2016 Credit Course. Jay Morrison Academy.

Transcription

1 Jay Morrison Academy 2016 Credit Course This Don t Gamble With Your Credit Worthiness is provided as a part of the Jay Morrison Academy LLC Course, and is subject to the Terms of Service & Use, including all applicable disclaimers concerning legal terminology, forms, and real estate agent or brokerage advice. This is for information purposes only, and does not represent advice as a part of a relationship with a licensed professional, nor does it establish a professional relationship between the user and copyright owner. Copyright 2016 by Jermaine Morrison. All rights reserved. Digitally compiled and distributed in the United States of America. Except as permitted under the United States Copyright Act of 1976, and subject to the Terms of Service and Use in effect and applicable to its distribution, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher

2 WHAT IS CREDIT? Eventually credit will become the new dollar. (Author Unknown) LESSON 1: More and more credit has become a major role in our lives. Our credit scores are used for more than just major or minor purchases. Our credit score can be used for purchases like a mortgage, automobiles, furniture purchases, or simply to just obtain a credit card. Our credit scores can also used for things like auto insurance. The insurance companies have started to use algorithms to dictate risk factors of an insurer. They figure the lower your credit score, that person is more likely to submit an erroneous insurance claim. Lastly your credit score can be used to obtain employment. So exactly what is credit? Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Bottom line credit is granting a loan from a lender (or creditor) to a debtor, where the debtor is not required to reimburse the first party in full immediately, but can repay over a certain set period of time. Credit has now become a part of our everyday lives and will continue to play a role in our day to day. Most companies these days will give you the option to always pay or apply for a form of credit (retail or bank credit card). Many people decide to apply for credit on impulse which can cause problems in the future for the individual if not responsibly used. Let be clear, credit cannot act as an account, and many people use credit frivolously because it is not true currency therefore, the pain of spending your actually currency is voided, hence causing a trickling effect of debt. Now lets discuss the different types of credit. There are several forms of credit that an individual or business can have, those are: Credit Cards

3 Mortgages Auto Loans Lines of Credit Bank Loans Leases All of the above types of credit fall into 1 of 3 categories, revolving accounts, installment accounts or open accounts. Revolving accounts are credit lines that involves different payments each month, depending on how much you utilize that particular line of credit. The amount you pay is subject to a monthly minimum payment and you have the option to push the rest of what you owe to the next month, subjecting yourself to additional interest in exchange for extra time. (Most common examples are credit cards). Home equity lines of credit (HELOCs), which allow you to borrow against the value of your home, also fall under revolving accounts. Installment accounts have a fixed payment due each month. The total amount borrowed with an installment account is to be paid back over a set period of time and a set amount of interest is charged over the duration of the loan. Installment accounts include any loans on your credit report. Mortgages, auto loans, student loans and business loans. Open accounts each have a balance that is to be paid in full every month. There is no pushing your debt to the next month, no installment payments over long periods of time, and generally, no interest charged. (i.e charge cards like American Express, cell phone accounts, and other home utility). Since the balance on these types of accounts have to be paid in full, they do not always show reporting on credit reports. But if you become delinquent a creditor may choose to report on your credit report. Credit is unique in the fact that everyone uses it and everyone needs it. Credit is something that you have to deal with and in this course we will dissect all you need to know about credit. WHAT IS A CREDIT SCORE?

4 LESSON 2: People always ask what is more important, your credit itself or the credit score? The answer to that is the credit score, and that is because to be approved for anything they look at your credit score first. That 3 digit number sums up your money behavior to the creditors. The score is so important that nearly everything you do your score will impact that decision. Simply put your credit score determines how much money you can borrow, and how much interest you ll pay. There are different type of credit scoring systems and credit scoring models. The most commonly used and commonly know is the FICO score (which stand for Fair Isaac Corporation). The score is generated by analyzing the information contained in the consumer s credit report at a particular point in time. The FICO score ranges from 300 the worst, to 850 which is the best. Each score is specific for each bureau (which we will discuss the credit bureaus in a later lesson) and the higher the score the lower the risk. The different scores that you can have with FICO is quite diverse, and where you sit determines how much credit you can get. As we stated, the credit score for FICO ranges between 300 and 850, with about 60 percent of all people sitting between 650 and 799. The median score is 723 for FICO, with the average score being 678. The breakdown for the score is as follows: If you have a credit score of under 400, then you have horrible credit. You will not be able to get a loan and will have to work to achieving a better credit score. A credit score of 400 to 500 is very bad, and it is highly unlikely you will do any better for your loans until you can get your score much higher. A credit score of 500 to 600 is very low, but you may still get a loan. However, if you do get a loan, it will be at a very high interest rate to handle the risk of your poor credit history.

5 A credit score of 600 to 700 is good credit and you should be able to get most loans, but your interest will be high if you are in the lower 600s, rather than the upper 600s. A credit score of 700 to 800 is great credit and you will be able to get any loan that you want. A credit score above 800 is perfect credit. If this is you, you have no problem getting loans, interest rates are low, and your need for collateral is also low. CREDIT SCORING MODELS & THE MAJOR CREDIT BUREAUS LESSON 3: Credit scoring models are methods used by credit bureaus to evaluate your worthiness to receive credit. They are patterns of statistical characteristics used to see a person's credit payment pattern. There are also a few other less commonly used scoring models outside of the FICO scoring system. You have Transrisk, VantageScore and the scoring model that most credit

6 monitoring services use which are referred to as a FAKO score. It is important to know which score you are using. When applying for credit on a major purchase such as a home, auto loan or credit card 90% of lenders use the FICO scoring system (which has been used for that past 25 years). Different scoring models weigh certain factors more heavily than others. Let me give you a brief explanation on the difference between FICO and FAKO credit score. A FAKO score isn't an actual credit score due to it being more of an estimate which can be off by 10 or more points positively or negatively. Which is why most lenders do not use your credit report pulled from a credit monitoring site, it is merely a gauge of where your credit score is. This is the reason credit specialist coined the term FAKO scores because FICO claims to having the patent of the algorithm used to determine the actual credit score used by 90% of lenders. Which means that the credit score is the most important number used by and for individuals and businesses. Recently FICO introduced their new scoring model named FICO 9. What s different about FICO 9 scoring system is that it will score medical debt that has gone into collections differently. Medical debt will not impact your score as severely (although any collection account can still harm your score). This decision was made due to a lot of people finding themselves with medical debt that has gone into collections without even knowing they owe the debt, most of the time due to miscommunication between the provider and the insurance company. So with that being said many lenders fully support the changes. But when in pursuit of a major purchase it is still recommended to consulting your credit advisor on how to handle the medical debt accordingly. There are 3 main credit bureaus used to house everyone's credit profile. Those 3 are; Experian, Equifax and TransUnion. These credit bureaus use a collection of data on a consumer's credit report of payment history, collection activities, outstanding balances and other factors that dictate credit scores. Each bureau has different data, and most data is common but there are some differences. Each of the 3 major credit bureaus they report differently as mentioned above and may not even report the account history at the same time, meaning, you can have something reporting on Experian but not on Equifax (or vise versa). So that is why it is important to always check all 3 of your credit reports. These credit bureaus have relationships with many banks, credit card issuers, and other businesses that you may have an account with. Because of these relationships, your account history will appear on one or all three of your credit reports with these bureaus. Each year you are allowed to receive a FREE copy of all three of your credit reports from so I highly recommend that you do so. For more preventive measures you can sign up for a monthly credit monitoring service that gives you the ability to view and monitor your credit profile on a monthly basis. Weather something good or bad reports you will be able to find out right away. If someone pulls your credit report you will be notified

7 and with all of the major data breaches going on you can rest assure in the event of identity theft, you are more likely to catch it before it becomes a catastrophic problem. Here are the 3 credit bureaus and their contact information: HOW IS YOUR CREDIT AFFECTED? LESSON 4: Now we get to what you do, will affect your credit score. This is big because knowing how your credit score will be affected will save you from making the mistakes that will lead to bad credit. Now there are several things that can affect your credit score, whether good or bad it can be beneficial to understand how to use the provided information to your advantage or disadvantage. So let s address the items that affects the credit score. PAYING BILLS:

8 This may be one of the easiest things you can do but also one of the hardest it seems for people to follow. When you do not pay your bills, you begin to suffer problems on your credit score after the first 30-day missed payment. When your bill becomes one, two, or even three months overdue, your credit score can fall as much as 50 to 100 points. That means if you had great credit of 700 most of your adult life, your score could fall by 100 points to 600 with just 1 missed payment. That is not a good situation to be in, and now it is like starting from scratch on rebuilding your credit score again. There is a quotes that says You can spend a lifetime building great credit and it takes 1 missed payment to ruin it After multiple missed payments your account will become delinquent and will now need to reestablish payment history on that account before it can positively impact your credit score. APPLYING FOR CREDIT: Many people do not even realize that every time they go for credit, it affects their credit score. The more credit you attempt to apply for in a short period of time can harm your credit score. It will appear to a lender that you are a compulsive borrower. This will also trigger a bunch of credit inquiries, also having an affect on your credit score. When lenders see a bunch of credit inquiries, they (lenders) do not want to give money to someone applying for credit just for the sake of it. This may not impact your credit score severely, but it will go down enough that it is going to raise a red flag for creditors who are thinking of lending to you. The worst is if you keep applying and getting refused. Now in some instances credit inquiries do not have a huge impact on your score. Let's examine some of those scenarios. When applying for a car, if your credit score is not as favorable odds are your credit score will be ran multiple time. When that happens you will incur multiple credit inquiries. If you are applying for an auto loan and have a bunch of credit inquiries due to the dealership shopping your loan. As long as it is done within a 30 day window it has less of an impact to your credit score. The best thing that you can do is to check your credit before you ever think about trying to get credit. This means that you will be able to know what your credit score is before you apply for anything, and that will keep you from getting knocks on your credit score report. CREDIT CARDS: Everyone seems to have credit cards, but most consider them to be something that is not so good. The reason for this is because credit cards seem to be at the forefront of many individuals personal debt. Many feel that they can simply pay later for what they want now, and then pushing away the rest of the bill until later causes problems even further down the road.

