1. finance
2. personal finance
3. lending
4. credit cards

How to Escape The Credit Trap For Life
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How to Escape The Credit Trap For Life
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Steve Mertes and Jeri Koppleman
Let's Start By Taking the Mystery Out of A Credit Score!
The Chart Below Shows
What You Will Pay For A $15,000.00 Car
Based on Your Credit Score
Car Purchase $15,000.00
Zero Down 5 Year Loan
Credit Score Mo/Pmt Int Pd Total Cost
720 – 850
$324.54 $4,472.00 $19,472.00
690 - 719
$330.81 $4,848.51 $19,848.51
660 - 689 $343.09 $5,585.23 $20,585.23
(average score in America today!)
620 - 659 $356.69 $6,401.22 $21,401.22
590 - 619 $385.48 $8,128.91 $23,128.91
500 - 589 $391.55 $8,492.79 $23,492.79
(15.72%/is the interest rate on $23,492.79 )
Diff Pd
zero
$ 376.00
$1,113.23
$1,929.22
$3,656.91
$4,020.79
Millions with poor credit are paying 29.00%/Int (over $8,000.00
more) for a $15,000.00 Car! No wonder they never get ahead!
Rates are for illustration purposes only & subject to change
I Hope I Grabbed Your Attention
on the Importance of Having Good Credit!
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How to Escape The Credit Trap For Life
House Purchase of $300,000.00
30 Year Fixed Rate Loan
Credit Score Mo/ Pmt
720 – 850
$1,766.00
700 - 719
$1,806.00
675 - 699
$1,981.00
Total Cost Difference Pd
$635,760
zero
$650,160
$ 14,400.00 more
$713,160
$ 77,400.00 more
675-699 is the Ave. Score in America today ($215.00 more/mo.)
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620 - 674
$2,369.00
$852,840
$217,080.00
($600.00 more/mo)
560 - 619
$2,678.00
$964,080
$328,320.00
($912.00more/mo)
Rates are for illustration purposes only & subject to change
Did You Catch That….
The Average Credit Score in America
Pays $77,400.00 more for a
$300,000.00 Home!
Steve Mertes and Jeri Koppleman
3rd Printing since original copyright in 2006
Copyright © 2008 Life House Publishing
Published in the United States of America. All rights reserved under
International Copyright Law. Contents and/or covers may not be
reproduced in whole or part in any form without the express written
consent of Life House Publishing
No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the written prior permission of the author.
FIRST EDITION
Published by Life House Publishing Inc.
3520 E Brown Road, Mesa, AZ 85213
(480) 964- 4GOD
ISBN 1-58588-962-4 trade paperback
How to Escape the Credit Trap Forever
Office Number for book orders;
(480) 200-2128
or visit www.HelpingHandCredit.Net
Reprinted by:
International Minute Press
1416 N. Scottsdale Rd.
Scottsdale, AZ 85257
phone 480 946 1708
fax 480 946 2621; www.impressaz.com
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
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How to Escape The Credit Trap For Life
DEDICATION:
Over the years, Steve Mertes has noted that about 95% of his clients have gotten into credit
problems through no fault of their own. They had an excellent credit rating, and were managing their
finances well. However, it was all destroyed in just a matter of months by an unforeseen circumstance
in their life, i.e. loss of job, divorce, heavy medical expenses, death in family, ID fraud, etc. These
things created a hardship which made them unable to continue paying their monthly obligations on time.
We are all vulnerable. This could happen to anyone at anytime. This book is dedicated to all of those
people.
This book is also dedicated and committed to God because of all he does and all he provides for
us. A verse in Jeremiah (1:5 – 9) was part of the inspiration to put all of this into writing:
“Before I formed you in the womb I knew you, before you were born I set you apart . . . You must
go to everyone I send you to and say whatever I command you. Do not be afraid of them, for I am with
you . . .Then the Lord reached out his hand and touched my mouth and said to me, “Now I have put my
words in your mouth. . .”
MISSION STATEMENT:
Our mission is, with God’s help, to provide the general public, everywhere, with the
highest quality information available to help them counteract the injustices found in
the credit reporting industry that are costing them thousands of dollars in lost credit
potential. We hope to take our readers from the status of ignorant “victims” to that of
highly educated, credit savvy consumers who can rise above the “system” to a new level
of living the Great American Dream not only as it should be lived, but, God willing, as
it can be lived for each and every American.
Steve Mertes and Jeri Koppleman
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About the Authors
Steve Mertes truly is one of America’s top experts in helping people with credit problems
because he has literally devoted thousands of hours, over many years, to studying this industry, from
every different angle, and his study, inquisition and first-hand experiences have earned him a degree of
credibility unparalleled in the industry. He has been in the ‘heat of the battle,’ fighting the system for
his clients, year after year. And he has the results and references to prove it. He frequently advises
other financial ‘experts,’ many with college finance majors, on credit-related issues.
He did all of this for one reason, and one reason only – to be able to help his clients get out of,
and avoid getting into, the credit trap. His quest for information, and his never-ending research, has
culminated in a ‘stack’ of information that Americans need - those who are already caught in the trap, in
order to get out, and those who may just be starting out in life, in order to avoid ever getting caught in
the trap of financial slavery.
Steve has been in the banking and finance arena for over 30 years, first as a former loan officer,
collection officer, assistant bank manager, and finally manager within a large chain, prior to beginning
his own financial consulting service. While a branch manager for a large Savings and Loan in Phoenix,
Steve’s branch consistently had the highest annual audits of over 30 branches, year after year. As a
credit analyst and consultant for the past 6 years, and the founder of HCS (Helping-Hands Consulting
Services), Steve has seen and worked in every aspect of this industry and has long felt the need for
ordinary people to understand the workings of the highly secretive and mysterious, multi-billion dollar
credit data businesses.
He has focused specifically on helping people get their financial lives back on track by working
with mortgage companies, banks and realtors, who refer their clients to his company for help. His
expertise has enabled their clients to get the loans they so desperately want and need, and the phone at
HCS never stops ringing, as hopeful clients clamor for limited time and attention.
Among the dozens of testimonials and accolades that he receives daily, we have herein stated
just a few. His work has been called,
“a valuable resource not only for us (the mortgage broker), but for the people he is
helping gain a new found freedom to achieve what they have always wanted. As we refer those
in need of credit help, Steve does a phenomenal job at promptly and professionally contacting
the future borrowers we refer to him. He is of tremendous service to us.” (Ryan Fritzsche,
Assistant Loan Officer).
He has been told, by Senior Loan Officer, Scott Wedge, that his company is
“definitely head and shoulders above them all.”
Bill Krone, Mortgage Broker, tells us,
“HCS is the best company out there, and the only one I recommend to those in need.”
Jackie Post, a Broker/Realtor states,
“I have been working with Steve at HCS for about 3 years. Every client I
have referred has received professional, friendly and fast service. I don’t know how they do it,
but the results have been phenomenal. HCS has definitely met the needs of my clients over and
over.”
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How to Escape The Credit Trap For Life
An Accountant, and Loan Officer, Ron Sears has this to say:
“HCS is incredible in helping our clients. In just over a month, they
successfully helped a recent client go from a 580 to a 696 mid-score which allowed us to get her
a 100% in-house conventional loan. My client was thrilled, and so was I!”
The fact that the HCS clientele keeps growing and the number of referrals is quickly escalating,
gave Steve an indication of the great need for this educational material to be compiled and distributed in
a much bigger way so that his efforts can be multiplied and millions can be reached.
Jeri Koppleman, author and educator, has a Masters Degree in Education and Language Arts,
with 20 years of teaching experience in the public schools. After her husband passed away, 25 years
ago, she left the education field and moved to Arizona with her two young daughters. She has since
been an entrepreneur, owning and operating several successful retail stores, and purchasing real-estate as
an investment. She purchased over a million dollars worth of real estate in the Phoenix area in the
1980’s and became president of the Phoenix Millionaire’s Club. She has also authored six books,
worked with Zig Ziglar teaching his “I Can” and “Raising Positive Kids” seminars to teachers and
school administrators, appeared on several radio talk shows and television specials, including “Fast
Track to Fortune,” and “Lifestyles of the Rich and Famous.”
One of Jeri’s books, an anthology called The Stress Strategists, has an introduction by Dr.
Norman Vincent Peale and a forward by Dr. Ken Dychtwald, one of the nation’s foremost authorities on
stress. This book resulted from her own first hand experiences in dealing with stress and credit
problems due to circumstances beyond her control after the death of her first husband.
Jeri has taught nationwide seminars on sales motivation and goal-setting, using her own basic
goal-setting system which she originally designed for grade school children. She was criticized by the
school administrators for using it with her 4th grade students, on the basis that it “isn’t part of the
curriculum.” Every subject in the curriculum had a specific number of minutes to be taught daily, and
had she continued to include her ‘goal setting’ techniques, she would have been fired. Jeri believed as
strongly back then as she does now, that the public education system simply does not arm young people
for living and becoming successful in the real world. So, she put her system on the back burner, and
eventually revised it for business professionals, teaching it in seminars and workshops all over the
southwest. Among her many accolades, here is what some participants had to say about her unique
goal-setting system:
“My compliments on your outstanding program presented to our staff and guests here last
month. I have been hearing about it ever since . . . As you had informed me, the goal-setting program
was different than any I had ever seen and extremely simple and useful. I am looking forward to using it
for many years. This is a program so worthwhile and valuable that I feel we will be very successful with
it.”
Bill Likins, V.P. Resort Operations, Fairfield Continental, Flagstaff, AZ
“My staff and I felt your goal-setting seminar was absolutely outstanding. It provides
professionals and independent business people with invaluable information for improving their practice,
profits and productivity. We highly recommend it.”
Dr. Richard Lewis, Colorado Springs, CO
Steve Mertes and Jeri Koppleman
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“The seminar gave me a multitude of techniques and tools that I’ve since used with my staff.
We are now better equipped to achieve our goals, both personal and professional.”
Minna Seleg, V.P. Western Savings and Loan
“About two months ago, my wife and I attended the best goal-setting and personal achievement
seminar we have ever experienced. In ten years of practice, we have had the privilege of learning goalsetting methods from some of the great motivational masters. Each one had a great program if we
would have just stayed with it on a day-to-day basis. Jeri’s system is a method by which you will daily
watch yourself becoming the person you really want to be. This system is unique, in that it not only
shows you how to set goals, but it helps you to become all you need to be to achieve those goals in a fun,
simple and rewarding way. It can be geared exclusively to the people in any given profession . . . I can
see the results in my practice already. The ideas are so easy to use and the potential with this system is
unbelievable.”
Dr. J. D. Brown, Scottsdale, AZ
“An inspiration for anyone wanting to unleash their hidden potential in the most positive way
. . . invaluable for all self-starting business people.”
Robert Solomon, Vice President, Congress Financial Corp., Los Angeles, CA
“Your Daily Goal Accounting System is a unique and effective method of getting what you want
out of life. It provided a new resolve to do it right . . . An easy-to-construct and simple-to-follow plan
. . . We have incorporated your system for use in our office among our staff.”
The Doctors and Staff of First Chiropractic, Scottsdale, AZ
Now retired, Jeri agreed to share her experience and collaborate with Steve in compiling the data
and writing this book, since his consulting business is keeping him too busy to do the actual writing.
The result, you will find, is the most thorough compilation of credit knowledge ever made available to
the American people.
About the Credit Card Industry
Some pertinent facts as of January, 2007:
1.5 billion
8.6
is the number of credit, debit and gift cards currently in circulation in the US;
is the number of credit & debit cards carried by the typical American cardholder
(this is almost triple the number of cards needed for the best credit scores);
$16 billion is the total profits in 2005 for just the 10 largest U.S. credit card issuers;
$14.8 billion is the ANNUAL amount levied on cardholders in late and over-limit penalties;
$3.5 billion is the amount spent for the privilege of using cards with annual fees (this is in
addition to the $14.8 billion above);
$9,159
is the average credit card debt/household as of Jan. 1, 2006, compared to:
$2,966
which was the average credit card debt/household as of Dec. 31, 1990.
(The above figures are from the AARP BULLETIN January 2007)
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How to Escape The Credit Trap For Life
TABLE OF CONTENTS
Foreward
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PART 1 - The Cheese is the Thing!
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Chapter 1 – An Important Introduction
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I. More? You Want More (Cheese)? No Problem!
- The Store Credit Card Trap
- Mismanagement of Revolving Store Credit
II. A Better Mousetrap
III. Have You Seen Our Deluxe Model Trap?
Chapter 2 – Parents Don’t Let Your Children Grow up to be Debtors
I.
II.
III.
IV.
V.
VI.
Hard Work, Sacrifices, and Planning
Things We Never Learned in School
Age Old Biblical Principles – They Still Apply Today
Therein Lies our Problem
Teach Your Children How to Avoid the Credit Trap
If We Could Only Turn Back the Clock
Chart – How Compound Interest Works
Chapter 3 – Section A: Credit is All About Debt
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I. What is Debt?
II. Getting Credit as a Beginner
III. Do You Know. . .?
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Section B: Why Get Credit in the First Place?
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I. An Historical Perspective
II. Is There Such a Thing as Good Debt?
III. Many Reasons to Use Credit
IV. Not All Reasons are Good Reasons
V. What is Wrong with this Picture?
VI. So Credit Must be Good for the Economy . . .
VII. Is There a Downside to This?
VIII. What Does the Use of Credit Really Cost?
IX. What is Lack of Good Credit Costing You?
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Section C – Definitions, Examples and Applications
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PART 2 - Learning the In’s and Out’s of the Maze
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Steve Mertes and Jeri Koppleman
(and How to Get the Cheese Without Getting Caught)
Chapter 4 - Know the Basics
I.
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Where Are We Heading?
Chart – Interest Rates by Credit Scores
II. Basic Facts You Should Know About the “System”
(That No one ever Taught You)
III. Creditors Adding and Removing Data From Your File
IV. Credit Scoring (Prime, Sub-prime, Cautious)
A. What Do Underwriters Consider?
1) Payment History
2) Outstanding Balances
Chart – Overall Ratio
3) Length of Credit History
4) Types of Credit
5) Inquiries
B. Reasons for Credit Denial
Chart – Numbered Reasons by Bureaus
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V. What Other Factors Can Affect Your Credit Score/Credit Worthiness?
A. Having No Credit
B. Marital Status
C. In the Event of a Divorce
D. Co-Signing for Other People’s Loans
E. Renting or Leasing a Home
F. Your Address(es) or Lack of One
G. Bankruptcy and Other Delinquent or Derogatory Accounts
H. Being Self-Employed
I. Having a Cell Phone Only
J. Women and Credit
Joint User Status
Authorized User Status
Individual Accounts
K. Your Credit Profile
L. Checking/Savings Accounts
M. Time of the Month You Purchase
N. Having Your Credit Pulled at the Wrong Time of the Month
O. Co-mingling
P. Being an Immigrant
Q. Being a Senior Citizen
R. Doing Your Homework
S. Good Accounts Not Listed
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VI. How fair is the current credit rating system?
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How to Escape The Credit Trap For Life
Chart – Odds of Default
VII. Your Credit ‘Bill of Rights’
Chapter 5 – Myths, Misunderstandings and Half-Truths
I.
