond the credit decision: when applying for a job, trying to get an apartment.
• Go through the terminology on page 25 in the facilitator's guide - terms that may appear on a credit report.
• Explain that participants will learn much more about their credit report in Module 7.

Conclude:

• The credit decision may feel very personal.
• Lenders try to use objective information to determine your capacity to handle the credit, likelihood of paying them back (character), whether you have financial assets to back up the loan or to pledge against the loan (capital and collateral).
• By thinking about the information you would want from someone to make a lending decision, it may help you better understand the process that a lender uses.

AFI Supplemental Training Tools Supplemental Handouts

Fringe Financial Service Providers: Identifying Alternatives

Supplemental Handout for Exercise 2.4

[Click here to download]

Complete the following table by identifying alternatives to high cost financial services.