9 Paying your credit cards on time and having the right amount of credit cards will help keep your credit in check and keep you from getting out of control in your debt spiral. We will look more in depth about credit cards in another lesson. BANKRUPTCY: If there is anything that can be equated as the nuclear bomb of the credit score, it is bankruptcy. When you go through bankruptcy, all of your debt is wiped clean. However that comes at a very big price. The bankruptcy can stay on your credit report for as long as 10 years. On top of that, your credit score can fall as much as 250 points. When you go through bankruptcy, you can rebuild your credit, but it take sometime to make your way back up. Bankruptcy is not the end of the world, as one of the benefits after having a clean slate, with the proper information it is totally possible to rebuild your score to qualify for things like; credit cards, auto loans, mortgages and lines of credit. Too many people see bankruptcy as the quick-all solution to problems with credit, this is not the case at all. It can have disastrous consequences, and should only be used if there are no other options. So if bankruptcy is your only option I recommend seeking a credit advisor professional before making those decisions. FORECLOSURE: This can significantly affect your credit score because when you go through foreclosure, your credit can fall by as much as 200 points. Therefore, if you have good credit of 650, you will suddenly have horrible credit of 450. As well, foreclosures will stay on your credit report for seven to 10 years. This means that getting a home in that time period is going to be a little challenging but not impossible. If you ever get a foreclosure on your credit report please consult your credit advisor to work through that scenario.

10 TYPE OF CREDIT DELINQUENCIES LESSON 5: In lesson 5 we will dive more in depth about credit delinquencies and the affects of your credit score and how long they can report on your credit report. See image below to see a detailed description: When life gets crazy, it can be hard to keep track of payments, and occasionally one slips through the cracks. At the same time, despite our best intentions, we sometimes find ourselves unable to make a payment for financial reasons. No matter what the cause, a delinquent payment

11 is never fun for a borrower to deal with. First, you have to deal with the inquiries from your creditor, and second you have to deal with the impact on your credit score. But how exactly does a delinquency affect your credit score? And how long does a delinquency stay on your credit report? These are important questions, and they re also ones we get asked about frequently, so we ll do our best to answer them below: Let's talk about the items that impact your credit for up to 7 years; Most delinquencies remain on your credit report for up to 7 years. While the statute of limitations on collecting your debt might run out, depending on what state you re in, the amount of time it remains visible on your credit report and affecting your credit score is often up to 7 years. Now you may ask what is the statute of limitations in regards to negative credit reporting. The statute of limitations is a rule that sets a time limit within which someone can file suit against another party. This was created to protect people from being sued after an unreasonable amount of time. For debt, once it reaches the statutory limit, the debt becomes what is called time-barred debt. So far, pretty straightforward, right? Unfortunately, the water gets a lot murkier from here on. Here are some factors to think about in relation to the statute of limitations on debt: When the clock starts ticking for the statute of limitations How your state categorizes your debt type Which state you can be sued in When does the clock start ticking? The short answer to this is: as soon as you stop paying on your debt. The long answer is it depends. Almost anything you do after you stop paying on your debt can inadvertently restart the clock. For example: Acknowledging to a debt collector that the debt is in fact yours Promising a debt collector that you ll pay the debt back Making a payment on the debt Whether these actions will stop the clock on your debt will vary on a case-by-case basis. There s also one more thing to be wary of: tolling the statute of limitations. How Each State Categorizes Your Debt Type

12 The statute of limitations wasn t designed for debt, which is why the laws surrounding it are a bit unclear. At this point, there are four different categories your debt could fall under. It s important to note that each state may categorize your debt differently. The four categories of debt are: oral contracts, written contracts, promissory notes, and openended accounts. Please research your particular state to find the statute of limitations on your delinquencies or consult your credit advisor.. Which State You Can Be Sued In If you are being sued for repayment of your debt, it may not necessarily occur in the state in which you live. It could end up being the state you opened the debt account in or the state in which the creditor is based. Needless to say, the creditor or collector will likely attempt to sue you in the state that has the most favorable laws to their case. Be aware of where you stand on each state s provisions. The Relationship Between Your Credit Score and the Statute of Limitations For anyone truly struggling with debt, the statute of limitations can seem like a welcome relief. Keep in mind though, that just because a collector or creditor can t sue you doesn t mean your unpaid debt can t hurt you in other ways. The most immediate effect is on your credit score. Credit Impacts of Up to 10 Years or Longer; There are some delinquencies that can remain on your credit report for more than 7 years. These are few and far between, since the law allows for you to recover from bad marks and move forward with better habits. But there are some delinquencies that are serious enough that they bear a little longer warning to creditors. An unpaid tax lien can remain on your credit report for as long as state law says it s ok. So, if you don t pay your tax lien, and state law allows it, there is a chance that your tax lien could remain on your credit report indefinitely. (Please seek a credit advisor as well as a tax specialist if possible) Certain types of bankruptcy remain on your credit report for as long as 10 years. Chapter 7 and Chapter 11 bankruptcy remain on longer because they are the types of bankruptcies that allow you to start over with your finances, and you may not have to pay all that you owe to your creditors. Chapter 13 is different, though, in that you come up with a payment plan, and much of what you owe is repaid. It is less serious in the eyes of creditors, and so is removed for your report sooner. Pay attention to what is on your credit report, and how long it has been there. If you find that a delinquency is still being reported, even though it should have been removed from your credit report, the laws make available you the ability to notify the credit reporting agency and have the error fixed

13 WHAT MAKES UP A CREDIT SCORE

14 LESSON 6: Your credit score predicts the likelihood of you going 90 days or more late on anyone account on your credit report in the next 24 months. It is a statistical number based on the analysis of your credit file that moment in time. Your credit score is very fluid and moves regularly with the information that the creditors provide. Your credit score is based on the information contained in your credit report documented by the credit bureaus. Creditors use this number to determine whether or not they want to give you a loan and the probability of you paying on a timely fashion. You re probably wondering how your credit score is calculated. This is the most common formula of how it broken down: PAYMENT HISTORY: 35 percent of the total credit score is based on a borrower's payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior. FICO keeps an eye on both revolving loans -- such as credit cards -- and installment loans, such as mortgages or student loans. Although the weight of each loan varies between individuals, FICO indicates that defaulting on a larger installment loan like a mortgage will damage a credit score more severely than defaulting on a smaller revolving loan. One of the best ways for borrowers to improve their credit score as a whole is by making consistent, timely payments. AMOUNT OWED OR CREDIT UTILIZATION: 30 percent of the total credit score is based on a borrower's credit utilization that is, the percentage of available credit that has been borrowed.

15 Since FICO views borrowers who habitually max out credit cards, or who get very close to their credit limits as people who cannot handle debt responsibly, a borrower should maintain low credit card balances. That rule of thumb is you do not want to utilize more than 30% of your available credit. Example: If you have a credit card with a $1000 credit limit, you will want to not spend more than $300 on that card. If you do have to use that credit card and spend more than $300 attempt to pay the balance down as soon as possible to minimize the affect on your credit score. As you see, the first two factors make up nearly two-thirds of your score. So if you pay your bills on time and don't carry big balances, you're two-thirds of the way toward a good credit score. The final credit score pieces can move you from a good score to a great one. LENGTH OF CREDIT HISTORY: 15 percent of the total credit score is based on the length of time each account has been open and the length of time since the account's most recent action. As a result, it is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain long-standing accounts. This is also important on why closing old accounts may not be a great idea as length of the credit history plays a role in your credit score. Contrary to what people make think or believe it is not recommended to close an old account that had great payment history and that has been reporting positively for 5 plus years. We will discuss more in depth in later lessons. NEW CREDIT & TYPES OF CREDIT USED: Each comprise 10 percent of the total credit score. Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots of credit. FICO suggests that borrowers only take on additional credit when they must have it or when it makes sense financially. Types of credit used, meanwhile, is somewhat of a vague category, but repaying a variety of debt indicates the borrower can handle all sorts of credit. According to FICO, historical data indicates that borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders. Types of credit used is looked at strongly when at the point of home buying. Depending on the type of home loan you have decided to purchase, dictates how strong and the type of credit accounts you should have. For example if you plan on purchasing a FHA home (Federal

16 Housing Administration) the underwriters typically would like to see at least 3 positive revolving lines of credit reporting. MYTHS OF CREDIT SCORES LESSON 7: There are many myths about credit that seem to go unanswered or still has been unclear with individuals. In this lesson we will debunk these myths and get you track to financial dependency so let's dive in. Myth 1:

17 You share a credit score with your spouse You and your spouse have separate credit files prior to getting married and once married that files do not merge. One spouse may have a better credit score and may need a cosigner, and if so, then yes you both become obligated to the debt. But in no way does the two files become one credit file. Myth 2: A co-signer is not responsible for the debt they co sign on, only the primary account holders... This has to be one of the most commonly asked questions, as a lot of individuals put themselves credit turmoil due to co signing for individuals. If you do decide to cosign for someone remember you are equally responsible for the debt if it defaults. Myth 3: If a judge in a divorce proceeding orders a spouse to pay a debt, it's no longer affected by credit Let's talk about his myth as this one ruins people's credit on a daily based on the statistics on divorce. If you or the spouse is awarded a divorce decree BOTH parties are still responsible for the debt as both of you are on the account. If one of the parties is not a signer on the account that person is not responsible from a credit score basis. The credit card companies, the banks, the lenders nor do the credit bureaus care who the judge award the responsibility of the account to. Rule of thumb if you are on the account pay it to save your credit score. Myth 4: It will take me seven years to improve my credit, when in actuality it's an ongoing process to improve your credit Wrong, in this course we will show you how to improve your credit score today. Myth 5: I don't need to check my credit report if I pay my bills on time You should check your credit report at least every 6 months. Paying your bills on time doesn t not prevent in the case of identity theft. If you become a victim of identity theft it is important to catch right away as most usually find out when it is too late and spend thousands of dollars and many many hours attempting to repair that type of credit damage. Myth 6: Checking my own credit score will harm my score and incur inquires on your report This is completely untrue. There are two types of credit inquiries, you have a hard inquiry and a soft inquiry. A hard inquiry is only generated when your credit is being pulled for the purpose of obtaining credit from a lender or bank. A soft inquiry does not affect you or your credit score in

18 anyway. You can pull your credit as often as you need to and will not cause a drop in your score, nor does it reflect to lenders negatively. Myth 7: Going over the balances on your credit limits are okay because the credit card company s authorized the purchase If you go over your credit card balance your score can drop as many as 50 points. Again which is why credit utilization is extremely importation and is 30% of your credit score. Myth 8: Paying off an old collection or charge off will increase your credit score This is one of those myths that a lot of people have the biggest misconception about. Paying off an old collection could possibly decrease your credit score. If you plan on paying off an old collection account there are measures you want to take prior to doing so to ensure that account is removed. This is when we recommend negotiating a Pay for Deletion letter. Please consult your credit advisor for more details. Myth 9: The credit bureaus are government agencies Credit bureaus are NOT government agencies and I recommend you learn more about the FCRA (Fair Credit Reporting Act) to understand the right you have as a consumer. Myth 10: Credit repair is illegal, I owe the debt so it can not come off FCRA speak on why credit repair is not illegal. The FCRA is a United States federal law (codified at Title 15 United States Code Section 1681 and following) that regulates the collection, dissemination, and use of consumer information, including consumer credit information. In short is a law that protect debtors from collection agencies and credit card companies. It gives you the right to dispute anything that you feel is incomplete, unverifiable and inaccurate on your credit report. And with over 70% of credit reports having some type of inaccuracies on them shows why credit literacy has to become a necessity.