II.
III.
IV.
V.
VI.
Where Do These Ideas Come From?
The FCRA Has Solved all the Problems with Credit Reporting
A Creditor will Only Pull my Credit Once
Will Bringing your Bills Current Raise Your Credit Score?
Why Do Lenders Insist on Debts Being Paid Before Loan Approval?
Dangers of Revolving Credit
A. The 30% Rule
B. Beat the Store at Their Own Game
C. Read the Fine Print
VII. Can You Really Get No Interest for Years and Other Bargains?
VIII. Filing for Bankruptcy Will Get Rid of My Debts
IX. One Late Pay Can’t Really Hurt My Score, Can It?
Chart – Points for Late Pays, Etc.
X. Cutting Down on Credit Inquiries – It’s Possible!
XI. Working with Collection Agencies (CA’s)
XII. Getting Free Credit Reports
XIII. It’s Impossible to Plan Ahead and Control Your Own Credit Score
XIV. Discounts for Good Credit
Chart – Discounts
XV. Isn’t it Better to Pay More in Interest & Get the Home You Want Now?
XVI. People Don’t Need to Establish Credit Until They are
Ready to purchase a Home or Car
XVII. What About my Kids’ Credit Reports?
XVIII. I'm More Apt to Get Credit if I Do a Good Job Filling Out Application
XIX. Are the Stated Finance Charges Really What I'm Paying in Interest?
Letters: Stop Harassment/Cease & Desist/Statutes of Limitations
Ch. 6 – How to Run the Maze and Win the Cheese Every Time
I. Your Credit – Your Lifeline
II. How to Get Your “Financial House” in Order and Keep it That Way
III. Achieving the Perfect 800 Score IS Possible!
A. Getting Your First Credit Card
B. Building Credit as an Authorized User
C. Paying All Your Bills on Time
D. Applying for Other Credit
E. Don’t get Too Much Credit
F. Watch Out for Inquiries
G. Show Stability
H.
Learn How to Manage your Credit Cards
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1)
2)
3)
4)
5)
6)
Watch Your Balances
Closing Good Accounts
How Many Credit Cards You Should Have
Balance Transfers and Zero Payments, Zero Interest
Stop Solicitations
Review Reports Regularly
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I. Dozens of Other Do’s and Don’ts
Do have credit in your own name…
Do get good installment accounts ‘cross reported’…
Do keep paid accounts in good standing open…
Do pay everything on time…
Don’t let anyone pull credit while seeking home loan…
Do be patient while your loan is closing…
Don’t apply for every new credit card offer…
Don’t carry a heavy debt load…
Do pay more than the minimum…
Do pay off credit cards before installment loans
Don't cut up credit cards and then close the accounts. . .
Do understand hard and soft inquiries…
Don’t carry high balances…
Don’t take out loans with finance companies…
Don’t ‘credit surf’…
Do keep your mortgage payments current…
Don’t trust a bill-paying service…
Don’t let accounts get charged-off…
Do check your credit for names and addresses…
Do consider a monthly monitoring service…
Do work at preventing I.D. theft…
Don’t assume what is good for one consumer …
Don’t let vehicle get repossessed…
Don’t declare bankruptcy…
Do change your habits…
Don’t postpone taking action…
Don’t join debt-management service…
Do have name removed from lists . . .
Don’t think paying off collections will result in points…
Don’t let your home go into foreclosure…
Do take courage . . .
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J. Synopsis of Rules to Obtain the Awesome 800 Credit Score
1) Bankruptcies, foreclosures and tax liens
2) Late payments
3) Judgments, collection accounts and liens
4) Mortgage payments
5) Credit cards
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How to Escape The Credit Trap For Life
6) Credit card balances
7) Installment loans
8) Finance companies
9) Names and Addresses
10) “Seasoned” accounts
11) Sharing Credit cards
12) Co-signing
13) Emergencies
Form Letter: Request for Correction of Personal Information
PART 3 – What If You’re Already Caught in the Trap?
(You’ve Got the Cheese, but the Trap’s Got You)
Chapter 7 – We Have Been in The Same Trap
I.
II.
III.
IV.
Our Stories are Just Like Yours
God Got Ahold of Us
Becoming a Slave to Your Lenders
Saved in More Ways than One
Chapter 8 – How Did I Get Into This Trap (along with half the country)?
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I. It’s Never Too Late to Turn Things Around
II. Getting Out of the Hole You’ve Dug
A. If Things are Currently Out of Control
B. Know the Statutes of Limitations and Use Them to Negotiate Debts
C. Other Debt Negotiation
D. Use Settlements to Help Restore Your Credit
E. Joining an Organization
F. Increasing Credit Limits
G. You May Qualify for a Free or Discounted Credit Report
H. Learning How to Read a Credit Report with Real Life Examples
Credit Reports – Examples and Explanations
I. Getting a Checking Account after Problems
J. Disputing Negative items in your Credit Report
- Using Personal Letters
- Disputing Online
- A Few More Guidelines
K. Using a Credit Repair Service
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Chapter 9 – Free From the Trap and Ready to Move On
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I.
Quit Living in the Past and Focus on Building a New Credit Future
A. Take the Test!
B. Agree to Make a Few Simple Commitments
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Steve Mertes and Jeri Koppleman
II.
III.
IV.
V.
What is Your Debt Ratio?
Budgeting with Your ‘Personal Spending Plan’
Beginning Your Own Personal ‘Debt Elimination Plan’
Obtaining Positive New Credit (Trade Lines)
A. Savings Account Loans at Credit Unions
B. Obtaining a New Installment Loan
C. Secured Credit Cards
D. Getting Rent Reported
E. Cash Reserve Accounts
VI. Be Careful about Credit Rebuilding Sales Programs – Deal or No Deal?
VII. Bookmark This Section
VIII. Once You’re There
Chart – Stock Market Investing
PART 4 – Appendix and Worksheets
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I. Contact Information for Creative Innovations and Steve
II. Products and Services to Help You Increase Your Score
III. Contact Information for the Three Bureaus
IV. How to Contact Other CRA's
V. Other Contact Information
VI. Financial Help from a Christian Perspective
VII. Non-Profit Investment Groups
VIII. Other Investment Groups and Financial Information
IX. Additional Helpful Resources
X. Worksheets, Charts and Sample Letters
Setting Your Goals – A few brief facts about goal-setting
My Short and Long Term Goals
Your Personal Spending Plan (sample)
Your Personal Spending Plan (reproducible)
HOW TO CONTACT US BY PHONE OR EMAIL
Creditor Information Worksheet (reproducible)
Debt Elimination Plan (worksheet – reproducible)
Projected Monthly Retirement Income
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A CALL TO ACTION (to loan officers and real estate agents)
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How to Escape The Credit Trap For Life
Foreward
Did you ever wonder why late pays, charge-offs, collections and judgments
stay on your credit reports for 7 years? Where did that timeframe originate?
The truth is, our entire legal system is based on the Ten Commandments and
the Forgiveness of Debts as handed down by God in the Holy Bible.
Deuteronomy 15: 1- 2 states:
"At the end of every 7 years, you must cancel debts. This is how it is to be
done. Every creditor shall cancel the loan he has made to his fellow (man).
He shall not require payment . . . because the Lord's time for cancelling
debt has been proclaimed."
Steve’s extensive research and experience have unlocked the mysteries and unveiled
the secrets, making this book the very best and most comprehensive work to date.
Together he and Jeri have uncovered a treasure trove of solutions and information to help
all Americans, from teens to retirees, to finally understand and conquer one of the most
important components of every consumer’s life – their credit score. It is, in fact, from a
consumer standpoint, THE most important component of all of our lives, and one in
which most of us are grossly uneducated.
For example, most people have no idea of the following:
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What you need to do to achieve an 800 credit score;
What the average credit score in America is;
Why numerous companies continually pull your credit for all kinds of reasons;
When and how often your credit score is adjusted;
How many points one mortgage or credit card late pay will lower your score;
How long it will stay on your credit report;
Which cards are hurting your score, even though you pay on time every month;
By what date each month you should pay credit cards to keep your score high;
Age-old Biblical principles can help you control your credit score today;
What your debt to credit ratio should be, at all times;
Mistakes couples make with joint accounts;
The dangers of closing accounts;
How much you are penalized for having credit scores too low;
How low is too low;
How the 7-year principle works, and why it doesn’t always work;
How and why you must “earn” the right to a lower interest rate;
Rules for applying for credit through the mail;
How many credit cards each person should carry;
Mistakes people make with doing balance transfers;
The dangers of no payments or interest for 2 years or more;
Steve Mertes and Jeri Koppleman
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What types of “good credit” are lowering your credit score;
The dangers of co-signing for a loan;
At what age a young person should begin taking control of their credit and how;
What credit problems are unique to women;
Your rights if things are out-of-control;
How the Statutes of Limitations laws can protect you from creditors, etc.
Why some people don’t even have a credit score;
How pre-approved offers can affect your credit score;
The effect finance companies can have on your credit score;
How you can get your rent reported to all 3 bureaus to improve your score;
The effect on your credit of a spouse having bad credit prior to marriage;
How co-signing for a loan can affect a credit score;
How renting or leasing a home can affect your credit score, etc.
In this book, you will learn the truth about all of these little-known facts and numerous others,
as well as real, workable solutions to your own personal credit needs. By providing education
about these facts, tailored to each client’s particular needs, Steve’s consulting company, HCS, has
helped countless people get their lives back on track. By picking up and reading this book, you
will be helping yourself to get your own life back on track. There are no accidents in life – you
have come to this point for a reason. Everything in your life, from your conception to your last
breath, has been pre-ordained by the God who created us all.
“Oh, Lord, you have searched me and you know me. You know when I sit and when I rise; you
perceive my thoughts from afar. You discern my going out and my lying down; you are familiar
with all my ways. Before a word is on my tongue you know it completely, O Lord… For you
created my inmost being; you knit me together in my mother’s womb. I praise you because I am
fearfully and wonderfully made…All the days ordained for me were written in your book before one
of them came to be.” Psalm 139: 1 – 16
The Lord often allows us to get into painful situations so that he can use those circumstances
to bring us to new realizations in our lives. You’ve all heard, ‘there is no pleasure, without pain.’
How would we ever know true joy if we didn’t suffer hardship? God uses us, through our
suffering, to help others going through similar problems. We, the authors, have both been caught
in the credit trap, and have had to dig our way out, suffering through many years of entrapment,
as some of you are doing now. Allow us to ease your suffering, create reassurance, and help you
to get out of the trap and stay out forever (you can read our whole stories in Chapter 7).
Steve loves hearing how much he has helped his clients, but his heart is to help those in need
on a much broader scale. He knows this industry inside and out, and with this book, he hopes to
reach beyond the mortgage companies, banks and realtors, right to the everyday people who
desperately need the material in this book, and who want to know that there is hope. This book
was written for that purpose, and to share “do-able” solutions for people who feel hopelessly
entangled by the injustices of our credit reporting system – those caught in the credit trap.
As the credit industry explodes around us, more and more Americans are attempting to
understand what is happening. Many are shocked to learn that they are being abused and
discriminated against by the credit reporting process, and many others aren’t even AWARE of
what’s happening to them.
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How to Escape The Credit Trap For Life
They have all inadvertently become the victims of an industry that is dominated by
unregulated credit reporting businesses and credit managing services that use unscrupulous
tactics and mismanage their personal information. This is causing millions of Americans, who
may already have financial problems or who may be in the lower tax brackets, to pay the highest
interest rates, and consequently get pulled further and further into the trap, while those with good
credit, sometimes by luck alone, are getting further and further ahead. Once in the trap, we are
finding it is very difficult to get out, and for those without the necessary knowledge it will remain
impossible.
Today, in this age of vast technology, people have more ‘worldly wisdom’ than ever before,
but when it comes to basic principles of right and Godly living, we are fast becoming ignorant.
1 Cor. 1:19-20 tells us,
“For it is written: ‘I will destroy the wisdom of the wise; the intelligence of the intelligent I will
frustrate.’ Where is the wise man? Where is the scholar? Where is the philosopher of this age? Has
not God made foolish the wisdom of the world?”
Could all of this be true? Is there really a phenomenon going on in this country? Are people
in the credit repair industry the only ones paying any attention to it? Hardly . . . see for yourself
what others have to say:
“If you fall behind on your bills, the impact on your credit report could snarl your life for years.
Even after you’ve paid your debts, your poor credit rating could prevent you from buying a car or even
renting an apartment.”
USA TODAY
“Because let’s face it: It’s not enough to be ‘pretty sure’ you have a perfect credit record. A
negative entry or mistake can creep into the files of the best credit customers. It could even happen to
you.”
American Express CreditAware
“It’s a sure thing your credit history will be scrutinized. That’s why it’s more important than ever
that all the information on your file be correct.”
Modern Maturity, Sept/Oct. 1997
“Companies that report inaccurate information will be liable. The amendments allow consumers to
sue under the Fair Credit Reporting Act against lenders that knowingly allow false information to
remain in a (consumer’s) file.”
The Associated Press
It’s a little-known fact, but ever so true, that about 90% of Americans have inaccurate
information on their credit reports. Steve and Jeri want to use their God-given talents and skills,
along with their years of experience and expertise, to educate millions of Americans to help them
obtain relief from the ramifications of mismanaged credit, and help others to avoid falling into the
“credit trap,” which could ensnare them and their families for decades to come. They believe that
God is using the specific talents and skills he gave them for this very purpose, since Eph. 2:10
states,
“For we are God’s workmanship, created in Christ Jesus to do good works, which God prepared in
advance for us to do.”
Steve Mertes and Jeri Koppleman
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
19
20
How to Escape The Credit Trap For Life
PART ONE
THE CHEESE IS THE THING!
Chapter 1
An Important Introduction
I. More? You Want More (cheese)? No Problem!
America, this is your wake up call! It’s time we all understand that even though credit cards
are essential for building and maintaining a great credit score, the credit scoring system in our
country is going to penalize us heavily if we don’t manage our credit (cards) correctly.
THE AVERAGE CREDIT SCORE IN AMERICA IS
678
(and it should be 720 or higher).
Do you know why it’s so low?
It all has to do with the type of credit you have and how you manage it! And here is just one
thing very few people know or understand – See if you can relate to this common scenario:
YOU JUST WALKED INTO A STORE LOOKING FOR FURNITURE, OR A COMPUTER, OR
SOMETHING THAT’S EXCLUSIVE TO THE STORE YOU’RE IN.
The stores that issue us credit aren’t ignorant. When you walk in, and look at some things you
may want, you may decide to apply for a credit card with them. The clerk has been trained to ask
you, “What is it you want to purchase?” or “Have you decided on a purchase yet?” Or they will
tell you they can’t RUN YOUR CREDIT until they know how much your purchase is going to be.
“Go ahead,” they’ll say, “and browse around, pick out something you want or like, bring it up to
the front and we’ll fill out the application.”
So, let’s say you’re in a furniture store. You pick out a beautiful set of furniture, and best of
all, the whole set is on sale today . . . Man, it’s your lucky day – you just have to buy it!
