The Business of Credit

Overview Procedures for Teachers Organizers for Students

Procedures for Teachers is divided into two sections:
Prep

Media Components

Steps

Day 1: Introduction of Lesson

  1. Begin the class with a discussion of entrepreneurship and starting a new business. Ask students if they know anybody who has started a business, or if they have any interest in owning their own business some day.

  2. Ask students if they have an idea of how to pay for the start-up costs of a new business. Explain that one option is to borrow money from a bank or other financial institution.

  3. Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to think about how a new business owner might attain the money needed to get their business off the ground. Play the "Green Chic" segment for the class.

  4. After the segment ends, discuss with the class the reason Anna needed a loan for her company (Answer: To produce her Spring line of clothing).

  5. Next, discuss the loan approval meeting, and the part where the lenders discuss how Anna has a good credit rating, and how that will help her get a loan.

  6. Ask students if they know what a good credit rating is, and then explain that it's a rating that tells banks and other lenders how likely it is that an individual will repay a loan, like a car loan or a home loan.

  7. Explain to students that you are going to do an activity where they pretend to be business owners who need to borrow money to get their new businesses off the ground.

  8. Next, ask students to divide into groups of five, and start brainstorming ideas for new businesses.

Day 2: Determine Business and Credit Rating

  1. First, ask students to finalize their ideas for a new business, and their plan for borrowing money.

  2. Pass out to each group one "Credit Rating Card" Student Organizer (there are seven for this lesson plan). This card gives them a personal credit rating score that they as the business owners have, and that will impact their ability to attain a loan for their new business.

  3. Next, explain to students that they will be researching what makes a person or a company a good candidate to receive credit by looking at a couple of different Web sites.

  4. First, ask students to go to the Citigroup Web site to find out about the "5 C's" of credit, which are characteristics of a person who is a good candidate to receive credit. (Answer: capacity, capital, collateral, conditions, and character).

  5. Next, ask students to research at the FICO Web site what factors determine a credit score and discuss it as a class. (Answer: 35% — Payment History, 30% — How Much You Owe, 15% — Length of Credit History, 10% — New Credit, and 10% — Other Factors).

  6. Then, discuss the range of possible credit scores, and what they mean. (General range: 300-850. Above 700 is a sign of good financial health. Below 600 is considered a high risk to lenders — this might mean higher interest rates or being turned down for a loan or credit application).

Day 3: The Lending Process

  1. One person from each group should be chosen by his or her group to become part of the panel of bankers.

  2. The panel is given the "Lending Requirement Card" Student Organizer, which gives them information about the type of credit rating a business will need in order to get a loan.

  3. The panel then meets with each group to discuss whether or not that business is getting a loan, based on the business's credit rating, and the lenders' requirements.

  4. If the group receives a credit score of under 600, they do not receive a loan.

  5. If the group receives a credit score of over 700, they will receive a loan.

  6. If the group receives a credit score of 600-700, they have the opportunity to try to convince the bankers to give them a loan, based on their plan for borrowing money to start a business.

  7. Finally, come back together as a class, and discuss which businesses received a loan and why.


Overview | Procedures for Teachers | Organizers for Students