19 HOW TO REBUILD YOUR CREDIT SCORE LESSON 8: There s no better time than the present When it comes to rebuilding your credit profile, most people are looking for the secret sauce or a quick fix. Honestly there is neither, but it is realistic to rebuild your credit score. Now I will say it is not easy, but it s simple and with a few disciplined steps you could be on the fast track to a prime credit score. Time and patients are often the best allies as you adopt habits proven to improve your credit score, but make sure you steer clear of moves that may help you. Following are five steps to clean up your credit. They're not fast, but unlike the imaginary quickfix manual, they have one advantage: They work. STEP 1: Pull all 3 of your credit reports and review If your credit score is challenged, the first step is to rip off the gauzes and examine the damage of your credit score. You can do this by requesting a FREE copy of your credit report from

20 The three major credit reporting agencies -- Equifax, Experian and TransUnion -- each issue credit reports. Federal law entitles you to one free annual copy of your credit report from each agency every year. Once you pull your reports you want to review and look for errors, including things as seemingly insignificant as a wrong address or misspelling of your name. If you find an error, the credit reporting agency must correct it at no charge to you. The resulting fix should improve your credit score. Also, look for negative marks on your credit report from events that occurred many years ago. By law, derogatory notations have to come off your credit report after seven years, or 10 years with some liens and bankruptcies (make sure to seek your credit advisor for public records). Gaining access to your credit scores is a different issue. Credit bureaus charge for those. But some banks, credit unions and card issuers give them to customers for free If you have been denied credit because of a poor credit score, whoever turned you down must give you a free copy of the score used in the decision and you can request a copy of your credit score in writing. STEP 2: Get caught up on your previous bills Payment history accounts for the highest percentage of your credit score, so it is brutally important that you get caught on all of your bill and make timely payment of current one. Overall if you have solid payment history but maybe have 1 late payment, you can contact the creditor in writing or via phone and see if they are willing to remove the blemish in goodwill. Be up-front when you contact your creditors, explaining your situation and letting them know that you want to pay your obligation. Let your creditors know how much you can pay, and how long you expect to pay it. In many cases, it s possible to work out an arrangement that all parties can live with. You can also seek the services of a legitimate credit advisor to help you create a plan of action. STEP 3: Understanding your credit utilization Now we identified in a previous lesson how important credit utilization is to your credit score. High credit utilization ratios have a negative impact on your credit score. Your goal should be to have under 30% utilization on every line of credit in your name. If one of your credit lines has a 90% utilization rate and others are much lower, focus on paying down the one with a high utilization rate first (assuming all lines have a similar interest rate). Once you ve identified all open lines of credit determine your credit utilization ratio (also known as debt to credit ratio) on each card. Take your current credit card balance and divide it by credit limit, then multiply that number by 100. If you owe $1,000 on a card with a $10,000 limit, your credit utilization ratio is 10%.

21 STEPS 4: Apply for a secured credit card or established line of credit Sometimes past mistakes can keep you from building a positive credit history with regular credit cards. One of the best ways to quickly build a payment history is to use a credit card. A secured credit card can help with this step if your poor credit prevents you from qualifying for a regular credit card. So in this case you can apply for a secured credit card. With a secured card you deposit an amount of money up front (usually people start with $300 to $500) as a form of collateral to the lender. As you use the card and make regular, on-time payments you can establish a better credit record. When choosing a secured credit card be sure the company reports to each of the major credit bureaus. The reason that is important as not ever secured credit card reports to all 3 credit bureaus. Keep in mind that the secured credit card is temporary, with great payment history after 12 to 18 month some banks will convert your secured credit card to an unsecured credit card (a credit card where you do not have to put up your money as collateral). A friendly reminder that any credit card isn t an excuse to spend more money. Whether you get a secured card or use an unsecured card, getting a card just to free up more money that you don t actually have to spend out of control won t help you in the long run. You have to keep a tight rein on your spending. If you can t change your habits so that you are in control of your spending, don t get a credit card, secured or unsecured Another way to jolt your credit score swiftly is to apply for a line of credit with a tradeline. You can find those type of tradelines online (or contact your credit advisor). It is usually a company that works with people with challenged credit for rebuilding credit scores. When you apply for one of these tradeline it is usually an automatic approval (as long as you are not in bankruptcy) and reports to all 3 credit bureaus. The average credit limit can be anywhere from $1000 to $6500 that will report. That is considers a great jumpstart to rebuilding your credit score. STEP 5: Practice financial discipline It can take 60 to 90 days or longer for you to start seeing improvement in your credit score. In some cases, depending on how bad the situation is, it can take one to two years to see solid improvement to your credit history. As a result, it s important to change your financial habits so that you reduce the chances of poor credit in the future. Develop the good financial habits of living within your means, setting aside money in your emergency fund, and saving for the future. That way, you ll be less inclined to skip payments, and you ll have something to fall back on if you run into financial trouble. Keep with the good habits you formed while rebuilding your credit, and it will be easier to maintain your new, better credit history. STEP 6: Rebuild it and it will come

22 Follow the steps listed above, and you will be well on your way to a credit score of more than 700. Don t forget to show patience, though. Credit improvement doesn t happen overnight. Depending on how bad your credit is, it can take years to achieve excellent credit. But, if you keep at it, you will be rewarded with better rates, and thousands of dollars in interest savings.

23 HOW YOUR CREDIT SCORE AFFECTS YOUR INTEREST RATES LESSON 9: Interest rates have a big impact on the cost you pay to borrow money. Credit card and money borrowed from banks are made up of principal plus interest. A low interest rate loan is easier to repay because there s less interest added to your monthly payment. Lower interest rates are highly sought after because you pay less money to the bank whose loaned you money. When you have challenged credit, banks set interest rate incredibly high. Lower credit scores demonstrate that you ve made some big mistakes in the past and that you may not make all your payments if you re given new credit. Banks leverage this to make billions on charging you interest on every dollar borrowed. Banks set interest rates (the APR or annual percentage rate) based on the risk you pose. The higher credit risk you appear to be, the higher your interest rate will be. (Or, if your credit score is really low, you may be denied.) On the other hand, if you have a low credit risk (represented by a high credit score), you ll typically qualify for a lower interest rate. Let us see some examples of how blemished credit can spike your interest rates:

24 Banks base everything off risk and they calculate based on the credit score the odds of receiving a potential late payment and that is how they dictate the interest. So utilizing those odds of a potential 90 day late payment with a mortgage at $500,000 increases dramatically. Let's see why it's worth working toward a great credit score: Now let us see a side by side of to individuals making the same exactly annual salary, but have credit scores on two ends of the spectrum one named Brad the other Jack: Brad will pay almost double the cost of the purchase price just because he does not have the credit score and this is how interest work against more americans.

25 To improve your chances of getting a better interest rate, you can spend a few months working to raise your credit score. This is especially important with a major loan like a mortgage where a low credit score can increase your monthly payment by hundreds of dollars and lead you to pay thousands more in interest over the life of the loan. WHAT ARE CREDIT TRADELINES LESSON 10: If you are like most americans trying to boost their credit score there are ways to leverage the time of spiking your score. We briefly discussed in a previous lesson about tradelines, but in this lesson we are going to talk more in depth about the specific type of tradelines to add. Keep in mind there could be some small investments to expedite this process of jumping your credit score to qualify for that dream purchase you are looking forward to. One of the more common and easiest process is piggybacking or become an authorized user on an established credit card account. If you have a spouse or family member with a good credit history who s willing to add you to their credit card as an authorized user, that s a legitimate way to improve your score. As long as they continue making timely payments, you ll both reap the benefits on your credit reports. With this method trust becomes a 2 way street, as you needed the account history to boost your credit score, you want to make sure you are dealing with someone who responsibly pays their bills on time. As the issuer of the authorized user account, you have

26 to trust the individual you are lending your payment history to does not attempt to breach your information for malicious use (even though most credit card protects your from these types of issues). Now some experts do not recommend this strategy due to FICOs stance on piggybacking. At one point FICO threatened to eliminate authorized user tradelines altogether. Instead, they built some logic into FICO 8 of scoring model to properly calculate for authorized user accounts. For example if you plan on purchasing a home and you have limited or a thin credit profile, most lenders who would to see primary accounts reporting along with an authorized user account. The ratio is normally 1 primary account for every 1 authorized user account (see your mortgage consultant for details). There are also alternative ways you can piggyback on a seasoned tradeline if you are not fortunate enough to have a spouse, family member or friend to add you as an authorized user on their credit card. This alternative became popular several years ago and that is renting a tradeline. For more information I recommend you seek a credit advisor. For those with low credit score, those who are rebuilding or if you just need credit period this can be the most effective way to add points right quickly to your score. Although I still highly recommend that you restore you credit as well, use adding tradelines as a tool to leverage to credit restoration process. If you intend on using authorized user account, there are some things to keep into consideration. You want to continue maintaining responsibility for your personal account. Timely payments as well as credit utilization. If you are on a time crunch for having the authorized user account you report, find out how often the credit card company updates information to the credit bureaus and make sure they report full payment history. Lastly make sure you supply the appropriate information to have the payment history report accurately on your credit profile. The reason that is key is because some authorized user accounts do not require you to supply a social security number only your full name and address. This is because credit bureaus authentic individual by home address. DEBT TO INCOME RATIO

27 LESSON 11: This can be an extremely important concept that anyone attempting to repair their credit needs to fully understand. When an individual is dealing with their own credit, they need to look at their debt-to-credit income ratio (commonly referred to as your DTI), just to see how buried they are in debt, or how well they are managing their way out of debt. The debt-to-income (DTI) ratio is the percentage of an individual's monthly gross income that goes towards paying off their debts This debt comes in two forms. Form number 1 is called the front ratio of DTI, which shows the percentage of the income that goes towards housing cost, like a mortgage, or for renters the rent they pay. This calculation includes insurance principal, interest, mortgage insurance (sometime a PMI which is a Private Mortgage Insurance), renters insurance, property taxes and even homeowners association dues (commonly known as HOA s). The front ratio is primarily used to determine the total amount you can afford for housing. Bottom line it shows lenders that you have a good balance between your total debts and you re gross income. Form 2 of debt-to-income ratio is referred to as back ratio, which is the debt payments that go toward your recurring debts (including those in the front ratio). These payments include things such as; credit cards debts, car loan payments, student loan payments, child support, alimony and judgements. It is critical that not only that you make all of your associated payments to your debts, but that you stay current with making those payments. Why Does Your DTI Matter? Your DTI is important because many lenders look at individuals ability to pay back their debts on how much debt they are currently paying off which is a major factor in their DTI. For example many mortgage companies will want an individual to have a DTI around 28/36. What does this mean you may ask, well let's view the following scenario:

28 Let's say you have a yearly income of $50,000, and that is divided by 12 that comes to $4,166 per month for your income. Take.28 and that will give us a front ratio for housing and recurring expenses, which comes out to $1,167. This is how the mortgage company calculates what you have to spend monthly on your mortgage and recurring debt. And the lower your DTI the the better it looks to the lender. The reasoning behind this is the less you have to pay back each month on your debts, the more money you will have to pay for a loan, which is also how they figure out individuals default rates. Now your DTI can be lowered and is a crucial piece of the puzzle that people need to figure out. It obvious that to lower your DTI, it means you have to lower your debt and that comes down to being responsible with your overall debts. When you have a high DTI lenders choose not to lend to you, it cites that you already pay back a lot of your income on previous debts. But a great way to decrease your DTI is to increase your income, it sounds easy, yet very doable. Most people begin to get motivated to find side work, have garage sales, start a business (real estate is always a good source for a starting business) or start to liquidate those hidden treasures in the attic or garage. Utilizing the extra money made to lower credit card payments, paying off an auto loan sooner or even improving your credit score and refinancing your current loans to a better interest rate (which we talked about the importance of interest rates in a previous lesson). All in all lowering your DTI can be done and will drastically improve your odds of getting that dream home or investment property you have always wanted. Lastly let's talk about the best and worst ratios to have. It s in your best interest to stay below 30%, which means that you have more income available to pay off your debts. This is when lenders become willing to lend you money. And the worst DTI one can have will be one that is above 45%. This is because they are paying close to half of their income to monthly recurring debts and you want to do your best not to incur anymore when near half your monthly income. Here is when one gets creative in generating extra income to pay your debts down. Having a DTI this high aggressively shows the lenders you are possibly one paycheck away of a default status on potential money loaned for that mortgage. ESTABLISHING BUSINESS CREDIT

29 LESSON 12: If you are like most small business owners, growing your business is both hurting your personal credit and draining your resources that can be used for your personal expenses. According to a study done by the SBA, 92% of all business loan applications are done based solely on the merit of the applicant s fico and personal assets. We all know that Capital is the life source of any business and the lack of capital is one of the major reasons for the failure of businesses in America. Business Credit is an alternative source of capital and is an area of financing that every entrepreneur should be well versed in. Without spending time and resources on establishing business credit, entrepreneurs are missing out on the single largest source of lending in the world. Business Credit is simply the best kept secret by winning companies. There are many advantages to establishing business credit and we are going to breakdown a few basic steps on establishing and building business credit. Having separate lines of credit in your business s name makes it easy to keep your business expenses separate from your personal expenses. This means when it comes time to file your taxes, you'll already have separate financial records for business expenses and personal expenses, meaning you will want to consult a tax attorney that specializes in individual and business tax preparation. One of the most important benefit of separating your business credit from your personal credit is that in the event that your business is in trouble, your personal credit and assets are protected once your company is structured correctly. It should be noted that to build your business credit properly and efficiently, your personal credit will need to also be strong as well. No let's dive into the steps to business a strong business credit profile.

30 STEP 1: Setting up your corporate entity is the most important part of the business credit building process. (Consult with a resident agent professional to see what type of entity is best for your business). A Corporation C corp, S Corp, LLC or sole proprietor. STEP 2: Structure your company entity correctly with the state and IRS After setting up your company structure make your to go the IRS.gov and apply for your EIN (Employer Identification Number) or commonly referred to as tax ID number. There is no cost to apply and receive your tax ID number and when you apply online will receive instantly. Here are a few other things to handle in this step to lay the foundation to ensure your business credit profile will be built correctly. You will want to make sure you have the proper business license (whether you need county or city please check with your state). Lastly you will want to set up a separate phone number other than your cell phone. A free Google Voice number will due. (There are other step in step 2 please see your mentor for more details) STEP 3: In this step it will take a little bit of patients, but as they say good things come to those that wait. This is where you will set up with your business credit bureau Dun and Bradstreet (also know as D&B). Your D&B profile is important and equally important to make sure that it is setup correctly as this is the credit bureau that 90% of business credit vendors will report your payments to. There are 2 ways of setting up your account, the first way is FREE to setup you just go to and follow the prompts of setting up with all of your companies information. This step will take approximately 30 days for D&B to setup your account and send you confirmation. The second way is you can pay D&B for their credit builder program and they will setup your account immediately (they have several different package and if your budget permits this is an option to get account setup right away). If you pay for a credit builder program with D&B it does allow you to expedite building your business credit. You may also set up your Experian business credit profile as well in this step. (see your mentor for more details) STEP 4: In the step you will begin to establish and set up account in what they call tier 1, these are your Net 10, 15 and 30 accounts. A net account is where they give you a line of credit (let it be noted this is not a revolving line of credit) where you have to pay your bill in full in either 10, 15 or 30 days. It is best to try and pay the bill early and to make sure your payments are made on time. Most vendors want you to purchase a minimum amount of $50 or more to report the payments to your D&B profile which is how you will begin to increase your business credit score. You will want to establish between 2 to 4 tier 1 accounts. (Please see list of tier 1 vendors) STEP 5: You will generally want to wait until you have made a few purchases and submitted payments for the purchases made to your net 30 vendors. It is recommended to make payments for at least 2 to 3 months which should be long enough for your business to have a paydex credit

31 score (it is the equivalent of a FICO score but for businesses only). Once you have a score you may now begin to establish accounts in tier 2 credit vendors and make sure to submit payments on time. Tier 2 credit vendors are a mix of Net 30 accounts and revolving lines of credit ( please see list of tier 2 accounts). Once you have made it to tier 2 accounts it is recommended to have a combined 5 to 7 total accounts between the two tiers. Again make sure your payment are timely as this is the setup for the next step. At this point you should have an 80 paydex (which is like having a 750 FICO credit score). STEP 6: Establish Credit accounts with Tier 3 creditors and use the accounts and pay them on time. These accounts are generally revolving accounts and are a little more desirable for this simple fact. These are your more common retail credit accounts. Wait until these tier 3 creditors report to the credit bureaus. At this point you should have a very minimum of 12 trades on DnB and 7 on Experian Business. (speak with your credit mentor for a list of tier 3 vendors). There are a few things at step 6 that you can do to help expedite the business credit build process and that is purchasing established business credit tradeline. (See your credit mentor for more information). STEP 7: Establish Credit accounts with Tier 4 creditors and use the accounts and pay them on time. These are some bigger retailers. These accounts generally have higher limits than your tier 4 creditors. This is also one step before you get to the cash credit. Wait until these Tier 4 creditors report to the credit bureaus of you re their positive experience with doing business with you. At this point your credit files should be pretty thick. You do not necessarily have to wait until all of your new accounts report to the necessary credit bureaus but it is advised. By this point you should have a feel for the process and how all of this works. Establish Credit accounts with Tier 4 creditors and use the accounts and pay them on time. This is an exciting step because you finally get to cash accounts and financing cars under your company name. Now that you have a great grasp on how to build business credit let s mention a disclaimer that was preferred at the beginning of this lesson. Once you get the tier 2 and 3 you may be required to use your personally social security number to get approval from creditor. I know what you are asking, well what is the purpose of building business credit. Well a few years back when the housing market crash, all banks felt that a great deal of the banking debacle was due to not just the housing marketing but businesses who had a ton of outstanding debt with them. So not banks make you do a little bit of work while building your business credit profile. The on the flip side if you build your business profile correctly, once you get to tier 4 where are applying for lines of credit directly with the bank, auto loans and lease, you should have a strong enough business credit profile where you may get approve simply based on your company's paydex credit score.

32 SELECTING THE CORRECT CREDIT REPAIR COMPANY LESSON 13: Choosing the right credit repair company can be a bit overwhelming if you are a novice when it comes to credit and it can be a big decision as well as an investment. A typical credit repair company will cost you anywhere from a few hundred dollars to $1000 plus. Also keep in mind it is not an overnight process. When looking for that right credit repair company selecting the

33 wrong one can be very costly and a complete waste of time. We will point out several red flags when dealing with an unethical company. When you find a credit repair company that is what you are looking for, it can be rewarding,and potentially the best thing in improving your financial future. As mentioned in a previous lesson improving your credit score can be the difference between whether or not you get into a new house, car, or even a job. A higher credit score may also help you refinance your existing home purchase so you end up paying less every month. A trusted credit repair company can lend their expertise to you and increasing your good credit results. So let's talk about the advantages of partnering with the right company first. A good credit repair company will usually offer a free credit analysis or consultation of your credit report. A credit repair company should not charge you to review your credit report, remember they want to earn your business and a good, ethical credit repair company does not charge to review and analyze your credit report. Next a trusted credit repair company will always inform you that you are more than capable of restoring your good credit yourself. It will be time consuming and a little bit of work, but they should alway mention that before you think of hiring a company, with a little research it can be done. Other good signs that you have chosen a trusted credit repair company are; they help you budget, they educate you on the process, you are able to contact them when you have questions, and it may not be a bad idea to research the internet to see what past client may have said about them. I think we should point out you may find some unfavorable reviews on even trusted credit repair companies as some people may go in with unrealistic expectations, but rest assured if the other positive signs are there you can confidently say you have made the right choice. Unfortunately, credit repair is an industry that has received a bad reputation because of a few bad company that chose to take advantage of customer as opposed to helping them. Most fraudulent credit repair companies tend to be shut down quickly, but it is still a good idea to do your homework when making the choice on which credit repair company to hire. Some red flags that you should consider are, the want you to pay them before they even review your credit report. As mentioned that is something that most companies do at no cost. Another red flag is they want you to file bogus police reports. This is called credit sweeping. Companies that request you to file a bogus police report usually require you to pay a hefty fee upfront before anything is done. They promise results in 30 days or less and most companies that operate in that capacity does not educate you about credit or how to use your credit wisely. Now with a credit sweep, initially you may see results but when that process is done using fake police reports, as a courtesy the credit bureaus suppress all the derogatory items on your credit report while they research, so during that time it seems as if your credit report has been cleaned,