Let’s say the furniture totals $3000.00. “Well,” you think, “that’s a lot of money, but hey!
Maybe I can qualify for their store card and put the whole purchase on credit and pay it monthly.
And, wow! Maybe I can get the whole set.” Your heart is pounding (and your spouse’s), and as
Steve Mertes and Jeri Koppleman
21
you approach the ‘credit person’ you may be thinking and praying (if you are a Christian), “Please,
God, let us be approved. You know how badly we need new furniture. The kids have worn holes
in the old set, and it just looks awful when we have friends over for Bible study. If you get us
approved, we won’t ask for anything else for years.”
The clerk hands you the application; you nervously fill it out and you reluctantly hand it back
to her. Now comes the dreaded running of your credit report. She says it will only be a few
moments. As the minutes tick away, you dream of the new furniture in your home – you are so
excited you can hardly wait to get it. You look at your watch. “What’s wrong?” you think, “Why
is she taking so long – look at the look on her face – I just know she’s going to tell me I’ve been
turned down.” You imagine her approaching you with a denial and stating, “I can’t tell you why
you’ve been turned down, but you’ll get a letter from the credit bureau we used to check your
credit – thanks for coming in. Maybe you can try again in a few months.” You picture yourself
walking out of the store, with your tail between your legs, because she said it so loud that half the
store heard her say you were declined, and now they all know you are losers. You think about this
over and over and say to yourselves, “If only our credit score was better, we could have purchased
that furniture that we so desperately need.” You throw yourself a little ‘pity party.’
Suddenly your thoughts are broken by the sound of your name – “Mr. and Mrs. Smith,
please.” You walk over to her like you’re on your way to the gas chamber. You don’t want to
seem over-confident and you don't want to act like you have the worst credit in the world, either.
Your throat is dry; you swallow and say, “Are we approved?” She says, “Congratulations, the
store just approved you for $4000.00. You both say, “WOW!” You feel like celebrating the special
occasion. After all, you just made the grade. You were going to stop at McDonalds for lunch, but
now you have to really celebrate – after you leave here, you’ll want to go to a fancy sit-down
restaurant – after all, you deserve it!
“So, Mr. and Mrs. Smith, I’ll go and get a store clerk to ring up your purchase. Is there
anything else you wanted?” You look at your spouse and say, “You know, we do need new
lamps, and look at those great looking end tables and coffee table – wouldn’t they look great with
the other furniture in our family room? Remember, the store just gave us $4000.00 to spend – it’s a
store card, and we can’t spend the money anywhere else, so let’s just get everything today.”
Luckily for you, the total of all your purchases, with those fancy throw pillows you tossed in at the
end, comes out to $4000.00 exactly.
Here is where your problem begins. And here is where America’s problem began. Banks
started issuing credit cards that could be used anywhere in the world – Visa, MC, Discover, etc.
Then major store chains sprang up all over – like Best Buy, Circuit City, Home Depot, Walmart,
etc. Somewhere and somehow one or some of these companies convinced the banks, like HSBC
Household Bank, that if you issued us a store credit card, our customers could then apply for
credit at our store and the card would only be good at our store. America said, “Wow! How great
– now I can go get my new computer and charge it on your store card and just pay back
$25/month! And once I pay that down a little bit, I can come back in and buy that 52 inch Plasma
TV I’ve been wanting! And my kids sure like the new play station, and my wife has been wanting
new furniture, and we want to do some remodeling, and on the way home I can stop at a Walmart
Superstore and charge my groceries as well!” America’s battle cry became ... CHARGE! BRING
IT ON!
So, what’s the problem you ask? America has unknowingly fallen into the revolving credit
trap and the stores love us to death.
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How to Escape The Credit Trap For Life
For those of you who are older, you may remember, that a store used to write up such a
purchase on an installment contract, give you a set monthly payment, and expect a check from you
each month until you paid it off. And, if you paid it off early, you used to save money on the
interest. Is that what’s happening today? The installment loan contract is ‘gone with the wind’ and
just about every major store today offers a credit card, because they know that they have a much
better chance of you pulling out the plastic to buy more goods and services, than they would with
writing up an installment contract for each purchase and setting up a re-payment plan. Who
wants to go through all that hassle? The stores know by now that Americans want what they want
today and they are more than willing to pull out the plastic and CHARGE! So you say again,
“What’s so bad about that?”
Let me try to paint a picture as to why the average score is 678! When a bank issues you a
credit card, you have a credit limit with a zero balance. If you never use the card at all, you pay
nothing.
For example:
You just received a new credit card from Bank of Wherever
High Limit: (Amount of credit extended to you)
$1,000.00
Balance: (How much you owe)
0.00
Then you charge $250 on the card, and one month later your bill shows that you have a limit
of $1000, and you owe $250. Using the 30% rule (See Ch. 5), you are well under the $300 balance
needed to keep your debt-to-credit ratio at a well-managed level. If you keep it under 30%, you
are successfully playing and winning the credit game. Keep it under 30% and your credit score
will remain high – charge over 30% and you have just started to lower your score.
Now, let’s go back and take a closer look at Mr. and Mrs. Smith’s situation.
THE STORE CREDIT CARD (TRAP):
High Credit Limit:
$4000.00
Balance:
$4000.00 (maxed out)
When the store reports your new furniture purchase to the credit bureaus, it’s going to report
very poorly. The credit scoring system is going to calculate that you just received a new credit
card and you went right out and maxed it out! Shame on you! They are now going to have to
penalize you “big time” for mismanaging your credit card. The store just set a trap and you
stepped right in, because you had no idea that you just lowered your credit score by 30 Points or
more!
“No big deal,” you say. But just repeat the cycle a couple of more times and your score will
really plummet. So tell me,
IS THIS A GOOD DEAL?
Americans need to understand that your credit score is your life-line – it affects so much more
than the purchase you made. Perhaps you want to change insurance companies, to take advantage
of a much lower rate – they now pull credit! Maybe you need major dental work done – they will
pull credit to extend you credit! Maybe in a few short months you need a new car – they will pull
Steve Mertes and Jeri Koppleman
23
credit! The whole credit ‘phenomena’ has gone way beyond anything we ever dreamed, and it is
way out of control – especially out of OUR control. (In fact, one of my clients just got turned down
for opening a SAVINGS ACCOUNT – the bank wouldn’t even take her money to put into a
savings account without running her credit, and it just wasn’t good enough! (What is this world
coming to?)
All of a sudden, you are getting turned down for credit and you can’t even believe it. You’ve
always paid your bills on time – why, you even qualified for a new $4000.00 credit card recently at
that store! How come you suddenly can’t qualify for insurance, etc? Now you know why millions
upon millions of Americans have ruined their credit scores because of. . .
MISMANAGEMENT OF REVOLVING STORE CREDIT!
(0r The Revolving Trap Door)
No one ever warned you about this . . . until NOW! This whole credit card phenomena is still
a relatively recent one, and it has taken us by surprise and the surprise has not turned out to be a
pleasant one. You see, there is a huge difference between installment and revolving credit, and
that is just ONE of the things we will be educating you about in this book. The pages are crammed
with extremely important, up-to-date, information that all consumers should know, but have
never been taught. See the section called “Dangers of Revolving Credit,” in Chapter 5. Find out,
too, how you can ‘beat the store’ at their own game, in the Section with that name, also in Ch. 5.
Remember this: Installment loans are scored differently by the credit bureaus than revolving
credit. Why? Because the present scoring system understands that when you purchase a car,
which is an installment loan, you can’t possibly pay the loan down right away. But when you get
a credit card, they want to see that you can control your spending, and nobody is forcing you to go
out and charge it up and up and up to the point of maxing it out. The present scoring system is
going to destroy your credit score because of what they see as mismanagement, but what we
understand to be manipulation, temptation, and lack of information. From my banking days, it
used to be that people got loans for goods and services and they were set up on a monthly
payment schedule. They paid the loan off in equal installments. You were able to pay it off early if
you chose, and save interest on the payoff amount with no penalty. That’s still true today in
purchasing a car, but elsewhere the revolving credit cards have taken over.
Don’t get me wrong – there is nothing wrong with applying for and using store credit.
Because of how the credit scoring system works, however (see credit scoring in Chapter 4), you
need to be aware of the differences between revolving and installment credit and manage your
credit to keep your scores high (See definitions of Installment and Revolving credit in Chapter 3,
Sec. 3). Retail stores have many reasons to want you to use their store credit cards. Remember
that they purchase goods at wholesale, which means they are already making a large profit by
selling to you at retail, and then with their charge card, and all that interest over time, they make a
lot more. That’s why they have really ‘jumped on’ this whole idea of using revolving credit
instead of installment loans. They prefer to have you coming back over and over, paying down on
the card, then charging it up again. With the old installment loan practice, once it was paid, it was
a closed loan and that was the end of your spending spree. You didn’t just keep on coming back
for more and more and more, like we do now.
I have seen sad, sad situations over and over, especially when a client wanted to refinance
their home. They are caught in a ‘catch 22’ situation because of their high credit card debt
(revolving) and most are paying the minimum payment every month. They have bought into a
24
How to Escape The Credit Trap For Life
false sense of security that, because they have never been late on their payment, they have great
credit (See Ch. 5 where we cover many of the myths and misunderstandings people have about
credit). The stores have enticed you with a small monthly payment, which you realize, too late, is
only the minimum payment, and making it will keep you in debt forever (see Ch. 4 about interest
rates). When I explain to them why their credit score is so low, they are in complete shock. It is
depressing to know that in America, 99% of the time, the reason people are refinancing is, totally
or in large part, to pay off credit card debt (see Chapter 6, which is full of tips about how to
manage your credit cards properly). Now their scores are so low, that they can’t qualify for the
loan to refinance, and they are in serious trouble. Millions of Americans are in this same trap and
many don’t even know it yet! They are getting closer and closer to the day when the credit trap
door will snap shut on them and, like a mouse, they will have the cheese, but be unable to enjoy it.
Those who do, are dazedly wondering how they got there (see Ch. 3 and 4), and how on earth they
will get themselves out of it (see Chapters 8 and 9).
Here’s another story, sad but true. One of my clients purchased three all-terrain-vehicles,
which totaled about $15,000.00. After reviewing her credit report, I realized that this should be
reporting as an installment loan (like an automobile), but in fact, it was reported as revolving
credit. The purchase had just been made, and she hadn’t even made her first payment yet.
Thinking it must be a mistake, I had her call the company she had purchased from, to inform them
of their mistake. She called back and told me that there was nothing they could do – it would be
reported as revolving, and that’s all there is to it. Bottom line, this looks like a maxed out card to
the scoring system, and it dropped her score by 30 points, which prevented her from qualifying for
a home refinance. You can now see that almost every company out there has gone to the use of
revolving credit because, again, they want you to keep paying it down and coming back for more.
By this example, I encourage everyone to stop and analyze each and every purchase, armed with
your new knowledge, and stay within the guidelines so that you will not end up making these
same critical mistakes. Because this was revolving credit, the only way to make this one work
would have been to apply the rule, as shown above and in Chapter 5.
NOTE: As I was writing this, I happened to open my Bible and came across Psalm 31, and
read the following words, which I thought was quite interesting:
"In you, O Lord, I have taken refuge . . .Since you are my rock and my fortress, for the sake
of your name lead and guide me. Free me from the trap that is set for me, for you are my refuge."
II. A Better Mousetrap
It seems that someone out there is always trying to find a newer and better way to get our
money –usually with a bigger piece of cheese. Here’s another trap that gets a lot of us – if not all
the way into the trap, at least it perks our interest. It’s called. . .
NO INTEREST OR PAYMENTS FOR 2 YEARS on
PURCHASES OF $1000 OR MORE!
You say, “WOW!” America says . . . “CHARGE!”
They can really suck you into this one. The store (or retailer) is hoping that you will forget all
about the purchase as time passes, and not plan for it, and be unable to pay them when the time
Steve Mertes and Jeri Koppleman
25
comes. Remember, in a deal like this, the interest is accruing during the whole two years, and
suddenly, it will one day be ‘cash on the barrel head,’ or they may offer to waive the interest (or
part of it) if you want to pay the total amount in cash, right now. But if not, BOOM – they add a
whopper of an interest rate, and you owe a chunk of money you weren’t planning on. Here is
where reading the fine print comes in handy (see Ch. 5 – Read the Fine Print). Much to your
surprise, if you haven’t read the fine print, or you forget when the payment does finally become
due, the bill comes in the mail, and you get ‘sticker shock’ when they now ask for their money
with a high interest rate added in. If you can’t pay, or miss a payment, they are allowed to raise
your interest rate even higher, which allows them to make even more money on you (could they
possibly have planned it that way? Naw! No one would be that misguided or unfair!)
Thus, you should have them spell out to you, in writing, exactly how much will be due, and
when, and what your options will be. Only a lawyer can interpret most of the fine print lingo, so
that’s why asking them to spell it out in writing (or show you on the contract where it says what
they are saying it says) is a good idea. If they say they can’t, or won’t, better pass on this good
deal.
Again, this is reported to your credit with the high credit limit and the balance looking like a
‘maxed out’ credit card for the whole 2 years. So, in the end, tell me – IS THIS A GOOD DEAL?
You may still think so, but as you get closer and closer to the trap door (and the cheese still smells
too good to resist), one day real soon, it will be too late to wake up and smell the cheese. You’ll be
one dead mouse – or should I say, in the world of credit, because of your new all time low score,
you’ll be ‘dead meat’ when it comes to qualifying for just about anything.
(Remember the old adage,
‘Better late than . . . dead meat.’)
III. Have You Seen Our Deluxe Model Trap?
Your score has gone down some, and you are having more trouble qualifying for things, but
you’re still getting by. Then you see the big, new, super duper model mouse trap that some clever
lender just put right in your path – and that is the best smelling cheese you’ve ever been tempted
with. It looks like this:
HOW ABOUT A BRAND NEW COMPUTER WITH
NO QUALIFYING AND WEEKLY PAYMENTS
THAT YOU CAN PAY OFF IN 12 MONTHS?
(And it will even help you bring your credit score back up again – what could be better?) A
new computer would help you in so many ways, save time and money over the long haul – what a
deal, right?
There are companies out there that offer what they call a great credit rebuilding program, for
people trying to establish new credit. They will send you a brand new Dell or Gateway computer
with any upgrades you desire, with no credit check. America says, “CHARGE IT – I WANT IT
NOW!”
You’ve probably all seen that new TV show, “DEAL or NO DEAL” by now. It’s fascinating to
watch people struggle with the idea of keeping a good amount that they have already won, as
opposed to ‘gambling’ on getting even more. The truth is, most of us play that game with our
26
How to Escape The Credit Trap For Life
credit rating every day. We have it pretty good (lots of toys), but we want more, so we take
unnecessary chances. Or, we play ‘should I get this new credit card, or not?’ By the millions,
Americans are saying, “Deal!” when they should be saying, “No deal!” In this computer deal, I’d
like to ask you, “DEAL or NO DEAL?” If you choose “DEAL,” turn to Chapter 9, “Be Careful
About Credit Rebuilding Programs – Deal or No Deal?”) and find out why you should have said,
“NO DEAL.”
