Building Credit From Scratch

ngpf.org Last Updated: 11/3/26

High School Personal Finance: Semester Course

Explain how long it takes to establish a credit score

Analyze reasons why it’s important to establish credit early in life

Identify strategies to start building credit

Compare the impact of different credit scores when taking out different types of loans

Learning Objectives

Students will be able to…

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Intro

How long does it take to establish your first credit score?

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ngpf.org 9/24/24

Q:

MANAGING CREDIT

QUESTION OF THE DAY

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A:

QUESTION OF THE DAY

Source: Capital One

MANAGING CREDIT

3-6 months

FOLLOW-UP QUESTIONS

1. Why do you think credit reporting agencies want you to have 3-6 months of history to get a score?
2. After your first 6 months of managing credit, how do you think your ability to borrow money would compare to someone with years of credit history?
3. What are some good habits you would practice in order to make sure you improve your credit score once it’s established?

Learn It

ARTICLE: Why It Is Important to Establish Credit While You’re Young

You might assume credit scores are something you will not need to worry about until you are much older. But your credit score can affect your life well before you buy a house or take out a big loan. And because one factor in your score is how long you have had credit, starting early gives you a real advantage.

ARTICLE: Why It Is Important to Establish Credit While You’re Young

How Your Credit Score Shows Up in Real Life

• Renting an apartment: Landlords often check your credit before approving a lease. A low score could mean a rejected application, a required cosigner, or a higher security deposit.
• Setting up utilities: Utility companies may check your credit. Without a solid history, it might be hard to get services and you might have to pay a deposit.

ARTICLE: Why It Is Important to Establish Credit While You’re Young

• Getting a job: Some employers run credit checks for certain roles, especially ones that involve handling money. A poor credit history could cost you an offer.
• Buying a car: If you need a loan to pay for a car, your credit score determines your interest rate, which is the cost of borrowing money. A higher rate means you pay more for the same car. With bad credit, you might be denied the loan entirely.

ARTICLE: Why It Is Important to Establish Credit While You’re Young

• Buying a house: A good credit score helps you qualify for a mortgage and lock in a lower interest rate. Even a small rate difference can save tens of thousands of dollars over a 30-year loan.
• Getting a cell phone plan: Carriers check your credit when you open your own account or finance a new phone. Once you are off a parent's plan, your score matters.

ARTICLE: Why It Is Important to Establish Credit While You’re Young

• Borrowing money at better rates: Whether it is a credit card, a student loan refinance, or any other loan, a higher score means lower interest rates. Lower rates mean you pay less over time and can pay off what you owe faster.

Why Starting Young Helps

Your credit history is like a track record. The longer it is, the more information lenders have to judge you by. That is why building credit now, even in small ways, puts you in a stronger position when these milestones start showing up in your life.

Establishing Credit Young: Who Checks Your Credit?

Which of the people who may check your credit surprised you the most? Explain.

Sentence Starter: I was most surprised that …may check my credit, because…

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Establishing Credit Young: A Good Credit Score

Do you think your credit report is a good indicator for whether or not you're a good candidate for the things listed in the article?

If so, explain why. If not, explain what other things you think should be considered.

Sentence Starter: In my opinion, a credit report is/is not a good indicator of someone's financial responsibility because...

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How to Build Credit From Scratch

You need experience with credit in order to build your score, but in many cases you need a good score to access credit. So how do you get started?

VIDEO: How to Build Credit from Scratch

How to Build Credit From Scratch

How does a secured credit card benefit someone new to using credit while also reducing the risk taken by the card issuer?

Sentence Starter: A secured credit card is beneficial because...

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How to Build Credit From Scratch

Which of these individuals is likely to have the highest credit score? Explain your choice.

Sentence Starter: ________ has the highest credit score because…

Do It

Activity: Impact of Credit Score on Loans

Your credit score can have a significant impact on the total amount of money you will have to pay back over the life of a loan.

Let’s take a look at how three different credit scores affect the payback terms when applied to the same loan.

WORKSHEET: CALCULATE: Impact of Credit Score on Loans

Exit Ticket

Exit Ticket 1: Impacts on Credit Report

All of the following purchases can be impacted by your credit report, EXCEPT…

a. Getting your own cell phone plan

b. Leasing an apartment

c. Applying for a mortgage to buy a house

d. Buying a TV with cash

Exit Ticket 2: Co-signers

Jane needs a cosigner for her loan. Which person would be the best for her to ask to be her cosigner?

a. Her cousin, who has several fancy cars and must be rich.

b. Her grandfather, who lives on a tight budget.

c. Her sister, who shows her she has a credit score of 735.

d. Her neighbor, who says sharing the loan will allow him to remodel his garage at the same time.

Exit Ticket 3: Interest Rates

How does the interest rate on a loan compare for someone with excellent credit compared to someone with poor credit?

a. Interest rates are the same regardless of credit score.

b. Interest rates are lower for someone with excellent credit.

c. Interest rates are higher for someone with excellent credit.

d. Interest is not charged for someone with excellent credit.