34 but within 60 to 90 days all the items that were removed can pop right back on your credit report putting your credit score back where it was prior to hiring the fraudulent company. In your search for a trusted credit repair company just know that the industry is regulated in most states, check with your state to see what is mandated for a credit repair organization to operate in that state. If they are properly licensed and FICO certified those all good signs that you have made a great choice. DEBT SETTLEMENT LESSON 14: Debt settlement is agreeing to pay your creditor less than the amount owed on your debt. Depending on the circumstances, debt settlement should be avoided. It will be a huge mark against your credit score and the fees and taxes that you pay could offset what you could actually save by going into debt settlement. But in the lesson we are going to discuss the pros and cons of settling a collection account debt. A common misconception about a collection accounts are that you can make a settlement offer with a collection agency and it will improve my credit, and let me say that is false. When you have a collection account, you can contact the creditor or the collection agency and make a payment arrangement to settle the debt for pennies on the dollar. Depending how old the debt is, sometimes the collection agency will initiate the settlement offer, for example. Let say you owe a $5000 debt from an old credit card that has been on your credit report as a collection account for the past 4 years. You can make a settlement offer on that account and offer them.40 cents on the dollar which would total $2000. Now they usually will accept that offer, but keep in mind that will not improve your credit score. Sometimes that can drop your credit score as it will show on your credit report as a paid collection account. The other issue with making a

35 settlement offer on an old collection account is it will decrease your credit score. The longer a debt stays on your credit report, over time it has less of an impact, but once you make contact to make a settlement offer it will update the account which results in a drop in your credit score. If you decide to settle your old debt for pennies on the dollar and the collection agency agrees to your settlement offer keep in mind that you technically still owe the remaining balance on the debt. Which brings us to the next issue that could arise when settling a debt for less than you owe. Depending on the creditor and the amount owed after settling the debt for an old credit card do not relax too soon, as the forgiven debt could result in a tax penalty. When attempting to negotiate your collection accounts after the collection agency has stopped calling you then may have to deal with the IRS. Then forgiven debt will be claimed as taxable income by the IRS and you may receive form 1099C (Cancellation of Debt). You may ask why is this, well the IRS considers forgiven or canceled debt as income. Creditors and debt collectors that agree to accept at least $600 less than the original balance are required by law to file 1099-C forms with the IRS and to send debtors notices as well. The nearly 6 million taxpayers a year who receive the forms must report that portion of forgiven debt as "income" on their federal income tax returns. It is, according to the Internal Revenue Code. For example, a person with $10,000 in credit card debt who negotiates to pay only $6,000 of the balance would have $4,000 in forgiven debt income. That $4,000 must be reported as "other income" on Line 21 of the 1040 tax form. Depending on the amount of debt forgiven, the taxpayer's income level, deductions and other factors, the consumer could face a sizable tax bill come tax season. The best way to avoid the collection account decreasing your credit score or sending Uncle Sam your way, you can either pay the balance in full and negotiate a Pay for Deletion letter or consult your credit professional and the best way to handle that debt.

36 THE POWER OF GOODWILL LETTER LESSON 15: When restoring your personal credit score, your credit profile is never as bad as you think it is. That is because there is always a cure for your credit woes. But the credit dispute process works well when you know what you are doing or if you hire a qualified professional. At times even individuals that have great credit can have a mistake like a missed payment, or have an account become delinquent. If this is the case a Goodwill letter can be used. A "goodwill letter" is a simple way to repair your credit report and it can be used for both federal and private loans. The purpose of a goodwill letter is to restore your credit to good standing by having a lender or servicer erase a lateness on your credit report. Typically, those that have experienced financial hardship due to unexpected circumstances have the most success with goodwill letters. They allow you to take responsibility for your actions and to ask (in a very nice way) if your student loan servicer can empathize with the situation that caused the lateness, and erase it from your report. It can also be used when you think the late payment is an error for example, if you were in deferment or forbearance during the time of the late payment, and weren't required to make any payments during that time, or if you know you've never been late on a payment before. What Makes a Convincing Goodwill Letter? It's important that the entire tone of your letter read as thankful and conscientious. If you were actually late on your payments due to extenuating circumstances, you shouldn't take an angry tone in your letter, since you were in the wrong. Take responsibility

37 You want to be convincing and honest. Take responsibility for the late payment, and explain why it happened. They need to be able to sympathize with you. Saying you just forgot isn't going to win you any points. A good recent payment history Besides sympathy, you want to gain their trust as far as continuing to make payments goes. If your lender sees payments being made on time before and after the period of financial hardship, they might be more willing to give you a break. When you have a pattern of late payments, it's more difficult to convince them that you're taking this seriously. Proof of any errors and relevant documents If you're writing about a mistake that occurred, still be friendly in tone, but back up the errors with documentation. You'll need proof that what you're saying is true. Unfortunately, errors are often made on credit reports, and it may have been a clerical error on behalf of your servicer. If you have any written correspondence with them, you'll want to include it. Simple and to the point The last thing to keep in mind is to craft a short and simple letter. Get straight to the point while telling your story. The people reviewing your letter don't want to read an essay, and the easier you make their lives, the better. Where to Send Your Goodwill Letter Now that your letter is written, you have to send it! This can be done either by fax or by mail. Most student loan servicers have their contact information on their website, but you can also look on your billing statements to see if they specify a different address. Additionally, you can try calling the credit bureau the lateness was reported to, and see if they can give you the contact information you need. It's important to mention that goodwill letters are not a means to immediate success. It often takes several attempts to correspond with servicers and lenders to get them to acknowledge that they received a letter from you. Sometime a good ole phone call can even do the trick but follow the same guidelines when calling as if you were writing a goodwill letter.

38 HOW TO APPLY FOR CREDIT LESSON 16: How you apply for a credit card, when you apply for credit and why you are applying for credit makes all the difference in the world of credit. They all can play a role in getting that approval for that loan or credit card. When applying remember your credit score is important so you want to already know what your credit score is going into applying, weather its for a new home, a credit card, auto loan or even a home utility. The rea son knowing your credit score prior to applying is everytime you go and they a creditor run your credit profile it was cause a hard inquiry (which we discussed in a previous lesson). The lower your score is, it makes it difficult to get that approval that you are looking for. Now you may get approved but that may come after shopping your credit profile to several lenders when it comes to buying a home or an auto. When the bank is shopping to see who will finance your loan they are constantly running your credit, thus resulting into multiple credit inquiries each time. When it comes to a home utility you do not run your credit multiple times, but one of two things will happen. You will either be flat out denied, or you will be approved and have to make a sizeable refundable deposit to show good faith, and as long as you make your payments on time at the end of the term of using that utility you will receive a reimbursement of your deposit. You

39 are also applying when you are attempting to rent a home or an apart, same thing you will either be denied or have to make a sizeable deposit. Lastly applying for a credit card, you want to be careful and most definitely know your credit score going in. Most credit card company require your to have a certain credit score to be approved so you may want to know going in weather to make attempt to apply for that particular credit card or not. In an earlier lesson we learned about secured and unsecured credit cards. Unsecured credit cards are when you use your own money as collateral, but when you apply they still check your credit and believe it or not you can be denied for a secured credit cards. Issuer policies vary, but many issuers won't approve an application if the would-be borrower filed bankruptcy recently, has open collection accounts or current delinquencies. The applicant's history with the issuing bank also could prompt a rejection. If you've defaulted on a previous loan or credit card with the bank, it may not give you another chance. To avoid a common mistake individuals may do because they have a hard time getting an approval for that credit card they want is they go and blindly apply for a bunch of credit cards in a short period of time, which throws shows the credit card lenders that you are desperate and you can rest assure they will not approve you and also resulting in tons of hard inquiries on your credit report. So to sum it up let's pinpoint the proper ways to apply for that credit (cards): 1. Get your finances in shape: Make sure you do not have any missed payments within 24 months reporting on your credit report, nor any open bankruptcies or judgements. You also want to make sure if you have previous credit cards reports not to be maxed out. That is the ultimate red flag to creditors. 2. Do not apply for too many cards at one time: Each time your apply for credit, the lenders (including a credit card issuer) looks at your credit. When that happens, your credit score takes a hit. (If someone checks your score for a reason other than a credit application that you submitted, then you re off the hook.) The exception to applying for credit all at one time is mortgages, student loans, auto loans or any other loans that involve rate-shopping. In that case, it s expected that you ll go from bank to bank, comparing their rate offers. Credit scoring models lump all of those types of applications made within 14 or 45 days as just one inquiry. (Older scoring models use 14 days, and newer ones use 45; lenders choose which version to use.) 3. Finding that ideal credit card: Earlier in the lesson it was mentioned that your credit score gets dinged every time you apply for a card. You can minimize your applications by having realistic expectations about what you ll qualify for. You probably won t get The Platinum Card from American Express with a 650 FICO score, for example. While people with excellent credit get the pick of the litter, if you have average or bad credit, you ll need to consider alternative options.

40 Secured credit card but remember that it requires you to put down a deposit of your own money and could result in denial if you had a previous debt, open BK or other derogatories mentioned. Then you have prepaid debit cards and these do not help improve your credit score what so ever. CREDIT CARD SINS LESSON 17: Credit Cards can be a double-edged sword. They can be beneficial if used responsibly or can become hazardous if handled irresponsibly. Let's talk about some credit card sins that should be avoided at all cost: Ignoring your credit profile: It is easy to assume that your credit profile is in good shape, probably because years prior your credit is intact. You should never assume always check your credit report, at least twice a year. All it takes is one mistakenly forgotten missed payment or 30 day late pay or someone may have stolen your identity and ruined your credit without you even knowing. Your credit report could have also received an error that was placed on your credit report. With many credit reports having at least common errors based on what the FTC (Federal Trade Commission) has stated, it's crucial to check your report often. Taking Out Cash Advances: There are millions of people out there who solely rely or have to rely on credit cards and it is imperative to understand how to use credit wisely. At times emergencies may come up that you can not avoid and if that is your last resort just be aware of the extremely high rates for that cash advance. Many people are aware that cash advances come with extra costs and are not like