Then, there are THE CHECKS ! ! ! Whoa! What a neat idea (for the credit card companies to
get you to spend more money using THEIR CREDIT CARD) ! ! What checks, you say? Why, the
checks they send you periodically to use like cash. We just received one of these offers again
recently, tied to one of our credit card companies. The heading, in BIG, BOLD type, said, "3.99%
APR through your January 2007 statement date with these checks." The body of the letter said,
"Extra cash can be yours now. Use the attached checks to access the credit line on your Blank Blank
account . . ." How tempting! (Indirectly, they are saying that the 3.99% will apply ONLY to the
amounts you purchase with these checks – not your whole credit card balance).
But, it went on to say, "Keep in mind that your 3.99% introductory APR may increase if you
default on any account with us or are reported as past due with another creditor . . . and a cash
advance fee of 3% ($10 minimum) per check will apply." It then advised us to see the
"Amendment to Your Account Agreement and Important Information and Conditions below the
attached checks" (in the fine print, of course – please see the section on 'Read the Fine Print' in
Chapter 5 of this book for some real eye-openers). In reading that fine print, there were a lot of
other provisions that most people wouldn't even understand, and if they did, they certainly would
refuse to use these checks. There were conditions like charging you the 3% cash advance fee,
which they add to your Purchase Balance, and then charge you their normal high interest rate on
that fee along with your other purchases. Thus, the 3.99% ONLY APPLIES to the money you
spend using the checks - not all of your other purchases on your credit card. They mention that,
if you don't abide perfectly by every detail of the agreement, your interest rate jumps to a 25.99%
variable rate. And, they apply your payments to the CHECK purchases first – at the low 3.99% rate,
not to your other purchases (current balance at the higher rate), so the items you are getting at 3.99
get paid off first, and your higher interest rate (APR) continues on the rest of your balance. Now
why do you think it would it be to their advantage to do that?
And, they are in a hurry, too. They want you to use their money NOW! There was a 'limitedtime offer' clause in the P.S., which gave you just about one month to use all of the checks. So GO
– AMERICA – GO! Spend it – if you don't have it, use our checks! CHARGE!
Aside from the fine print, just what they already stated in this letter would be enough to deter
ME from using these checks. Did you notice what can happen if you have one late pay with them
or any other creditor (sentence underlined above – may increase to what – 25.99%)? Very few
people will read the fine print (or even this whole letter) to find the 'catches,' so they will lure a lot
of mice into their trap.
By the time you finish reading this book, you’ll be armed with enough information to find
your way through any maze, directly to the cheese, and be able to happily zip right back out the
trap door again before it even knows you slipped in. You’ll be playing and winning the credit
game – beating the maze-makers (and cheese makers) at their own game. And what a great feeling
you’ll have as you tuck this book under your arm, with many highlighted passages, and keep it
handy to help guide you for years to come. Pass it on to the children (or get them the next,
updated version) so they can start practicing early and learn how to get their cheese and eat it, too
– in the never-ending race to win the credit game.
Steve Mertes and Jeri Koppleman
27
(Remember the old adage, 'Practice makes perfect . . .
my parents practiced for years before I was born.')
The sooner you finish the book, the sooner you can start playing and winning. (This book will
be revised and updated about every 3 – 6 months, especially if laws or industry standards change.
If you'd like to keep abreast of these changes, use the contact information in the appendix to e-mail
us for the revisions.)
28
How to Escape The Credit Trap For Life
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
Steve Mertes and Jeri Koppleman
29
Chapter 2
Parent’s Don’t Let Your Children
Grow Up to be Debtors
I. Hard Work, Sacrifices and Planning
As parents, we all feel, at least to a certain extent, that we would like to see our children avoid
making the same mistakes in life that we made. If we are mature enough to learn from our own
mistakes, and follow through by changing what we do, then we generally try to pass the benefit of
these experiences on to our children.
What parent wouldn’t like to see their children have a perfect 800 credit score by the time they
were 20 years old? This would enable them to get the best interest rates on their first home, no
questions asked! And wouldn’t we all love to see our children save enough money by the time
they were 17 or 18 to purchase their own first car with cash? Not because we don’t want to buy it
for them, but because we’d know that their being in that position has already made them a more
responsible person than most of the adult population in America.
(Remember the old adage,
'Common sense makes dollars')
We’ve all heard the stories of rags to riches, and marveled at the “luck” some people seem to
have had. But, I’m here to tell you that it wasn’t luck at all. It was a lot of hard work, sacrifices,
and planning.
By hard work, I am talking about someone who’s willing to take ANY job, even one they
despise, and work at it long enough and hard enough to get a good reference, good experience,
and develop a good work ethic that will carry them on into something better. Then they repeat the
process. Some even stick to the first job, advancing every chance they get, until they work
themselves right to the top of the company.
By sacrifices, I am talking about putting a good portion of their income aside, REGULARLY,
in the form of savings, even if it’s only a low interest-bearing account. After years of this routine,
they have learned to live WITHIN their means, instead of above them, and have money set aside
30
How to Escape The Credit Trap For Life
for some of the really important things in life when those things come along (See the chart on
"How Compound Interest Works" at the end of this chapter).
By planning, I am talking about long and short-term goal setting, either in the form of written
goals, or just “day dream” types of goals, envisioned over and over again for many years until
they become a reality. Studies have proven that written goals are far more effective; however
setting ANY goals and then proceeding to DO THE THINGS NECESSARY to make them happen,
will always make a huge difference in a person’s future. I doubt that most major league stars
wrote their goals down as a 10 year old child, but I am sure they went out EVERY DAY and
practiced, and practiced, and practiced, and literally SAW THEMSELVES playing for a major
league team. The same thing can happen when people set some goals regarding their credit score,
and it really is NEVER TOO LATE TO START! (For more information on goal-setting, see the brief
explanation about setting goals in the Appendix, and if you need help getting started, use the form
for ‘Long and Short Term Goals’ in the Appendix.)
I am often reminded of a true story about a 15 year old boy who came to America many years
ago, an illiterate immigrant with no family or connections. He went to work in a bakery as a cleanup boy. He lived in a small room above the shop for 20 years, sleeping on the floor, purchasing
NONE of the comforts most of us would think necessary for life. Every day he went downstairs
and worked long, hard hours in the bakery, doing his chores to the best of his ability and learning
what he could about the operations of the bakery along the way. Little by little, he put his
earnings away, week after week, month after month, and year after year. (These days, unlike long
ago, ‘A penny saved is . . . not much!’ But there was a day when it really did amount to
something.)
One day, when the owner decided to sell the business, he purchased the shop, and then
several shops nearby, and eventually the whole street, and even half the town. He died a multimillionaire. But, he worked hard, made sacrifices, and had a plan. It wouldn’t be too bad to retire
at age 40 or so with a few million, would it?
No one is suggesting that we follow in his self-denying footsteps, and even if we did suggest
it, no one would listen. We are far too much into the “gotta-have-it” lifestyle, even as little
children. However, there certainly are some important concepts we can learn from this
immigrant-turned-millionaire who brought his hard-working values with him from across the sea
(where, incidentally, these very values are still revered and practiced to this day).
(Remember the old adage,
‘If at first you don’t succeed . . .
get new batteries!’)
II. Things We Never Learned in School (Based on Jeri's experiences as a teacher)
I don’t know about the school you went to, but where I grew up, there was no course called
“Credit 101,” or even “Basics of Life Building 101.” Nor was there anything even remotely close.
Sure, we all took high school economics, studied the Great Depression, things like that, but
there are so many things that were never covered. For example, when you think of a great and
successful person, what character traits come to mind?
Did you think of such traits as honesty, hard-working, integrity, perseverance, loyalty,
determination, good listener, progressive, diligent, outstanding, creative, goal-setter, independent,
grateful, responsible, tactful, pleasant personality, dependable, patient, careful, perceptive, caring,
Steve Mertes and Jeri Koppleman
31
to name just a few? Did it ever occur to you that these character traits, are not really TRAITS at all,
but skills that can be learned? Anything that can be taught, is a skill.
Can you teach a child to be honest? Of course, and you can also teach them to be dependable,
grateful, patient, and so on. Where were the courses in school that taught these skills? Aren't these
the skills/traits we just agreed are necessary for a person to be successful? The truth is, many of
these skills were actually discouraged when we were in school. The creative child, who chose to
color the apples blue, was given a poor grade in art class. The one who wanted to take his time
and re-do the paper until he had it perfect, would usually get an “f” for not getting it in on time.
The child who did an experiment that failed, didn’t have the opportunity or the time to go on to do
another several thousand trials until he or she found the one that worked.
Fortunately for us, Thomas Edison DID have the perseverance to do thousands of experiments
until he found the one thing that worked to produce the electric light bulb. Along with the above
character traits, being different, or set apart, is what makes a person great. Most people who fit
that description learned at home, from their parents or family elders, the skills (or traits) that set
them apart.
In school, the main idea, when I grew up, was for the teachers to try their best to make all the
children “fit into the mold,” so that they would not “rock the boat” in school, and would grow up
to get a good job and be normal, like everyone else.
(Remember the old adage,
‘Everyone seems normal . . .
until you get to know them.’)
Of course, this was not an intentional thing they tried to do – they simply didn’t know any
other way. A good example of this is what I was once told by my ‘counselor’ in high school. I had
that normal ‘interview’ that we all got somewhere during our junior year where we were
‘counseled’ about what we should consider doing for the rest of our life. I was a slightly aboveaverage student, mostly B’s, and really had never even thought about setting some goals for my
future. My counselor basically put me into a category (she didn’t really even know me – it was a
huge high school and this was the first time I’d ever met with her) and counseled me accordingly.
She told me that (I’ll never forget her words), “the average person graduating today (in the 60's)
will earn about $250,000 in their whole life time, so that’s what you can expect.” Without realizing
it, she had just told me that I was only average, and that I should expect to accomplish and achieve
the same level in life that all other average people could expect as well. She didn’t tell me about
any exceptions to the rule, nor did she tell me about the possibilities of going into business for
myself, or even going on to college (which I did, and completely changed the ‘expectations’ for my
life). I guess she just thought that most kids didn’t go on to college, and I would (or should) be one
of them. And you know, it almost worked. Throughout my senior year, I actually believed her –
that I was just average, and should settle for that, and I continued to produce ‘average’ grades. It
wasn’t until I actually went to college, and was encouraged by ONE special teacher, that I began to
see my own potential and excelled with a 4.0 grade average.
(Remember the old adage,
‘Good things come to those who . . .
break out of the mold.’)
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How to Escape The Credit Trap For Life
This is still one of the problems with our public schools today – squeezing kids into the mold
instead of finding out what their individual potential might be and developing that. And there
really should be classes in things like ‘what to consider before marriage,’ ‘how to achieve and
maintain a great credit profile,’ ‘how to start and run your own business,’ ‘how to set short and
long term goals for your life,’ ‘how to develop and use a budget,’ and so on.
While math and reading are indispensable, so are many of the skills mentioned above when it
comes to getting ahead in life, and staying there – things like working hard, setting goals, saving
and budgeting, and giving back some of what we are given.
The modern way, trying to make us all fit the mold, is so different from the way our ancestors
learned “life” lessons. Did you know that for many years, the Bible was the text book used in
schools, and often it was the ONLY text book. Learning to do things God’s way was one of the
reasons our country became so great in the first place. And one of the most important lessons
taught by the Bible is that we are all different and unique, and each of us has been given special
‘gifts’ (talents and skills) by God. If we will just look for them, and use them, He has great and
special things in store for each of us.
(Remember the old adage,
‘Don’t forget that you are unique . . .
just like everyone else.’)
III. Age Old Biblical Principles – They Still Apply Today
It truly amazes me how many Biblical Principles are alive and at work in our world today, and
how few people are even aware of them. For example, the Bible is where the whole idea of
“forgiving debts” after 7 years came about. The Israelites were told by God (through Moses) to
forgive all debts after 7 years, and even today, in our credit system, we use that as a model (most
items remain on your credit report for 7 years, and are then removed – “forgiven”).
So many other things, such as our calendar, our seasons, and our method of dating (2006 A.D.,
or 400 B.C.) are based on the life of Jesus Christ, and yet people today, who still USE all of these
things, refuse to believe in Jesus.
In today’s world, people don’t want to acknowledge a holiday as being related to Christianity
(which means to follow, or study Christ), and yet they still celebrate those days, such as Christmas
and Easter, by simply leaving Christ out of them.
Most of our legal system was set up based on the Ten Commandments, and of course, our
great country was founded on the principles of Christianity, taught by Jesus himself. But more
and more people are finding it too difficult to give credit to Him, and easier to take the credit
themselves. The things that have made our country great are no longer important, and the loss of
these ideals has caused major social problems for all of us. Some people, however, are still willing
to acknowledge that the Bible is the source of all truth, and it’s principles are still very valid today.
Psalm 24:1 tells us, “The earth is the Lord’s and everything in it, the world, and all who live in it, for He
founded it upon the seas and established it upon the waters.” There are many people following God’s
principles, and most of them are generally very successful, when measuring success in God’s
terms, that is.
If you look in a Biblical Thesaurus, and check out the words “debt,” “debtor,” “borrower,”
etc. you will find some amazing verses, on managing our money, that God gave to us long, long
Steve Mertes and Jeri Koppleman
33
ago. In fact, a good percentage of the Bible relates to the “love of money,” (as being the “root of all
evil,” among other things), and how harmful this can be to your life.
God doesn’t say that money in and of itself is evil, but that the “love” of money is – which
includes the way we use our money. In many places, God teaches us that “the borrower is slave
to the lender,” and other similar concepts. How many of us are in that very position today – slave
to the lender? Our credit card debts just keep going up and up, and if we pay late, we are really in
trouble. Do you ever feel that your whole life is geared around working harder and harder to pay
the larger and larger debts that you have accumulated, and there is just no way out? Welcome to
the Credit Trap! Well, God warned us about that, and we should be warning our children.
If it’s too late to set the example for them based on your past, at least you can USE your
current situation as a lesson for them in “what NOT to do, or you’ll end up like we are.” This is
difficult for most parents to admit, but it may be the only way to save your children from a life of
debt slavery. It never hurts to admit our mistakes to our children, so they know we are not only
human, but that we care enough about them to want to see them have it better. This can be very
powerful. Then, after admitting the problem, BEGIN TODAY to take the steps to free yourself and
your family from this debt, and use THAT EXAMPLE for your children to see, as well. Eventually,
with the help of Biblical principles, and the education provided by this book, you will arrive in the
“promised land,” out of slavery, and have true financial freedom, and the rewards for your life
and your children’s lives will be bountiful.
Most Americans today have no savings to speak of, either, not even enough to live on for one
month if catastrophe struck them or their family. This is another area where we need to start
setting the example for our children – by saving a portion of our income each month (even a
pittance would be better than nothing), and teaching our children to do the same. The sad truth is,
most of us live paycheck-to-paycheck and never have anything left over to save. In fact, if an
emergency comes along, the car needs repairs, or whatever, what do we do? We put it on a credit
card.
(Remember the old adage,
‘The journey of a thousand miles begins…
with a broken water pump and a flat tire.’)
IV. Therein Lies Our Problem!
Putting those “emergencies” onto credit cards can quickly lead you into debt, from which
there is seemingly no return. You transfer balances from one card to another, and pull cash from
one card to pay another (credit surfing). You become buried and have to dig harder and deeper all
the time to just keep pace with the bills. It becomes discouraging, sometimes to the point of filing
for bankruptcy in order to begin digging your way out.
Now, with a bankruptcy on your credit report, things get even worse as your credit score dips
even lower. It all seems so unfair. How can you ever get your head above water again? We will
go into this in greater debt – I mean, depth, in the last chapters of the book.
(Remember the old adage,
‘Never test the depth of the water with both feet’.)
But now, let’s take a look at some ways you can get your children started right while they are
young.
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How to Escape The Credit Trap For Life
V. Teach Your Children How to Avoid the Credit Trap
This book is not intended to cover all the bases mentioned above, as there are plenty of great
self-help and self-improvement books on the market to cover those things. But, to our knowledge,
to date there is no book that contains many of the concepts covered in this one. If we can instill
certain values in our children, at an early age, and teach them the financial principles outlined in
this book, especially as related to establishing good credit, there is no reason that they can’t
achieve the lifestyle we all dream of at an early age.
(Remember the old adage,
‘Experience is something you don’t acquire
until right after you needed it.’)
These are some of the ideas we will cover that you might want to include in your strategy to
get young children started on the right foot:
1)
2)
3)
4)
5)
6)
7)
8)
9)
Earning their own money;
Keeping track of their own money;
Budgeting their money;
Setting goals (short and long term) for the use of their own money;
Setting aside a portion of their money for those goals (saving);
Being allowed to spend a portion of their own money just for fun;
Being a good steward of the things they have;
Being rewarded for things well done, for creativity and ingenuity;
Giving a portion back to God or charity, etc.
For starters, we suggest allowing your children to begin “working” early in life, whether it’s
mowing a neighbor’s lawn, doing certain chores around the house, or helping with the family
business.
(Remember the old adage,
'The grass is always greener . . .
when you get someone else to mow it.')
They will learn responsibility, and even at an early age, they could be rewarded, or paid an
amount corresponding to the work they have done. This is not to say that children should be paid
for every chore they do. But above and beyond doing their share of family chores, and picking up
after themselves, there are certainly opportunities for them to do “extra” and be paid for it. As
much as possible, allow them to do chores that suit their abilities and personalities. As an extreme
example, for instance, I would not give the job of feeding the dogs to a child who fears them.
Give them a “mock” check-book and teach them to make “deposits” with the “bank of Mom
and Dad,” wherein they can track their income and expenditures (and also learn the basic math
skills). My wife gave our daughter one of our old check record books and an old plastic checkbook cover. In it, our daughter keeps track of her money, takes out a portion to place in her
(actual) savings account in the bank (she loves to watch that grow and collect interest), and makes
“withdrawals” for giving at church. The balance is hers to spend, but she is not allowed to spend
more than she has in her account (what she has left from her earnings). There is a website (go to
Steve Mertes and Jeri Koppleman
35
www.dltk-kids.com/crafts/miscellaneous/mcheck.html.) where you can get “printable" play
checks for free – By teaching them that they can’t spend money they don’t have, you are laying the
foundations of future fiscal responsibility for your children, and they will be well on their way to
living a life governed by a budget and rewarded with an 800 credit score.
(Remember the old adage,
'Saving for a rainy day will help you weather the storm.')
This process, along with teaching them to budget for their expenses as they get older, will help
decrease their dependency on their parents and on allowances, while gradually increasing their
dependency on their own resources and efforts. All of this can be based on real-life scenarios and
economics. For example, doing a job well results in more pay, as would working “overtime” on a
job that takes longer than planned. Not completing a job results in no pay, just like it would with a
future employer in a real world employment situation. Decide with your child what the
consequences of a poor job, or an incomplete job, will be, and then stick to it. Reward creativity. If
they can find a faster, easier way to do a job, and still do it well, praise them and encourage this
behavior.
If you still have toddlers, you can use a “reward” system to instill positive behaviors at a very
young age. For example, even a baby can learn that he can’t play with another toy until he puts
the other one away in a toy box. As soon as he puts the toy in hand into the box, give him another
one to play with (his reward). Even in the crib, parents have found that having a small box in the
corner is a great way to begin. You put the toy in the box and take out a different one. You are
setting the example for your baby to see – one goes in, and one comes out. If you already have
teenagers, you can still initiate these ideas and principles at any age, and you may be surprised
how well they will work. A second DVD or video can’t be played until the last one is placed back
where it came from.
(Remember the old adage,
'Some things are easier said than followed up on.')
Often, as parents, we don’t follow through on our “rewards” system with our children,
because we don’t have the time to pay them every time they do a job, or we “forget” what we owe
them and it turns into a dispute. For us, using the checkbook system makes it easier to “pay” our
daughter for things, as we don’t actually have to dig into our wallets and pull out cash every time
she earns money. It puts the responsibility on her to record the date, the amount, and what she
did to earn it. We have a rule that she must record it the same day she does it, or she can’t count it.
It’s amazing how the accountability will get better and better as the child gets older, and has more
desire to purchase things like CD’s and new clothes. This is money we, as parents, probably
would have spent on her anyway, or given her for spending, so it is a win-win situation for all of
us. We still buy her the basics, but if she wants another new swimsuit, when she already has a
good one, she must save for it and buy it herself, or spend money she has in her checking account.
As your children grow, there are a few other things you may want to consider doing to help
them grow into responsible, credit-worthy young adults. For example, all children should learn to
give something “back.” Show them the many ways they are blessed, and give them experiences in
volunteering their time (by setting an example), giving of their money, or giving of their
possessions. There are many opportunities for children to help others – i.e., doing yard work for
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How to Escape The Credit Trap For Life
an elderly widow, without accepting any pay, or helping a single mom with her children. They
may give of their money to the poor, or to God for his work. Proverbs 3: 9-10 says, “Honor the Lord
from your wealth, and from the first of all you produce; so your barns will be filled with plenty, and your
vats will overflow with new wine.”
They may give of their possessions by donating outgrown clothes, bicycles, etc. to a worthy
cause, or to the homeless, for instance, instead of having a garage sale and selling these things.
Even as youngsters, you can teach them to budget. An early “budget” may be nothing more
than three jars or envelopes labeled “giving,” “spending,” and “savings.” Have them list the long
term goals they are saving for, and encourage them to also “save up” their spending money for
something worthwhile, instead of spending it on impulse items, like candy, that are soon gone and
forgotten, not to mention unhealthy.
As teens, help them to write a real budget including such things as clothing, entertainment,
sporting goods they may require, and of course, giving, and savings. The budget should be based
on THEIR needs and expectations, and the use of this will start them on the right track for their
adult life, and help prevent them from making the same financial mistakes most of us made. If
living at home after high school, teach them to pay their own way – perhaps a portion of the rent,
utility and phone bills. It may even help them to use less water and be more conscious of things
like turning the AC off when they are last to leave the house. When our kids are young, we “pay
them” to chip in and be part of the family. By 18 – 20, they should pay US for the privilege of
being part of the family. This sets the stage for the day they move out and must finally pay all of
their own bills.
Also in their teens, perhaps even very early teens, allow your children to be a part of your
family's financial life. Show them how credit cards really work – not just the use of them to make
purchases, but also what the bill looks like when it comes. Explain the statement to them, along
with all of the charges, and the results of only making the minimum payments (see details in
Chapter 6 in the Do's and Don'ts), etc. Share with them any bad experiences you've had in
mismanagement of credit, and how it affected your family, and as they get older, teach them how
to make wise decisions about credit cards that you've learned from this book (or better yet, make
this book required reading for your teens at about age 15 or 16).
(Remember the old adage,
'Those who have it easiest in life . . .
miss the greatest of God's blessings.')
Warn your high school aged children (and especially those heading for college) about the
flood of credit cards that will begin coming their way and the reasons why they should accept only
one or two (choosing carefully, reading the fine print) and begin to manage them wisely. These
days, college students are inundated with credit card offers and many are pre-approved, with no
income qualifications whatsoever. Just sign, and they'll send you the card.
With this information and your open sharing of experiences, they will be well on their way to
learning the skills that will lead to that 720 – 800 credit score we all covet so dearly.
The benefits of having a good credit score early on are numerous. One example that few
people are aware of is that you can save thousands of dollars with any student loan by having a
good credit score. If you currently have a student loan, how much are you paying in interest?
Wouldn’t it have been nice to know about this earlier in your life?
Steve Mertes and Jeri Koppleman
37
VI. If Only We Could Turn Back the Clock
(Remember the old adage,‘Experience is a wonderful thing –
it helps us to recognize our mistakes
when we make them again … and again …’)
Oh, to be able to go back in time and do it all right! Yet, for most people, if given that chance
for real, they wouldn’t do it much differently than they did the first time. Not because they don’t
want to, but simply because they wouldn’t know HOW to. This, again, is the purpose of this book.
You will learn about the mistakes you’ve been making, month after month, that have been
keeping your credit score low, and how easy it is to correct them.
With this book, you will soon find that you’re in for a pleasant surprise. None of the things
you read will be difficult to do or understand. Simply put, getting your credit life in order is just a
matter of time, planning and systematically following the principles outlined in this book.
Helping your children, of all ages, to start off on the right foot is even easier, because they can
learn the correct way to do things, right along with you as you change your habits, and pass them
on.
(Remember the old adage,
‘When the blind lead the blind . . . get out of the way.’)
And for some of you, getting your credit life “on track” or even coming from way behind and
catching up, will not take nearly as long as you thought it would, nor will it cost you a lot of
money (as some people would have you believe). You don’t have to wait out the 7 – 10 years
(while negative items on your report will finally be deleted) to see huge strides in bringing that
score up. If you do have some of the more serious items on your credit rating, such as a
bankruptcy, it may take years to get your score all the way to a 720, but you’ll see that your efforts
now can overshadow that bankruptcy and your score can approach that score much sooner than
you ever thought possible. This can work wonders for your future interest rates and consequent
savings over the years. For those of you who are about 18, or so, this book could be the most
important thing, next to the Bible, that you read in your life.
(Remember the old adage,
‘Good judgment comes from bad experiences, and
most of those come from bad judgment.’)
So, let’s begin this “text book” with the basics and move on from there. Even if you think you
already know the basics, don’t skip over Chapter 3, because you’ll find a whole new perspective in
pages that are just dripping with juicy information no one has been telling you.
(See the next page for the chart on "How Compound Interest Works".)
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How to Escape The Credit Trap For Life
HOW COMPOUND INTEREST WORKS
_________________________________________________________
$ Amt.
# Years
Interest Rates - 3%
5%
10%
$50/mo.
5
$3,232
3,400
3,872
$50/mo.
10
$6,987
7,764
10,242
$50/mo.
15
$11,349
13,364
20,724
From this chart you can see that, even if you are upwards of 50 years old, have only a
few years left to save before retirement, and can only afford to invest a minimal amount
such as $50/mo., it will still be better than doing nothing.
The compounding effect of leaving the interest in the account to continue growing
along with your deposits, is amazing.
Of course, if you can afford to save twice or three times that much per month, these
amounts will be growing at double or triple those values showing in this chart.
If you can jump start your savings plan with a more substantial deposit up front, say
$500 or $1000.00, or more, that too will make a substantial difference in your eventual
savings.
One place to start a great savings account (online money market account) with a
higher rate of interest than an ordinary savings account, is Western Financial Bank (see
information in the contact area of the Appendix under Money Market Accounts w/no
minimum deposits in number IX).
_________________________________________________________
Steve Mertes and Jeri Koppleman
39
Chapter 3
Section A – Credit is All About Debt
I. What is Debt?
There would be no such thing as ‘credit’ without ‘debt.’ To use credit means to be in debt.
Before people even thought about obtaining or using credit or credit cards, people were being
extended ‘credit’ whenever they took out a loan or borrowed from a friend (got into debt).
Borrowing or obtaining a loan is just using someone else’s money (other people’s money, or OPM)
until you can pay it back. Debt has always been with us, and so has credit.
Webster’s New World Dictionary defines debt as something owed to another, or the condition
of owing something. A person can be in debt to another in many ways. He can owe a favor (“I
will always be in debt to you for what you did for my family”), or a service (“I have paid my debt
to my country”), or the debt can be an actual amount of money that is owed. This is the opposite
of an asset, which is any item of value you own.
A monetary debt is a liability (something for which a person is responsible), and as such, it
reduces your net worth (total money). Assets minus liabilities equal your net worth. If you want
to purchase things, but haven’t the money, you can borrow it from someone with an agreement to
pay it back by a certain time. This could be a bank, lending institution, relative, friend, or even the
owner of the product you are buying. Generally, there is a fee (called interest) for this service,
which many refer to as using OPM. The fee is added on to the amount originally borrowed, which
means you will pay back more than you borrowed.
This borrowing of money, or obtaining goods without paying for them upfront, used to be
called a loan, but now it is usually referred to as using “credit.” Most people, even your relatives,
may not want to lend you money (or give you “credit”) unless they feel they can trust you to repay
the debt.
(Remember the old adage,
‘If you lend someone $50 and never see them again,
it was probably worth it.’)
In today’s world, it has become very common for businesses and institutions to extend large
amounts of credit to almost everyone, and this makes it very easy for us to get further and further
into debt, often way beyond our ability to repay the debt. This situation, in turn, has caused
massive overspending, resulting in millions of Americans experiencing financial crises from which
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How to Escape The Credit Trap For Life
they may never recover. Again, remember that the Bible says, “The borrower will become the slave
of the lender,” and many of us can easily relate to that as we work ever harder and harder simply
to keep making the minimum payments on the debts we owe.
This book will help those in this situation take back their lives and once again experience
financial freedom, as well as help the younger generation avoid ever getting themselves into that
kind of slavery.
II. Getting Credit as a Beginner
There are certain “ground rules” that most of us were NOT taught in school, or by our parents,
and had we known them, our financial lives could have been very different than what we are
living with today. These things were not taught us by our parents mainly because, in their day,
life was based most often on a “pay-as-you-go” system, where today, it’s a “buy now, pay later”
mentality.
As you saw in Chapter 1, laying the groundwork with your children is very important. But
it’s never too late to start working on increasing your CREDIT IQ, so let’s ask a few questions
about things that EVERY CONSUMER should know (but 99% don’t). . .
III. Do You Know. . .?
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How many credit cards is it best to have to achieve the optimal credit score?
How the credit reporting/scoring system works?
How to decrease your debt-to-credit ratio without spending a dime?
How to control credit inquiries?
What to do 6 months before buying a home?
How to get your rent payments reported to all 3 credit bureaus (which will greatly
increase your score, provided you have been paying on time every month)?
What to do while your loan is closing?
Which credit cards to get?
What balances to keep on your cards?
What lenders look for in your debt ratio?
The best way to handle collections?
The facts about bankruptcy?
What happens when you voluntarily give your car back to the dealer?
About debt negotiation – does it work, and how?
What counts most on your credit score?
When good credit starts counting against you?