41 simply swiping a credit card. You can expect to pay a transaction fee of anywhere from 2 to 5 percent, plus an ATM fee. Also, bear in mind that the amount advanced won t be eligible for a grace period, and the interest typically begins accumulating as soon as the transaction is processed and hits your account Exceeding Your Credit Card Limit: Now this should be an easy one. Once your credit card has reached its maximum credit limit, any transaction thereafter will be declined. However, if you ve opted in to your issuer s program that allows your credit card to be accepted even for over-the-limit purchases, your credit card company may charge an overlimit fee (although many have stopped that practice). Expect your credit score to drop if you ever reach the max on your credit card limit. remember a great credit card utilization is 30% or lower below your credit card balance. Being Enticed by Offers in the Mail: As consumers we love when companies offer us perks like bonus points, airline miles or cash back offered to new customers of rewards credit cards may seem too good to pass up. But understand that preapproved offers don t guarantee that you ll be approved, or that you need the card, or that it s a good fit for you. If you rarely leave town, you probably don t need a frequentflier card. Being enticed by the perks you may find yourself tempted to spend to earn bonus rewards and bogged down with debt. Suddenly Shutting Down Credit Card Accounts: After you have paid off or paid down one of your credit cards you may be tempted to close your credit card accounts because they are no longer useful to you, but beware of the impact this could have on your credit utilization ratio. IF you think closing an account to avoid paying the bill think again. Not only will you still be liable for the outstanding balances, but the accounts will remain on your credit report for seven to 10 years. Applying for a Credit Card just for the 10% Off: Have you ever been in your favorite retail store, found that outfit you wanted and you get to the register and the clerk offers your to apply for their store card to receive 10% off your purchase. If so can you image if you applied at all your favorite stores just to get the one time 10% discount. That could put you in a credit card nightmare and the 10% initial discount does not make up for all of the high interest and fees that come with these cards. In other words, the costs outweigh the benefits. Ignoring Your Credit Statement:

42 Things happen when it comes to processing credit card payments, as well as human errors or credit card fraud are often responsible for invalid transactions and statement errors. But if you don t look at your statement every month, how can they be detected? It s not a bad idea to examine account activity on a weekly basis to catch a problem. With most credit card companies offering online accounts you are able to monitor the activity on your credit cards regularly. You re not liable for fraudulent transactions on your credit card unless you wait longer than 60 days to report them to your card company. So it s your job to keep your eye on your accounts that incur fraudulent charges. Failing to Read the Fine Print: When you apply for a credit card, you are agreeing to take full responsibility for any legitimate charges made with the card. So you definitely can t afford to ignore the disclosures. Fortunately, even if you make a few mistakes along the way, credit can always be repaired over time. But if you can work as hard as you can to avoid these mistakes. LEVERAGING YOUR GOOD CREDIT LESSON 18: Having a great credit score gives you options in life, especially when it comes to investing. And there is no better way to generate wealth than by leveraging your good credit to do so. Having

43 good credit can save you thousands of dollars over the life of money that you borrow towards any investing. Money saved can be used to reinvest or to borrow money to purchase assets. A 700 credit score or above is considered a good score and can help in a number of ways: great interest rates quicker approval times competitive rates when purchasing investment opportunities better insurance rates more finance options There are many great ways to utilize your good credit to generate wealth and opportunities and we are going to discuss a few options once you have reached that 700 credit score club. 1. Leveraging your credit to purchase a new home. Weather you are a first time homebuyer, or you are on your third home purchase in your lifetime. Becoming a homeowner will actually help increase your credit score. It's proves that you are a responsible spender, provides a tax write-off and provides you an asset that will appreciate over time that you can also use as leverage to borrow against for future investments. 2. Real estate investing, which provides positive cash flow to generate wealth and allows more opportunity to come to you. Real estate investing has been proven to be one of the safest and most profitable investments. There are several type of ways you can invest when it comes to real estate investing. You have wholesaling, flipping, buy and hold and then there is commercial real estate. And just like becoming a homeowner you also receive tax benefits when you have investment properties. Leveraging your credit when embarking on real estate investing, it would be to your advantage to make sure you have a strong credit score. And by having a strong score you are able to leverage using OPM (other People's Money). 3. You can start a business, similar to real estate investing which is a business within itself, but there are other options you have starting a business. When looking to start your own business have a strong credit score is great leverage when looking at your entrepreneurship options. When you make that decision to start your business capital is the lifeline to a new business and you can either apply for a small business loan or pitch to investor. Both require you to have a strong credit score so to maximize your options having good credit is your ultimate leverage even when wanting to become a business owner. 4. Investing into stock and bonds

44 DEALING WITH A COLLECTION AGENCY LESSON 19: Getting a call from a collection agency is never fun, and it can actually be a little nerve racking. Collections agencies specialize in collecting money for creditors after you've failed to pay back a debt for a certain amount of time. These agencies are known for making harassing phone calls and using intimidating language to collect money. While the best way to avoid a collections agency is to pay back all your debts on time, financial difficulty unfortunately makes this impossible sometimes. If you find yourself contacted by a collections agency, don't panic. You have rights and options that can benefit you. Let s go over how you should handle yourself if contacted by a collection agency. Wait before paying anything. Collections agencies will either contact you through the mail or over the phone. Either way, you should not pay any money right away. The collection agency is legally required to take several steps to legally prove that you owe them money before you're obligated to pay. There are even scams where con artists pose as debt collectors and intimidate you into sending them money. So don't pay anything before going through more steps to verify that you legitimately owe the agency money.

45 Get the agency's information. It is important to keep track of all your contacts with the agency. If the situation eventually ends up in court, you'll have plenty of records to help your case. If you receive a phone call, ask for the name of the collection agency, the name of the person speaking to you, and the amount they say you owe. Write all of this down with the date you were contacted and a summary of the conversation. Do this every time you speak to the agency on the phone. Make copies of any letters the agency sends you in the mail and keep them all together in a folder. Also keep copies of letters you send to the agency. Save any voice mails or phone messages the agency leaves you. According to federal law, collectors must disclose their identity to you. [3] If the person who's contacted you refuses to reveal the information you've requested, you may be dealing with a con artist. Inform them that they are legally required to identify themselves and if they still refuse, hang up. Demand all information in writing. Within 5 days of first contacting you, the collection agency is legally required to send you a verification of the debt you owe. This letter should include the amount of money you owe and the name of the original creditor. [4] If the agency contacts you over the phone, refuse to talk further until you've received verification of your debt. All you should say is that you want written proof of your debt, and then you should stop talking. If the agency initially contacts you with a letter, write back and demand more information. Remember to send all of your correspondence via certified mail- this will ensure that the agency can't claim that they didn't receive your letters. Educate yourself on the law regarding collection agencies. It would be beneficial for you to learn the laws that collection agencies must abide by while you wait for the agency's statement in the mail,. All collection agencies are regulated by the Fair Debt Collection Practices Act (FDCPA). This act bans several practices for collectors. Read this law carefully in preparation for your dealings with the collection agency. By learning the laws, you can counter threats or intimidation by saying that you know the law and the collector's actions are illegal. Among the banned practices are: Calling you before 8AM or after 9PM, unless you've agreed otherwise. Using any obscene or abusive language. Contacting you at work if you've requested them to stop. Accusing you of committing a crime. Threatening to take your property without first going through the court system. Remember that even if the agency purchased the debt from the original creditor, it is still considered a collector and not a creditor. It is therefore still bound by the rules of the FDCPA, even if collectors try to tell you otherwise

46 If any of these laws are violated you may sue for statutory damages for up to $1000 per lawsuit (so if multiple collection agencies violate that would be multiple lawsuits). Once you receive a statement from the collection agency here are a fes steps to follow: Examine the bill the agency sends you. According to the FDCPA, this statement must include the following to be considered valid. The amount of the money owed. The name of the original creditor. A statement that if you don't dispute the debt within thirty days, the debt is assumed valid. A statement that if you dispute the debt within thirty days, the agency will obtain proof of the debt and send it to you. A statement that upon request, the agency will provide the name and address of the original creditor, if it differs from the current creditor. Request validation of your debt. It is very important to make sure you actually owe the money the collector says you do. Though it is illegal, creditors could inflate the amount of money you owe to make a greater profit. You legally have thirty days to dispute the charge and ask for validation of the debt. Once you do so, the collector must cease pursuing you for the money until he produces proof of the original debt. The agency must provide one of the following. Proof that they either own or have been assigned the debt from the original creditor. A copy of a statement from the original creditor. Check the statute of limitations on your debt. When the agency provides proof that you owe the money, you still have options. Each state has different laws on how long a debt is considered effective. These are mostly, but not universally, less than ten years. When a collection agency comes after you for outdated debt, it is known as zombie debt. Check the date of the proof the agency provided. Then match it against the statute of limitations for debt in your state. If the date of the original debt is older than the statute of limitations, you aren't responsible for it anymore. Send a certified letter informing the collector that your debt is past the statute of limitations and he is in violation of the law by pursuing it. Lets now focus on how to converse with a collection agency:

47 Avoid providing personal information. Collectors may tell you that they require this information, but this isn't true. They don't need to know your banking information, place of employment, or any information besides your phone number and address. If possible record conversations. Since this situation could end up in court, having a complete record will be helpful. Some states allow you to record phone calls without the other person's knowledge. Check your local laws and see what you are legally allowed to do. If you are legally required to get the other person's consent to record the call, simply inform them that you will be recording the conversation for your records. Lastly if you do decide to pay the collection account Pay with a bank check or money order. Do not send the agency a personal check. This provides them with your banking information. Under no circumstances should you allow a collection agency access to your bank account. This is not necessary to pay back your debt DEALING WITH STUDENT LOAN DEBT

48 LESSON 20: If you are one of the 40 million plus individuals who have student loan, you are not alone and just know there is life after student loan debt. If you do so happen to fall behind on your student loan debt that it then goes into default status, you are able to recover from default as long as you have a federal backed student loan. Now unlike consumer credit debt if you fall behind you can you can climb your way out of it varies way through debt settlement,traditional credit repair even bankruptcy. Once you have rebounded, statistically 60% of people fall right back into the debt pool of consumer credit. With student loan debt, you get one shot to rehabilitation for default on your federal student loan debt, and once you recover you have to stay compliant with your payments. In this lesson we will discuss some of the programs out there that you may qualify for when it comes to student loan debt and how to realign yourself after default or to prevent yourself from default. First let us talk about the misconception of student loan debt. Student loan debt forgiveness can not be discharged in bankruptcy: This is a question that comes up often and the answer to this one is, it can but can be very difficult to accomplish. The bankruptcy laws require you to show that being held responsible for the student loans will amount to what s called an undue hardship. Though this standard can be difficult to meet, it s not impossible. If you attempt to discharge your student loans in bankruptcy, you ll have to hire an attorney, rather than a credit counselor. Attorneys often have the ability to resolve payment disputes more readily than credit counselor. Many people who seek a discharge of their student loans in bankruptcy end up settling on a reduced balance or affordable payment plan, which may accomplish your goal of bringing the payments in line with your financial abilities All types of student loan debt can be forgiven:

49 This is untrue and it would be a good idea to know which type of loan you may have (Federal or Private student loan debt). While some private student loans may be forgiven it is few far and between. If you do have a private student loan you may want to contact your lender and negotiate directly to possibly lower your payment. When it comes to federal student loans those are the types of student loan debt that the US Department of Education is more open to working with you on forgiving. If you have multiple federal student loan debt you may consolidate each together to qualify for student loan debt forgiveness. One the student loan debt is forgiven or settled for a lower payment I no longer have to worry about it: This is also untrue, in a previous lesson talked about cancellation of debt from the IRS with form 1099-C. If you qualify and are given a discharge or your debt is forgiven you may receive a 1099-C from the IRS which you will have to file as income. There are some circumstances in which you will not receive a 1099-C. Certain types of student loans canceled under PSLF are not taxable, but student loan debt discharged due to Total and Permanent Disability may be, unless you qualify for an exclusion. You have to pay someone for student loan forgiveness help: Technically you do not have to hire someone to get the help you need with restructuring your student loan debt. Most student loan debt servicers will work directly with you for free and help you with the proper paperwork needed. Keep in mind there are certain guidelines that you must fall within to qualify so make sure you find out what you need to expedite your process. Now if you find out that you are having a hard time getting paperwork processed or just clearly do not have the time you may consultant with a specialist that can assist you through the process. The program are mostly income based and will require you to have accurate tax returns to provide documentation to the US Department of Education. Here is a list of the types of forgiveness, debt cancellation or student loan debt discharge that is out there and if you fall into one of these types of loans you may qualify for student loan debt forgiveness outside of your standard federal student loan debt: Unpaid refund discharge: This is where you withdrew from school but the school didn t pay a refund that it owed to the U.S. Department of Education or to the lender Totally & permanently disabled discharge: If you are permanently disabled you will have to go through an evaluation to determine qualification for one of the following reasons; if you are a veteran, if you are receiving Social Security Disability Insurance (SSDI) or if you can submit certification from a physician that you are totally and permanently disabled.