What you are probably doing month after month that is keeping your credit score low?
The truth about “credit repair services”?
How much ONE inquiry can cost you (in points) on your credit score?
What the grace period is for mortgage and auto shopping inquiries?
What your debt-to-credit ratio is?
How your credit score is determined?
And, there are dozens and dozens more.
Steve Mertes and Jeri Koppleman
41
And, once again, these are some of the most important things we should all know, but that we
were never taught in school. If you don’t know the answer to most of these questions, then you are
like 99% of Americans today, even many financial counselors, loan officers, bankers, etc., and you
NEED TO READ THE REST OF THIS BOOK! In my consulting business, I run across people in the
above positions regularly, who simply were not ever taught some of the things you’ll find in this
book, even those who obtained college degrees in financial courses. That was one of the things
that inspired me to put together this “text” book of information which I have been “gathering”
during my many years of experience in this arena.
(Remember the old adage,
‘People will accept your ideas much more willingly
if they think Ben Franklin thought of them first.’)
Section B - Why Get Credit in the First Place?
I. An Historical Perspective
Let’s examine some of the functions of credit/debt in our economy today, and then look at
many of the reasons people use credit in their everyday life.
What are some of the most common reasons people get into debt? Or, should we say, what
are the reasons consumers are using credit so much more today than ever before?
The development of consumer credit took hold after World War II when the American
population suddenly became more mobile. Prior to that, consumers lived and worked in one place
all their lives, and had personal relationships with local merchants and bankers, so there was no
need for consumer credit. There was a sudden increase in the demand for home ownership, along
with the demand for many other consumer goods and services. In response to this, the
government supported the growth of a market for long-term consumer credit. Since then, the
amount of consumer credit has grown exponentially.
When people need to buy something and don’t have the money, they borrow or finance the
purchase, meaning they will get it today, and pay for it down the road. In the “good old days,”
family values and feelings of community were much different than they are today. When a young,
newly married couple needed a home, they either lived with one of their parents for a time, until
they could save up the down-payment or the cash, or the whole family (or neighborhood) got
together and built them a “first” home. If people had a catastrophe, such as a fire in their barn, the
whole community would get together and have a “barn-raising” to re-build their barn. No credit
was needed, and none was extended.
HOW THINGS HAVE CHANGED!
Today, people spend and use credit to the extreme. In fact, consumer spending accounts for
well over half of U.S. gross domestic product, and the credit markets are a strong force in our
country’s economic growth.
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How to Escape The Credit Trap For Life
II. Is There Such a Thing as GOOD Debt?
For a young person, just starting out, it is advisable to begin establishing some credit by either
obtaining a credit card or two, or taking out a loan. This is good debt, as no one can build an 800
credit score without having some “debt.” In fact, you can't have a credit score at all without a
credit card or getting into debt. Managing this new credit properly will make the difference
between getting into problematic debt, or obtaining a great credit score that can be used to your
advantage for the rest of your life.
Going into debt must be done wisely, with a purpose, and this will be discussed more at a
later time. If we fail to understand the purpose of credit, or when we begin to misuse it, such as
for an extension of our regular paycheck, or as extra spending money, it can quickly become BAD
debt. Those who do this, are not considering the consequences of this uncontrolled and unplanned
spending.
(Remember the old adage, 'Age doesn't always bring wisdom . . .
sometimes age comes alone.')
If you are in the habit of “maxing out” your credit cards, say spending up to $1000 on a card
that has a limit of $1000, and then only making the minimum payment each month (of around $20
or so), you will quickly find yourself with a debt problem. That minimum payment doesn’t begin
to cover the payment itself, let alone interest, which begins to accrue at an alarming rate, causing
your new balance to go up and up, even past the $1000 limit). To alleviate the situation, many
people then begin to charge up a second card, because they have come to enjoy the “extras” and
overspending is now a habit. Instead of realizing that their spending habits must change, and
doing something about it, they repeat the process over and over until they have several, or many,
“maxed out” credit cards. Thinking that making the minimum payment, on time every month,
will make them more creditworthy, they are shocked to find that their credit score has dropped
severely, causing them to be, in fact, totally non-creditworthy for anything they now want to
purchase. Many homeowners who want to refinance their homes and pay off credit card debt
have fallen into this trap and are now in a serious ‘catch 22’ situation. Again, their scores are too
low to refinance, and they now could be in danger of losing their home or having to file for
bankruptcy.
We will discuss this situation more, and how you can turn it around, in Chapters 8 and 9.
III. Many Reasons to Use Credit
There are many reasons we want to “buy on credit,” and some are excellent reasons, such as
purchasing a home, automobile or business, or financing a college education. When making such
large purchases as these, saving in advance could be difficult, and for most people would be, in
fact, impossible. For example, purchasing a good, used car, could cost as much as $ 5 – 10,000.00.
Without a car loan, a person would have to save for years to pay cash for their car. Yet, without it,
you are faced with the challenge of not having your own transportation to get to a job. Without
the job, you can’t earn the money to save up for the car – thus you find yourself in a “catch 22”
situation. You can see why using credit in this instance could be a very important, and wise use of
credit. Once you have the car (or new business), you will be in a position to MAKE money and
thus begin getting ahead with your life.
Steve Mertes and Jeri Koppleman
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Of course, the same scenario applies to purchasing a home or a business. To save for such a
purchase could take much of your life, and your children would probably be grown and gone by
the time you could afford the home you needed to raise them in. Unlike bygone days when others
pitched in to help the new couple (and in some societies and people groups, this is still done
today), it has truly become necessary for most Americans to borrow the money for their first home,
and often even subsequent homes after that.
For those who don’t qualify for a scholarship, obtaining a student loan for their education
could be another very good reason for using credit. Instead of saving for a long time in order to go
on to school, a person can get started right away and reap, for a lifetime, the benefits of the higher
income their advanced education will bring.
With these loans so readily available, and at low interest rates, it could definitely be in a
person’s best interest to do so. However, I recently ran across a young woman who had put her
entire college education on credit cards, and was now paying it all back at a tremendously high
interest rate. It would have been much wiser to obtain student loans for her education, as she will
be paying the credit card debt back for a long, long time. It will end up costing her many times the
amount she borrowed, by the time it is paid.
(Remember the old adage, “Money doesn’t grow on trees . . .
so credit card companies plant ‘plastic’ seeds.”)
IV. Not All Reasons are Good Reasons
Other reasons, however, are very poor reasons for using credit, such as buying groceries or
impulse items at the mall. These are things people used to pay cash for. If you didn’t have the
cash, you didn’t purchase the item, or you purchased a less expensive item.
Other questionable uses of credit include things like taking a vacation, or upgrading to a better
appliance or computer.
Even these purchases on a credit card can sometimes be justified,
provided you are in the habit of paying your credit cards down every month, and provided you
learn how to manage your credit cards so that it doesn’t affect your debt-to-credit ratio and your
cards are within the 30% rule (more on this later).
For example, purchasing a newer, faster computer, even though you can get almost nothing by
reselling your old one, might help you do business better, thus increasing your income in the long
run. And taking a vacation when you are completely overworked and burned out, could
rejuvenate you and give you a “new lease on life.”
(Remember the old adage, 'If you look like your passport photo,
you probably need the trip.')
These are things people used to plan ahead for, and “save up” for out of their “budget.” Oops,
we just said a word that will be very difficult for some people to swallow. Most Americans today
don’t use a budget, don’t understand the need for a budget, and wouldn’t follow one even if they
HAD a budget. This is the beginning of the “credit crisis” most of us are in today.
We are a society based on using credit to make purchases and then pay for them as a part of
our monthly “budget,” rather than saving up for them in advance. Credit like this was once
available only to the wealthy, but now over 80% of American adults have credit cards, and access
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How to Escape The Credit Trap For Life
to lines of credit are readily available to almost everyone. Almost all Americans, at one time or
another, will purchase an automobile using some form of credit.
Thus, it is no surprise that credit card companies are going all out to solicit young people, our
“children,” as early as high school, to offer them credit. In fact, college catalogs and magazines
geared to young people are full of credit card applications offering credit to teens who may not
have jobs or checking accounts. Obtaining credit has become so easy that many consumers just
keep adding the cards to their wallets, without ever thinking that more isn’t better. It's a status
symbol to have more cards, with higher limits, than your friends. Little do most people know, that
this fact alone is hurting their chances of ever having a good credit score (covered more in Ch. 4).
V. What is Wrong With This Picture?
(Remember the old adage, 'Letting the cat out of the bag is
a whole lot easier than putting it back in.')
Using available credit to make impulse purchases ranks right up there with gambling your
money away or burning up dollar bills. How many “impulse” items do we all have that we didn’t
really need, don’t really use, and often sell at the next garage sale or donate to charities that come
around? Because we “charge” these items, instead of paying cash, we are also paying interest on
every little item we charge. And, this is costing us more than just the money – it may be costing us
our financial future if we are mismanaging our credit cards and using too many of them.
Have you ever noticed how the stores entice us to use credit instead of paying cash? You’d
think cash would be what they would want, wouldn’t you? Yet, they’d rather have people using
their store credit cards, even though many will default and never pay them back, so they must be
making a HUGE amount of money by getting thousands or millions of people to use these cards.
Think about it. Instant credit means people will purchase more things, impulsively, and spend a
LOT MORE MONEY in their store than they planned. And for a lot of items they may never even
use - items the store might have on sale because they haven’t been able to get rid of them.
Besides making a huge profit on products we all purchase on impulse, the stores make
additional profits on the financing they offer you. This “credit” can be a huge additional source of
income not only for the store, but also for the bank or credit card company.
VI. So, Credit Must be Good for the Economy
Let’s look at the far-reaching results of the increased use of credit cards in our world today.
When consumers spend money, jobs are created to produce and market the goods being
purchased. For example, if you purchase an automobile, workers are needed to produce the raw
materials going into the car – steel, rubber, glass, etc. Other workers are needed to engineer,
design and manufacture the cars, and then more workers are needed to transport, sell and repair
them. Factories and retail facilities must be built by construction workers, architects and laborers,
and those jobs, in turn, all create more income, and more money being pumped into the economy.
So, when credit is extended to consumers, it does boost the economy, which, in turn, benefits
everyone. Thus, it's easy to see how the use of credit can be a powerful force in our world today.
Steve Mertes and Jeri Koppleman
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VII. Is There a Down-Side to This?
As seen in the last section, having credit extended to you can be an incredible tool for people
to use in building a financial future for themselves and their family. However, it can also be a
source of tremendous grief and even financial failure to those who abuse it and overextend
themselves. So, being educated about the credit industry is absolutely essential!
Some people are able to establish good credit ratings and use this to their advantage. Others,
however allow their debt to get out of control, and keep on repeating the same mistakes, over and
over, until they are so deeply into spending and debt that they become desperate and often
bankrupt. If they desire to get back on track, and are willing to make some sacrifices over time,
they can often reverse this, learn from their mistakes, and go on to lead a responsible financial life.
Sadly, some never do recover.
This book is all about helping young people get off on the right track with their finances, and
helping those who are already having debt problems to get BACK on track.
VIII. What Does the Use of Credit Really Cost?
When it comes to having and using credit, most young people today have no idea what it will
really cost them. We do have a choice, but we seldom think about that. For example, if you
wanted to purchase a $2000 stereo system (that you just HAVE to have RIGHT NOW, instead of
saving up, or budgeting, for it), here is what you should know. If you pay cash, the system will
cost you $2000 plus the sales tax. If you use a credit card, with a 19% interest rate, for example,
and you make a monthly payment of 2% per month (about $43.00), it will take you 7 years to pay
off the debt. With the interest added in, you'll pay a total of $3612 for that same stereo system.
And that's without figuring in the sales tax – you will also be paying interest on that for 7 years. If
you also figure in any late fees you might have incurred during that time, it would be much
higher. By the time you've it paid for it, you'll want something newer, and you won’t get peanuts
for it at your next garage sale. But, because it's on a credit card along with dozens of other
purchases, in time we forget it's even there. In fact, we may have sold the system and gotten a new
one on the same credit card while we're still paying for the first one. Now, we're paying for both
of them for years. Do you remember all the items you purchased on some of your credit cards?
The items may be long gone, but you're still paying for them, aren't you?
Do you realize that purchasing items on impulse, with the ease of a credit card in hand,
prevents you from thinking through the purchase? With thought, you might have had to save up
for this item, or deplete your checking account, thus thinking twice about other possibilities, like
looking at the “for sale” ads for a good, used item, which in the case of tv’s, furniture, autos, tools,
and many other things, would be a very good alternative. Some of the best furniture we have ever
acquired was purchased second hand for a fraction of the price it would have cost new.
But alas, we have become people who must have this great “thing” NOW – TODAY – and the
best and newest and latest model, etc. We just can’t wait!
So the credit card companies help us – even entice us (lure us into the trap). They will bend
over backwards to give you a credit card, because, in fact, they make money on both ends of the
deal. In our example above, they made at least $1612 from a $2000.00 investment, and then they
reimbursed the retailer only 95 – 97% of the original price. Merchants pay a fee, usually about 2%,
to be able to take credit cards. Thus, the credit card company made an additional $60 – 100.00 on
your purchase.
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How to Escape The Credit Trap For Life
So, it appears that everybody wins – you get what you want RIGHT NOW, and there's a
healthy profit for the lenders, manufacturers and merchants. But is this really a win-win-win
situation? Chapter 4 will delve into this issue further. But for now, consider why this is not really
a win-win situation for YOU. Did you ever go into a store with just one purchase in mind, or a list
of things you actually need, and come home with many additional items that you didn’t REALLY
NEED to purchase just now? Was it your INTENTION, when you left home, to spend $10 - $50
extra on “things” you don’t really need?
How many of us give in to our children’s pleas of “Oh, Mommy, look – I just HAVE to have
that doll – will you please get it for me, please, please?” Out comes the credit card to pay for the
additional items. And, if you don’t have one yet, the store will give you an incentive to get a card
right now and save 10 – 20% on all your purchases today. So, now that we’ve gotten this card, let’s
get the benefit of the 10 – 20% discount, and REALLY GO SHOPPING! (Why not max it out?)
If you see yourself in that scenario, then you are mismanaging your own “financial house,”
but worse yet, you are setting a bad example for your children that will lead them down a path of
overspending and overextending themselves for the rest of their lives. You are showing them how
easy it is to be a DEBTOR, and having a wonderful time doing it. There is such a thing as
“intentional living,” which means planning and sticking to the plan. Most of us would do much
better to change from “impulse living,” to “intentional (planned) living.”
The only time using credit “on impulse” might be justified is if you come across a genuinely
good sale (not one where the store is in the business of having sales all the time, as many are) and
you find you can save a LOT of money by purchasing a product today that you were planning to
purchase or replace in the near future anyway. Occasionally, putting a great deal on a credit card,
provided you pay it off quickly and don’t end up paying months and months of interest, can be
worthwhile. But now, let’s take a look at how much this bad credit is costing you in other ways.
IX. What is Lack of Good Credit Costing You?
Aside from what you just discovered in the last section, in what other ways is your lack of
good credit “costing” you? One example might be paying a higher security deposit to rent an
apartment. Another, might be the lack of ability to obtain capital for equipment you need for your
business, which can lead to you being denied the ability to work with certain wholesalers, or the
opportunity to bid on certain jobs. You may also be denied the good repayment terms others with
good credit get from vendors. You will pay increased loan rates, but have decreased share value
due to lack of resources. You may be unable to transact across borders and be unable to compete
with other, credit-worthy competitors.
Thus, we see that people with “low” credit scores are being continually penalized by the
“system” and are having to “pay a higher price” for the things they want and need in life.
(Remember the old adage, 'When you grasp at straws . . . good luck!')
Using credit for the right reasons, for good and sensible reasons, can be a wonderful thing.
Anytime borrowing can allow you to purchase something that will increase in value, allow you to
make a living, or provide a roof over your head, then it is likely a good reason to use credit.
Otherwise, we should practice self-control and plan, budget, and save for the “finer things in life”
that are wants instead of needs. Parents should begin early to teach their children the “things that
aren’t taught in school” about money, budgeting, credit and becoming good stewards of what they
Steve Mertes and Jeri Koppleman
47
have been given. Following is a basic 'primer' packed full of terms used in the credit and financial
industries, and we strongly recommend that you NOT skip over this section of Chapter 3. If you
choose to do so, you will miss a huge amount of the 'meat' of this book.
Section C - Definitions, Examples & Applications
MUST READ – This section will give you the foundation for the rest of the book!
(You may want to put a sticky note on this page to mark it so you can flip here when needed)
These are important terms used in the credit industry, that, for the first time in print, fully
explain not only the definition, but the possible ramifications some of these actions can have on raising or
lowering your credit score.
Understanding these terms is the first step to changing many of the actions that you could be
unknowingly doing, month after month, that are lowering your score and keeping it low, as well
as things you could be doing to raise your score and keep it high.
We suggest you read this section on definitions carefully as it contains many words you have
heard, but may only THINK you understand. Many of these “definitions” go well beyond the
dictionary description, and give applications related specifically to the credit industry and your
future management of your own credit portfolio.
Then, too, many of these terms will be used in abbreviated form throughout the rest of this
book. If you read this section next, you will know the names of the organizations to which we will
be continually referring, as well as the more common uses of many of the words you will see
described there. There is a great deal of 'meat' contained in this section, so you don’t want to miss
it.
In Part II, you will be able to put this information to use as you learn how to play and win the
“credit game,” so that you, too, can achieve and benefit from a high credit score.
AARP - The American Association of Retired Persons. They sponsor programs in finances, credit,
tax help, etc. for Senior Citizens.
ACA (American Collectors Association) – This is a professional trade association for collection
companies. Members of the ACA agree to a code of ethics and professional mannerisms in
dealing with consumers, however, only about half of the collection agencies in America are
members. To file a complaint against a CA, you can contact the ACA via the info in our
Appendix.
Acceleration Clause – This clause is included in the paperwork of many creditors, and it states
that the full balance of the loan or debt can be called due immediately if you miss a certain
number of payments. If you immediately bring the payments current, they may not enforce
the clause. Be sure to read the fine print and see the terms of the ‘acceleration clause’ which is
probably included.
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How to Escape The Credit Trap For Life
Account Number – On a credit report, this is the number pertaining to each account, assigned by
the creditor. When contacting the credit bureaus about a particular account on your report,
refer to the account by it’s number to avoid confusion.
Account Type – On a credit report, this is the type of account that was opened – i.e. Revolving
(REV); installment (INST); mortgage (MOR); open account (OPEN).
ACDV – Abbreviation for the Automated Consumer Dispute Verification system developed by
the Consumer Data Industry Association (used to be called the Associated Credit Bureaus).
This verification system is set up to automatically report any corrections to a consumer’s file to
all three bureaus, even though the correction may have only been sent to one bureau. If you
dispute an incorrect item to one bureau, they send a Consumer Dispute Verification Request
form by ACDV (sort-of like an e-mail) to the creditor to have the dispute verified or negated.
If they check their files and determine it is, indeed, in error, they respond via the same system
to each of the other two bureaus, which should eliminate the need for you to dispute the issue
with all three. Not all creditors participate, however, and while this may save some mail time
and effort on your part, unfortunately, the system has its drawbacks, like so many things in
life. Having been in this industry for quite some time, it has been my experience that you still
need to follow up by disputing the item with each bureau, because we have seldom seen the
item actually removed from more than the one bureau to whom you submitted your dispute.
Additional Address Information - On a credit report, this would be current and former addresses
used in conjunction with your identification with the credit bureaus.
Adverse Action – This refers to an action taken by a potential credit grantor which, in effect,
results in a denial, cancellation, increase in charge for, unfavorable change in the terms of, or
any decision against anything (employment opportunity, insurance coverage, loan, etc.) made
in connection with an application turned in by a consumer.
Affinity Cards – Credit cards issued by organizations to which their cardholders are affiliated –
i.e., the National Speaker's Organization, etc. See the section on 'Joining an Organization' in
Chapter 8. Members of these organizations may be able to get their cards without qualifying.
A.K.A – “Also known as . . .” These are other names used in conjunction with your I.D. They
include the various spellings and misspellings of your name in your credit file, and they will
bring down your score. The same applies to the numerous jobs you have had, and all of your
past residences. Misspellings of your name can be created by a “typo” from a lender, and it
goes on your credit report as an AKA. Other AKA’s could be your maiden name, any past
nicknames (like Ed, or Eddie for Edward), or other common ways of spelling your actual
name, (i.e., Henderson or Hendersen.) Your name can be on the report with and without a
middle initial, causing all sorts of name variations.
Here is an example using just one person’s name:
Ed J. Henderson
Edward J. Henderson
Ed Hendersen
Ed Henderson
Ed J. Hendersen
Eddie Henderson
Eddie Hendersen
Edward Henderson
Edward Hendersen Edward Hendereson
Edward Handerson, Ed J. Anderson
Edward J. Hendersen,
Edward Joseph Henderson Edward Joe Henderson, etc., etc.
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You can see the unlimited possibilities – for a woman it can be even worse, with maiden name
variations and widowed names, etc. And remember each one is costing you points. (To find
out what to do about this, see Ch. 5)
Alerts – These are comments placed on your credit file to identify important information.
Amortization Schedule – This is a payment schedule (timetable) showing the amount of each
mortgage payment that is applied to interest, and the amount applied to principal, and the
remaining balance.
Annual fee – A yearly fee, similar to a membership fee, charged by credit card companies for the
credit card issued to you. These fees average about $20/year, but can go as high as $100 or
more. Once you have great credit, you can pick and choose the cards you want, and you want
cards with no annual fees. If you already have cards with an annual fee, you may want to
contact them and state that you are planning to cancel this card because of the annual fee, and
they may very well waive that fee. Credit card companies do make money with these fees, but
they make much, much more with the interest they charge, so some will work with you on the
annual fee. This is just one of the fees you want to be aware of when you accept or choose a
credit card, and you can come right out and ask them. Other fees are paid for various
'penalties' – such as 'transaction fees,' 'cash advance fees,' 'late fees,' and 'over-the-limit fees,'
(see the definition for each of these). Ask them about all of these fees as well.
APR (Annual Percentage Rate) – The stated amount of interest you'll pay on an annual (yearly)
basis. Your card may say 16.4% APR, which would mean that you'd pay 16.4% interest on
your balances, over the course of a year. Be advised, however, that the stated APR can change.
In fact, a fixed interest rate means nothing when it comes to credit cards, as federal law allows
them to raise their rates simply by giving the card holder 15 days written notice in advance of
the change. Many people would not even read the notice, and even so, there is nothing you
can do except begin making the new, higher payment on your entire balance. Also, be aware
that your card may actually have more than one 'interest rate' – one rate for balance transfers,
another rate for cash advances, still another rate for purchases from promotional offers. They
may advertise 0% interest rate for 1 year, but that may apply only to one thing, such as balance
transfers or purchases over $1500.00, etc. Always read the fine print – terms and conditions.
The most important thing about any credit card interest rate is, you won't have to pay it at all if you
pay down your balance every month, and if you leave only a small balance, for establishing credit, the
interest will be minimal. Thus, paying it off every month is far more important than the APR.
Applicant Information - The identifying information that was supplied and used to access your
credit file, such as your name, address, SSN, etc.
A.R.M. – This is the abbreviation for an Adjustable Rate Mortgage. A conventional mortgage is
one where you pay the same agreed-upon (fixed) interest rate for the long term of the loan –
either 15 or 30 years (and now in some cases, these are becoming even longer), whereas an
ARM can have the interest rate adjusted according to various indexes over the term of the
loan, which can escalate to very high rates. ARM’s sometimes have an initial fixed period,
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generally 2 -3 years, often with a high pre-payment penalty to prevent you from re-financing
too soon (before they get a bunch of interest), but many ARM’s can have the rate adjusted
monthly, right from the beginning. Most people that are in this type of loan have been forced
to settle, due to low credit scores, into all kinds of ARM’s in order to purchase a home or
refinance. Thus, a crisis is on the horizon as millions of Americans reach the end of their fixed
rate period with their credit scores too low to qualify for a refinance. They then begin
frantically shopping for a new loan to save their home as their interest rates go up in an
unprecedented fashion. If they are unable to refinance, or are forced into yet another even
worse loan, many people could be on the verge of losing their homes altogether. The clock is
ticking on these ARM holders, and those who have used the information in this book and
learned how to increase their credit scores, will be in a much better position to refinance in the
near future. (NOTE: If you are in this position, contact HCS – we can help you!)
Asset – Any item of value owned; a resource.
ATM Card – See Debit Cards
Authorized User - Any person to whom you, as a credit card holder, give authorization to use
your credit card. This can be a powerful tool to help someone re-establish credit. See the
Section on “Building Credit as an Authorized User” in Chapter 6.
Automatic Transfer – If you have trouble setting aside money for savings every month, you may
want to consider an automatic transfer – where you authorize your bank to take a certain
amount out of your checking account (from your paycheck) each month and place it into your
savings account. This will help you make sure that you do, in fact, save regularly.
Balance Owing – On your credit report, this is the current balance (amount owed) of an account as
of the last month reported.
Balance Sheet – A statement of one's financial conditions as of a specific date. This serves a
different purpose than a ‘cash flow statement,’ which summarizes income and expenses.
Balance Transfers – These are offers from credit card companies attempting to entice you to
transfer your existing credit card balances to their new card. They offer a set limit that you are
approved for, and you make the decision to transfer balances up to the approved amount.
They may entice you with a lower interest rate than you are currently paying, or a period with
no interest at all on the amounts transferred. But, in the fine print, you will see the dangers of
these types of offers. (See our section in Chapter 5 called “Read the Fine Print.”)
Bankrupt – Any person whose property becomes liable for administration under a Bankrupt law,
or law regulating persons unable to pay their debts and protecting their creditors; a person
who has become insolvent.
Bankruptcy – A state of being actually or legally bankrupt. When a person declares “bankruptcy,”
it is reported to the 3 Credit Bureaus, EXP, TU, and EFX, and this has a huge negative impact
on their “credit score.” It takes 10 years to have a bankruptcy removed from your credit
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reports. Many consumer credit counseling organizations and/or creditors, will counsel
people to file for bankruptcy. This is an action that most people should not take, unless they
have virtually no other options, and it should never be done without thought about the
tremendous, long term damage it will do to your credit rating. Many people find, after filing
for bankruptcy, that the disadvantages far outweighed the advantages, and they would have
been better off working out their debts with each creditor. For more information on
bankruptcies, see “What Other Factors Can Affect Your Credit Score” in Chapter 4.
Bankruptcy Code – A federal statutory law which governs the bankruptcy process.
Billing Cycle – This is the day of each month when a creditor completes their cycle (month) and
begins the new month. All bills and activity on accounts are figured during the 30 day period
from one billing cycle to the next. This usually does not coincide with a calendar month, and
can vary from one creditor or financial institution to another. Purchases or payments made
prior to the cycle date will show up on your next bill. Those made after the cycle date will not
show up on the current bill, but on the bill a month later.
Bonds (as investments) - These are actually loans that you are making to the government or a
corporation. You might purchase “municipal” bonds issued by the city in which you live.
You are like a lender, or creditor to them, and they will be paying you back interest on the loan
you have made to them. You are in no way an owner of any portion of the entity, simply their
lender. Your interest income is fixed, and will be paid to you on a regular basis, which can
become a source of income when the loan is of a considerable amount. Bonds have a pre-set
“maturity” amount, and once reached, the value can go no higher. Bonds are one of the less
risky types of investments.
Borrower – One who receives funds (a loan) with the understanding that it must be repaid in full
according to certain terms.
Budget - A written account or record of money that comes in and out of your household over a
period of time is called a budget. A budget is usually for a month, but you can also have an
‘annual’ budget. It is a way of gathering, into one document, all of your financial information
in order to plan for future expenses and to meet future financial goals. It gives you clear
insight into how much money you make, how much you spend, what the spending patterns
are, and how much you save presently, or how much you could save in the future. It is
essential for showing you exactly (to the penny if you desire) where all of your money goes,
and can help you limit such things as ‘impulse’ buying. Once you know where your money
goes, you can begin to control it, and then you can use it to plan and shape your financial
destiny as no other means can provide. Plain and simply, it is a ‘money tracking tool.’ It is
also one of the most important things a person can put into writing.
CA – Abbreviation for ‘collection agency.’ If you use credit cards, owe money on a personal loan,
or are paying on a mortgage, you are a debtor, and when you fall behind in these debts, you
may be contacted by a ‘debt collector.’ A debt collector is any person who regularly collects
debts owed to others, including attorneys who collect debts on a regular basis. A collector
may contact you in person, by mail, phone, telegram or fax, but they are restricted from
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How to Escape The Credit Trap For Life
contacting you at inconvenient times or places, such as prior to 8 am or after 9 pm, or at your
place of business. (See your rights pertaining to CA's in Ch. 5, Secion XI.)
Cash Advance Fees – When you borrow cash from a credit card, as opposed to making a purchase,
your card company may charge you a cash advance fee. The fee may be in the form of a
higher interest rate on the total amount of your cash advance (read the fine print) or it may be
a 2 – 4% fee/cash advance regardless of the amount of the advance. You may want to ask the
credit institution about these fees before accepting their card.
Cash Flow - This is the amount of money you have to live on – literally, the cash that is left over
for you to spend after you subtract from your income all of your bills and expenses, and take
out all of your deductions (like taxes, health insurance, etc.). I.e., if you earn $2500/mo., and
$500/mo. is taken out for deductions (leaving a net income of $2000), and another $1680 is
spent for bills and expenses, then the remaining $320 is your monthly cash flow.
Cash Out – Cash funds received by the borrower at the time of a loan closing.
Cash Reserve - Everyone should have a ‘cushion’ or cash reserve set aside to tide them over in
times of emergency (job loss, illness, etc.) This is money that you can easily get at if you
suddenly need it (such as in a savings account). Most financial planners recommend at least a
3 month supply of cash on hand with which to pay your bills should any of these things
happen – some recommend 6 months or more. You should determine your monthly expenses,
using a budget, and then set aside (or save toward setting aside) at least the three month
reserve, and if you can do more, great – you will be even better protected.