50 Teacher loan forgiveness: If you are a teacher and have been teaching full-time in a lowincome elementary or secondary school or educational service agency for five consecutive years, you may be able to have as much as $17,500 of your subsidized or unsubsidized loans forgiven. Public Service Loan Forgiveness: If you are employed in certain public service jobs and have made 120 payments on your Direct Loans (after Oct. 1, 2007), the remaining balance that you owe may be forgiven. Only payments made under certain repayment plans may be counted toward the required 120 payments. You must not be in default on the loans that are forgiven. Bottom line student loans can trap borrowers in debt for decades, and can make it difficult to buy a home or a car and possibly find that idea job. If a student falls behind on payments, those late payments can ruin their credit scores for years to come and in that case it may be a good idea to consult your credit specialist if your credit becomes tarnished due to student loan debt and late payments. BEING AN AUTHORIZE USER LESSON 21: First let s us start with what is an authorize user? An authorized user in a layman's definition is being listed on someone else's credit profile in efforts to boost one's credit score. An authorized user to someone s credit card account can add years of positive credit history to your credit report. If not done properly there can also be a downside to this strategy of rebuilding your credit. Let us talk about the downside of become an authorized user first. Before you decide to utilize this method make sure you do your due diligence prior to taking that first step and let me explain

51 why. There are many companies that are out there that promise you a quick boost in your credit score, but there is one small catch. You can purchase an established credit card profile of someone who will allow you to become an authorized user for a fee. These fees can range anywhere from a few hundred dollars to a few thousands depending how established (or seasoned) the credit card history is. Now this is not the catch, the catch is there are some companies that will sell you a authorize user account of someone who maybe not be credit responsible meaning they do not pay their bill on time. They may have late pays, missed payments or the account may even be closed and by the time you find out they are off with your money. Another downside is they account may be in good stands, but they have a high credit card usage on the account, which we learned credit card utilization is 15% of your overall credit score and if you are in the rebuilding process that could be a nice chunk of what you need to revive your credit score. So just to reiterate about the downside about being authorized user make sure you do your research not only on what company you may plan to use, but even if you decide to use a relative you want to verify the account is in good standings as well. Now that we talked about the downside of being an authorize user lets speak on the benefits it can have if done correctly and you choose the right credit card accounts to piggyback on. Being an authorized user can impact you positively in several different ways. here s how: If you find someone who has positive payment history, good credit utilization and a high credit balance, that could be like a golden credit card account as that is an idea credit tradeline. The reason why is lets us say the person s who credit card account you are utilizing as an authorized user has had timely payment for 10 plus years, guess what? You will now show a credit card account on your credit profile that has a 10 plus year payment history. If this is the very first positive credit line ever reporting positively on your credit report, your report will look more established. Let's say this same authorize user account has a credit limit of 25k, your credit profile will also show that same credit card limit as well. Some individuals may say authorize user account (piggybacking) does not help your score, but the fact is credit bureaus treat authorize user account as they were your own, which is why it is stressed that the information you want to report should be in good standings. In a previous lesson we mentioned briefly joint account holders. Let s focus the difference between the two. They key difference being an authorized user and being a joint account holder is that your more responsible as a joint account holder. You re legally held responsible to pay back any debt accrued to a joint account and as an authorized user you are not. Also to be a joint account holder your personal credit is ran as if you were solely applying for the credit card. You must meet the credit guideline for an approval verses when you are an authorized user they do not run your personal credit profile all one need to add you as an authorized user is your basic information (which can vary based on the credit card company).

52 If you are a college student, someone new to building your credit or just a parent wanting to expedite the credit building process for your teenage child. The authorize user strategy is fairly common. Your your parent or you are a parent and have established credit history and it is healthy this would be a good idea. It can also be a way to begin to educate your child about credit. A few tips before you decide that tactic. You want to contact your bank to make sure they will report the card under your name and find out what information they will need to report (you may also want to check their authorized users policy if applicable). If you change your mind afterwards find out if you can easily take the card off of the person s credit report? And would also be a good idea to make sure they have no authorize access to personal account information, which most all of the credit card companies restrict access to authorized users. On the flip side if you have a credit card account as an authorized users how simple would it be to remove yourself if they become delinquent on the credit card account you are using. If there is an issue you may have to file a dispute, but again as mentioned it would be easy to get removed. Lastly be smart about being an authorized user on someone account who is financially responsible. If you do not it can cause more harm than good when it comes to build, rebuilding or getting that boost in your credit score. It also would be a bad idea to verify if your authorized user accounts report to all 3 credit bureaus. Usually the only accounts you may become an authorized user on will be unsecured credit cards.

53 DISPUTING ERRORS & DELINQUENCIES LESSON 22: Monitoring your credit report regularly can be a lifesaver as mistakes do happen. You may ask how do they happen. Details on your credit report are supplied by creditor, and gathered from public record sources. Sources such as court system in the case of bankruptcies or judgements. If a creditor or other sources that gather your credit information make a mistake (which tends to happen often) like typing in the wrong address, social security number or wrong date of birth. Your information could or may get crossed with someone with a similar name, similar social or date of birth which is a common practice of how mistakes ends up on credit reports. Also keep in mind that credit reports are only complied when they are requested by a lender. When a creditor or lender request your credit or credit score. To do that, the credit reporting agencies will try to match account information in their database to the consumer for which the report has been ordered. Most of the time the credit profile is either match or verified by using your address. So you can see that if your address is miskeyed accidentally, it could result in someone else's credit (good or bad) ending up on your credit report. Other common mistakes can be having a common name like John Smith, or having the same name as a parent like John Smith Sr and John Smith Jr. If that is the case make sure your name extension. Finally, if you have been inconsistent in the information you ve used when filling out credit applications (using shortened various names for example using Bob instead of Robert) that can also show up as an error. How do you correct mistakes on your credit report? The first step in disputing a credit report mistake is to know weather an item is wrong or not on your credit report. That sounds like common sense, but you would be surprised. For example, your credit report may list an inquiry from a company that you do not recognize, but if that company accessed your credit report, the credit reporting agency is legally obligated to report that inquiry made. Your report may show a collection account that you paid off. You may assume it was removed or should have been removed because you paid it, but under federal law a collection account can be reported up to seven years and six months from the date you fell behind with the original creditor, regardless of whether it has been paid or not.

54 Once you have established that an item is incorrectly reporting you can dispute it. You can contact the lender (or collection agency) who is reporting the incorrect information and for starters ask them to remove the inaccurate information reporting. Asking the creditor to fix the error may be the simplest approach, because if they do agree they made a mistake, they will be required to remove on all 3 of the credit bureaus immediately. Going this route will save you the steps of having to go through the disputing process which could take up to 30 days just to get a response. However it is also important to note that to protect your legal rights under federal law, you must send a written copy of your dispute to the credit reporting agencies and not just the creditor. Therefore, if you find a serious mistake or if you are having trouble getting an item corrected, make sure you also report the error directly to the credit bureaus. This can also apply if you have credit delinquencies, weather they are truly your mistakes or someone else s mishap that landed on your credit profile, you will want to follow the same steps and rules of engagement. There are 2 different ways you can dispute, especially if you plan on doing so yourself. If you order your reports online, you will have the option to dispute your errors online or via mail. Online disputes can be faster and convenient, however you may not be able to include documentation to back up your dispute. So if you have the documentation to an error or delinquent item reporting in error, you may want to send a written request of deletion. If you do decide to dispute in writing make sure you send it via certified mail and keep a copy for your records. Again if the credit reporting agency and creditors receive a dispute (online or by mail) by law they are required to investigate a dispute and report the results of investigation to consumer within 30 days in most cases. FINANCING & LEASING VEHICLES

55 LESSON 23: Once you have completed the task of restoring and rebuild your credit score, the most common first upgrade is purchasing or leasing that new vehicle. No matter if you finance or lease you can have your pick and pick confidently as and that is because you have just joined the 700 credit score club. You now qualify for the best interest rates, financing from the better banks or credit unions and great lease offers because of your well qualified credit score. Before you make that decision on whether to finance or lease that new vehicle the first things you want to do is determine how much you can afford. You want to take a look at your financial situation to make sure you have enough income to cover your monthly living expenses. Then, if you want to finance a vehicle, know that the total amount you pay will depend on a few different factors. Those factors including the price you can negotiate for the vehicle, the APR (annual percentage rate) which can be negotiated as well especially when you have great credit and the length of the term. Most new vehicle terms can range, here are some of the most common term amounts: 36 months = 3 years 48 months = 4 years 60 months = 5 years 72 months = 6 years and they now can finance you for 84 months which equals 7 years (which I would NEVER recommend). Finance or lease a vehicle only when you can afford to take on that commitment for whatever amount of a term you negotiate. The term can also dictate your monthly payment which is also a consideration when making that decision. Check the overall cost for the purchase and the lease. It may also be a good idea to figure out your debt to income ratio, which we learned in a previous lesson to help you figure out what you can afford ads a monthly payment.

56 The only time to consider taking on additional debts is when you are spending less than you take home. The additional debt load should not cut into any amount you have to commit towards saving, your emergency fund or any other financial priorities. Other helpful tips if you plan on financial is saving for a down payment or trading in your old vehicle, which can help reduce the amount you will be financing. If you owe more that your vehicle is worth, that is what the auto sales industry call being upside down on your auto loan. You then have negative equity in your vehicle. If you are in this position your only option is to put down an even larger down payment to offset the vehicle cost financed, or the dealer can include the negative equity and roll it into your new vehicle purchase. This will increase your payment on the new contract in two ways. It adds to the financed amount and increases the finance charge. Then you have leasing. Leasing a vehicle is a method of obtaining a new or used car that involves you only paying a smaller portion of the car s actual cost as opposed to having to pay for the car in fill over the life of the auto loan. So to be clear when you lease a car, you are only paying for the portion of the car you are using over the lease term agreement. The portion you use is the amount of depreciation the vehicle will incur over the course of your lease. So should you buy or should you lease? That is the magical question. Let us dive more in depth about leasing then we can talk about the pros and cons of both. The only drawback to leasing a vehicle is after making all of those lease payment you are left with no type of ownership of that vehicle. There is always an option to purchase your lease at the end of the lease term, but often times the projected residual if the vehicle is set the time of the original lease agreement, so whatever is owned at the end that is the cost. Secondly a lot of times at the end of a lease you may be upside in the value for two reasons. One when you lease a vehicle, you are allotted a maximum of mileage you can put onto that lease purchase. If you exceed those miles you will have to pay a set amount per mile over the negotiated mileage amount. Second the depreciated value of the vehicle has decreased tremendously. Here are the pros and cons of both: Pro: When you finance the vehicle you have the option to own at the end of your finance term amount. Con: If you lease you must turn the car end at the end of the negotiated lease amount, then once you turn in you have to go through the car buying process again. Pro: When you finance a vehicle, there is no early termination fee Con: If you lease and decide to turn the vehicle in early you are subject to an early termination fee.

57 Pro: No mileage criteria is mandated on a vehicle financed. Con: Most lease purchases limit the number of miles you may drive each with the cap being 12,000 to 15, 000 per year. Pros: If you lease a vehicle, at times your payment will be considerably cheaper and that is due to with a lease purchase, it is like you're renting the vehicle. Con: Payments are usually higher that is because you are paying off the entire amount of the financed loan. Lastly when negotiating your lease agreement, do not let the low monthly payment fool you, sometimes there are other junk fees tied to the backend of the loan. Some of those junk fees include gap insurance, extended warranty, and you also want to ask upfront do they install GPS s into the vehicle, where they are kindly passing on the bill for those to the consumer. If you chose to have those things make you have negotiate that with the dealer, hey you earned it by having a strong credit profile. Whatever decision you make when it comes to that new vehicle, keep in mind that purchase will now report on your credit report profile as an installment loan (see previous lesson to get information on what an installment loan is) so you want to make sure you do not receive any late payments, missed payments, nor repossessions. (voluntary or involuntary). Just remember either leasing or financing that new vehicle, your credit will have the ultimate determination to what you qualify for and how much you will pay over the course of a loan. IDENTITY THEFT

58 LESSON 24: Identity theft is when the fraudulent acquisition and use of a person s private identifying information, usually for financial gain. Identity theft is one of the most devastating and common crimes occurring today. Approximately 15 million Americans have their identities used fraudulently every year. Financial losses total upwards of $50 billion! When a thief steals your car or breaks into your home, you feel violated and suffer from a one-time financial loss. But when a thief takes your identity from you, he may rent an apartment, obtain a credit card, go on an online shopping spree and establish a telephone account in your name. The financial damage will continue to escalate until you get a phone call from a debt collector, or receive an outrageous credit card bill, and realize the shocking truth that you have been being victimized. Once the horrifying reality hits, you are facing an horrific, uphill battle that involves credit restoration and reclaiming your identity. Credit restoration is not easy once your identity has been maliciously dragged through the mud, but it is possible to make a clean start. We will guide you through the complex process of restoring your good name and removing the debts accrued by thieves. Let s go into different ways thieves may steal your information: 1. Phishing by or pop-up messages. Thieves often pretend to be financial institutions or trusted companies and send spam or pop-up messages to get you to reveal your personal information. Never reveal your social security number, password or other

59 sensitive personal information to anyone by that you can not verify is a trusted source. 2. Changing Your Address. Crafty thieves will divert your billing statements to another location by completing a change of address form. When offered, it is a good idea to have your billing statements sent electronically. Snail mail is not only less reliable, but is an irresistible target for those with malicious intent. 3. Old-Fashioned Stealing. Some things do not change. Plenty of thieves still rely on taking your personal property right from your car, house or purse. Wallets, purses, mail, (including bank and credit card statements) pre-approved credit offers, and new checks or tax information. 4. Online shopping. When purchasing goods online, always be careful to note the security procedures the company uses with regards to protecting your financial information. They should offer encryption of your financial information over a secure network. 5. Social Networks. High resolution pictures of yourself on the internet can be used to put on fake ID's and personal information can be lifted right from your profile. Be aware of the information you make public on sites like Facebook, Google +, and LinkedIn. 6. Exploiting security breaches. Breaches can occur in any company, it is the result of living in a time when we are so dependent upon technology. They may result in the publication or more limited disclosure of personal information such as names, addresses, Social Security number or credit card numbers. Always make sure you have the latest software upgrades, operating system updates, and patches so you are protected against the latest vulnerabilities. 7. Information retrieved from old computers or mobile phones. When upgrading to new technological devices, always erase your old data and destroy your old memory cards. 8. Unsecured wireless networks. There are websites that list unsecured wireless networks, called 'hotspots', with maps to the network location. There are hackers called war-drivers who drive around with laptops testing and looking for unsecured wireless networks. Always be careful when using public wi-fi and secure your home and business wi-fi with a password. When thieves steal your identity they may purchase a card, apply for a loan or credit card, open a bank account and write bad checks, run up costly purchases, and more. The sky's the limit for those using your good reputation and assiduously built good credit to satisfy their lascivious greed. If any of these were to happen before you try and tackle this yourself or maybe hire a credit specialist here are some major steps: Call the creditors and companies that were used when your identity was stolen Place a fraud alert on and pull an updated copy of your credit report. Report the identity theft to the FTC (Federal Trade Commission) File a police report Close new accounts in your name

60 Get bogus accounts removed by disputing or hiring a credit specialist Adding a credit freeze, this way no one can pull your credit before the creditor attempting to loan you money contacts to verify with you directly first. Report your identity stole to the social security administration lastly check with IRS to make sure no one used your name to file fraudulent tax returns against. All in all identity theft is not the end of the world, but it will take a little work on your behalf and some time to fully recover from. CREDIT LAWS AND PROTECTION RIGHTS FOR CONSUMERS Throughout this entire credit course we have talked about various things such as, how to repair your credit, recovering from bankruptcy to battle student loan debt. After completing this course you should be well versed in not just about the credit industry, but on how to restore your credit and build business credit. A lot of people have misunderstood the credit repair industry and simply do not realize there are many laws (federal laws) put in place to protect us as consumers. By law if something is reporting negatively on your credit report, if you dispute it the creditors and credit bureaus have to investigate. If they are unsuccessful in coming back with valid proof on what you are disputing they have to remove that debt and that is law. In the lesson we will dissect some of the sub laws in the Fair Credit Reporting Act that can and will benefit you on your journey to restoring your good credit. For starting what is the FCRA (Fair Credit Reporting Act): The Federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every Consumer Reporting Agency (CRA). Most CRAs are credit bureaus that gather and sell information about you - such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses. You can find the complete text of the FCRA, 15 U.S.C u, at the Federal Trade Commission's web site The FCRA gives you specific rights, as outlined below. You have the right to know what is on your report. At your request, a CRA must give you the information in your file and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA if you request the report within 60 days of receiving notice of the action. You also are entitled to one free report every twelve months upon request if you certify that (1) you are

61 unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise, a CRA may charge you up to $9.50. You can dispute inaccurate information with the CRA. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRA s to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change. Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source. Lastly here are 4 sections of the FCRA that will equip you without a doubt to make you more savvy when it comes to you restoring your credit. Section Communication In Connection With Debt Collection Collectors may only call after 8:00 a.m. and no later than 9:00 p.m. Creditor must only contact power of attorney or representative, not you. Collectors may not contact the consumer s place of employment. Collectors may not communicate with any person other than the consumer himself. (unless authorized by the consumer to do so.) This includes family members. Section Harassment or Abuse Collectors may not use threat of violence or other criminal means. Collectors may not use profanity. Collectors may not continuously call, annoy, abuse or harass consumer.

62 Section 807 False or Misleading Representations Collectors may not use any false or misleading representations. Collectors may not threaten to take any action that cannot legally be taken. Collectors may not give or threaten to give out false credit information. Collectors may not distribute any falsely written communication simulating any document authorized, issued or approved by any court, official or agency of the United States or any states. Collectors may not use any name other than the true name of the collector's business, company or organization. Section 808 Unfair Practices Collectors may not use unfair or unconscionable means to collect or attempt to collect any debt. Collectors cannot accept a check or other payment from the consumer that is postdated by more than five days. Collectors may not solicit any postdated check for the purpose of threatening or instituting criminal prosecution. Collectors may not charge consumer any charge or price for communication. Collectors may not take or threaten to take non-judicial action to effect dispossession or disablement of property. Collectors may not use any language or symbol other than the collector s address and name on any mail sent to the consumer. SAMPLE LETTERS: LESSON 26: In our final lesson we will leave you with some sample letters to assist you with your final step of credit repair and restoration: Be persistent and do not give up if a creditor does verify that the questioned account is indeed accurate. You have the right to question the accuracy of your report as frequently as you feel necessary, and every letter* must be responded to. Keep a record of all letters sent and responses receive

63 Results can not be guaranteed by solely using letters but this is a starting platform to get you going and moving toward financial and credit literacy. This letter is to obtain a free credit report based on credit denial. If you have been denied credit based on the information in your credit file within the last 60 days; you are entitled to a free copy of your credit report from that credit bureau.

64 This letter is used for disputing inaccurate information on your credit report with the credit bureaus. You can dispute anything you feel is inaccurate. This letter is used for disputing outdated information on your credit report. The Statute Of Limitations vary from state to state. This letter should be sent certified mail return receipt.

65 If you would like to find out the length of time items can remain on your credit report, go to This letter is used as a reminder notice to the credit bureau that they have not been able to verify the accuracy of the items previously disputed within 30 days so under federal law the item(s) must be deleted. This letter should include the original dispute letter and be sent certified mail return receipt.

66 GLOSSARY 1099-C: if a debt is canceled, forgiven or discharged, you must include the canceled amount in your gross income, and pay taxes on that income, unless you qualify for an exclusion or exception. Creditors who forgive $600 or more are required to file Form 1099-C with the IRS.