Cautious – A credit score that is below 560. Most lenders and creditors perceive people with these
scores very cautiously and you will be limited as to what you can do and what loans you can
obtain with a “cautious” score. You will pay much higher interest rates, and be ineligible for
home and auto loans, as well as possibly barred from insurance and job opportunities.
Co-borrower – An additional borrower on a loan (see also ‘co-signing’). Being a co-borrower
makes you equally liable for repayment of the loan.
CD’s - Compact Discs – oops – wrong definition. We are referring to Certificates of Deposit,
which are a very safe form of cash investment (see Money Market Account).
Charge-back – A process by which a consumer can dispute a charge to their credit card (possibly
for merchandise that was not what they expected, or for a service that was never provided,
etc.) and the credit card company posts a credit back onto your account for the total amount.
They then deal with the merchant by sending them a 'chargeback' slip, and the merchant has
the opportunity to challenge the matter from their point of view. If the merchant is successful,
you'll get a letter from your bank stating that they agree with the merchant and you owe the
money. If not, you keep the refund and the matter is over. It has been our experience that the
customer usually 'wins' in these situations.
One way that many merchants 'get around' this law is to offer customers a 'free trial'
period of perhaps 60 – 90 days. Their hope is that you will wait until after the trial period to
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ask for a refund, and by then you have forfeited your right to obtain a 'charge-back,' which
must take place within 60 days from the date of purchase. Even then, however, it is still worth
a try to get your money refunded – and it often works.
Charge-Off – This happens when a creditor exhausts all attempts to collect a debt, and finally
writes it off. The end result is that the debt is reported on your credit report as a “charge-off”,
meaning they have given up trying to collect this debt. This doesn’t mean, however, that they
won’t still sell the debt to a collection company for further attempts at collection, at which
point it is called a “collection.” Not all charge-offs become collections, but when it happens,
you could end up with both the charge-off AND the collection (for the same debt) appearing
on your credit report for 7 years. (see “collection”). This is a violation of the FCRA as the CA
selling the paper (debt) is required to send a letter to the CRA's deleting this issue so that only
the new one will appear. Unfortunately, this doesn't happen very often. Another important
fact about a charge-off is that the debt will continue to collect interest and late fees (so the
amount will keep going up, way beyond your original debt).
Most companies will “charge off” the debt somewhere between 120 – 180 days, after
which time, when it’s been sold for collection, the fees should stop. Even then, however, the
company that purchases the account for collection will add on their fees, and every time it is
sold thereafter to another collection company, more fees will be added on. If it goes to court,
and a judgment is granted, additional fees for the attorney and court costs will also be tacked
on. If this continues for some time, the new debt amount showing on your credit report will
likely be so much higher than your original debt that you probably won’t even recognize it as
yours. In that case, if you dispute it with the credit bureaus, you can simply state that you
aren’t sure this is yours, and would they please send PROOF in writing that this is your debt,
or delete it from your record.
ChexSystems – This is a data base (a type of CRA) which provides a service to banks. It was
started in 1915 by the St. Paul based Deluxe Corporation, (which happens to be the world’s
largest blank-check printer). ChexSystems keeps track of negative information regarding the
handling of checking and savings accounts, particularly accounts that were closed due to
excessive NSF (non-sufficient funds) activity (i.e. bounced checks), ATM overdrafts, or other
types of misbehavior.
Many financial institutions screen their potential new customers by running their name
through ChexSystems to see if any negative items have been reported about them from other
financial institutions. If you’ve been involved in any kind of check fraud, or written checks
that weren’t any good, or on accounts that were closed, etc., and never cleared up these things,
you will have a bad report which may make it impossible for you to open up a new checking
account. Not all financial institutions report to ChexSystems or use them to obtain reports, but
most of the larger ones do. Most banks (Deluxe claims over 80%) will contact ChexSystems
when a prospective customer applies for a new checking account. If you walk into a branch to
apply, the person taking your application will call ChexSystems on the telephone right then
and there. If you are listed for past closed accounts, then your new account application will
nearly always be denied. There are nineteen million old accounts listed as "Closed For Cause"
in the database. Most people have no idea they have been listed until they attempt to open a
new account and are rejected. If you are applying for an account and are turned down due to a
ChexSystems report, be careful to clear this up before applying at a lot of other banks. Each
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time you apply and a bank requests a copy of your ChexSystems record, it is recorded, much
like an ‘inquiry’ is recorded on your credit file with the bureaus. Too many ‘hits’ in a short
period of time can work against you. A bank may become suspicious if they find that you
have recently applied for accounts at several other banks over a short period of time. The
inquiries include details of exactly what name, address, SSN, driver's license number, etc. were
given on the previous applications. ChexSystems is covered by the Fair Credit Reporting Act
as a "consumer reporting agency," so if you are denied any sort of account based on
information provided by ChexSystems, you are legally entitled to receive a copy of their file on
you. Your request must be to ChexSystems directly, not to the bank you applied with. While
the major credit bureaus keep negative items on file for seven years, ChexSystems keeps items
for five years from the date of insertion. For more information about how to open an account
after you’ve been reported to ChexSystems, see the section on Checking/Savings Accounts in
Chapter 4, Part V. Also see additional information in the definition of ‘S.C.A.N.’ As with any
other CRA, you can dispute an inaccurate item directly with Chex Systems - send your letter
by certified mail (via the contact information in the Appendix). They are required to verify
your records with the reporting bank, and if this takes more than 30 days, ChexSystems is
required to remove it from your report until they get a response from the bank. Since that
frequently doesn’t happen, you can request that the negative item be deleted from your
record.
Choice Trust – This is a CRA that produces various scores on consumers, such as an “auto
insurance score,” an “employment and rental history report,” and a “homeowner’s insurance
score.” They offer free copies of all these reports, and if you feel you have been discriminated
against in any of these areas, obtaining copies and correcting possible errors would be a good
idea. (Contact information in the Appendix)
CKPT – Abbreviation for “checkpoints,” which are notations placed on your credit file to
identify important information.
COE – This stands for ‘close of escrow’ and refers to the closing of your loan for a real estate
purchase or refinance.
Collateral – Property or Asset belonging to a debtor which secures a loan. The collateral protects
the lender – in the case of a default by the debtor, the collateral is surrendered to the lender.
This may be the home being financed in the case of a mortgage loan, or something like
precious metals or stock certificates being held for a small loan.
Collection – A collection is usually a past due account that is over 120 days late, and will be
marked 'collection.' It is transferred to a collection company by the original creditor, who
then “charges it off.” A collection, much like a charge-off, is added to your credit report after a
creditor exhausts all attempts to collect the debt from you. A collection however, is then sold
to a CA, which will in turn make additional attempts to collect from you, usually with their
fees added. The danger here is that one single account, such as a charge card, could be listed
on your credit more than once. First it is a charge-off, by the original creditor, and then it may
be listed again as a collection by the CA who has purchased it and is attempting to collect from
you. This is an example of the misreporting by the credit bureaus, and one of these records
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needs to be removed. It can be further damaging as one CA can sell the delinquent account to
another, and so on, with each successive CA listing it on your credit as another collection.
Only one of these can legally be reported for any one debt. Unfortunately, it is up to YOU to
discover these multiplicities, notify the credit bureaus, and get the duplicate accounts
removed. In some cases each listing will have different account number, since these CA's
often assign their own account numbers to your “new” collection, making it appear as a
different account. You must look for dollar amounts, dates, etc. that match to determine
whether these are, in fact, all the same account. Of course, it always helps if you have kept the
original documents for proof, and if you have printed and saved previous credit reports.
Co-mingling – When your credit file contains information about someone else with a similar
name, it is called ‘co-mingling’ of your files (their file may also contain information about
YOU). This will occur most often among people with common names, or between Jr’s or Sr’s
in the same family. It’s your right to contact the bureaus and have this information correctly
separated from your information. From that point on, you can avoid this problem by always
using the same spelling of your legal name, and only that one name.
Commitment Letter – A letter from a lender which can be used by a borrower (prospective home
buyer) to prove that the lender has agreed to loan up to a specified amount under certain
terms.
Consumer – This refers to any individual who uses goods and services – this is you.
Consumer Report – (No, not the magazine!) This is any written, oral or other communication of
any type with information by a CRA bearing on a consumer’s credit-worthiness. It may
include references to a consumer’s credit standing, character, reputation, personal
characteristics, credit capacity or living standards, which may be used in whole or in part for
the purpose of establishing eligibility for credit, insurance, employment, or any other purpose
authorized in the FCRA.
Consumer Statement – A statement written by the consumer, on their own behalf, which may be
added to their credit file in the case of Identity Theft or unresolved disputes that need more
explanation. Usually 100 words is allowed, and this does appear on the credit report which
can be viewed by prospective lenders. However, 100 words may not be enough to fully
explain a situation, and these statements are generally ignored by the credit bureaus (for
scoring purposes) and the lenders (for loan approval purposes). A better way to explain your
side of a situation is to write a letter and enclose it with any loans you apply for. We have had
clients use this technique with great success in getting a lender to not only read it, but to
actually understand their particular situation and ignore the negative on the credit report as a
result. The danger of adding this statement to your credit file is that it can remain in your file
long after the issue is 'dead and buried.'
Contesting – This is the name for the process by which you disagree with an item on your credit
report. Also called “disputing.” When you write them to “contest” or “dispute” an issue,
they have 30 days to research the account and make a decision to leave it on your credit report,
or remove it (called a “deletion”).
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Corporate Bonds – One type of Bonds which can be purchased for an investment. These are issued
by a corporation and are of two types – Debentures, backed by the good faith and credit of the
corporation, and Asset-backed bonds, which are backed by specific assets of the corporation.
Both are sold through brokers and they generally offer a higher rate of return than
government bonds since they are a riskier investment (not as safe as bonds issued by the
government). They are used more for steady income than for accumulation of wealth.
Co-Signing – This is when one person puts their name (and guarantee) onto another person’s
loan, indicating that they will guarantee the loan will be paid. This is necessary if the person is
unable to get a loan on their own due to credit problems or lack of credit. If the person (friend,
relative) who has asked you to co-sign does not make the payments, for any reason, you, the
co-signer, will be held responsible. This can be (and probably will be) reported on your credit
as well as the other person’s, and if it has become a negative (late pays, etc.) it will bring down
their score as well as yours. It is definitely not a good idea to be a guarantor on another
person’s loan, however, many people will do this for their children to help them get started
with a new home or car. Just be sure that you can afford this additional payment without
“going broke” if they default on it, because if that happens, you will surely be paying it to save
your credit rating. Should you wish to truly help your children, consider the much better way
of doing so – simply by following the principles in this book and having them begin early to
establish their own excellent credit rating.
CRA – The abbreviation for Credit Reporting Agency – also see the definition of ‘Credit Bureaus’
in this chapter.
Credit – An amount of money placed at a person’s disposal by another (bank, lending institution,
retailer, etc.). This money is now available for your use when you want it.
Credit Bureaus – Private companies that are in the business of gathering and reporting your
personal information and making it available to people who might want to evaluate your
creditworthiness. The three major credit bureaus in the USA are Experian, Trans Union, and
Equifax. You have the right to obtain copies of your credit reports from them, and to contact
them at any time to disagree with information you feel is inaccurate within your credit
reports. Contact information is in the Appendix of this book.
Credit Card (see also Revolving Credit) – This is a card authorizing purchases on credit. It will
allow you to borrow, or “use” up to a set limit (such as $1000.00), called your credit limit.
Conditions for repayment are flexible, allowing the borrower to pay them back at their own
pace. Only a specified minimum amount is due every month. Making only the minimum
payment month after month, however, can get you into trouble. Since you are basically only
paying the interest, your balance gets paid down very slowly, if at all, and you could literally
be paying this debt the rest of your life (or for many, many years). Thus it is NEVER advisable
to pay ONLY the minimum payment. (See section on Managing your Credit Cards, in Ch. 6)
Credit File – See Credit Report
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Creditor – One to whom money is owed. This may be a bank, financial institution, credit card
company, or even a friend who has loaned someone money.
Creditor List – On your credit report, this is a list of addresses and telephone numbers of the
various organizations and creditors that have placed account information on your credit file.
Credit Profile – This is the various levels of information that make up your credit score.
You can almost think of it as being shaped like a pyramid. The CRA uses many factors to
break down the people into categories, with each category bearing additional “weight” in
determining your credit score (or profile). These categories are basically demographics, and
the top of the pyramid would be the most basic demographics that divide all people into one
of two groups – male or female. Next, all males (and all females) can be broken down into
another demographic, such as married or single (or married, single, divorced, widowed). The
pyramid gets wider with each additional demographic taken into consideration. Some of
these are such things as your zip code (which may tell them a lot about your income bracket,
or your habits – i.e. someone living in a zip code near a casino, or in a city where gambling is
rampant may be more susceptible to gambling problems and/or substance abuse and/or
financial problems). Your demographics can change all the time, as you may go from being a
student (a demographic) to a graduate of high school (another demographic, and you are no
longer in the ‘student’ demographic unless you enroll in college, which is yet another
demographic). See section “What Other Factors Can Affect Your Credit Score?” in Chapter 4.
Credit Repair Company – A complete misnomer, as no one, not even you, can repair your credit –
only the credit bureaus can do this (remove negative items from your credit report). You can,
however, request that they make changes to your credit report, and there are various ways to
do this (see Chapter 10). It is not legal for anyone but YOU (or someone to whom you've
given a POA) to make these requests to the credit bureaus. Many companies scam the public
by claiming that they (and they alone) can “repair” your credit and get you a great score by
removing negative items from your credit report. I will show you in this book that there are
many more “positive” ways (and legal and ethical ways) than you have ever imagined, to get
the increased credit score you need.
Credit Repair Organizations Act – Enacted in 1996, this law governs CRS's of all types, but it's
enforcement has left a lot to be desired. For cautions and much more information, see the
section on 'Using a Credit Repair Service' in Chapter 8
Credit Report – Comparable to a school “report card,” which is issued by each of the three credit
bureaus upon request by you or another entity who has a legitimate reason to access it. Each
bureau has a fee they charge for a copy of their report. If obtained online, the report is good
for 30 days, and you can re-access it at any time during that period to see if anything has
changed. After 30 days, user must pay an additional fee for further reports. These reports are
also available to creditors who want to evaluate your credit score for the purposes of lending
you money or extending you credit for purchases. Keep a copy of every credit report you
obtain over the years. You should obtain a new copy every 6 months for your review so you
are aware of new items that came onto your report during that time. If there are errors, it is
much easier to dispute them when you have proof of the dates they were added to your
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report. The new erroneous items could be accounts that have been “re-aged” by creditors. See
“re-aged.”
Credit Score – A report card or benchmark of your credit worthiness; a number that is used by
creditors (lenders) to approve or deny you credit. It can be any 3 digit number between 350
and 900. A good score to shoot for would be 720, which would place you well above the
average score in America today, which is 678. NOTE: Not all of your accounts (trade lines)
are reported to all three bureaus. That’s one reason you could have three different scores that
are 2 -30 points different, or more. But a major issue you need to address on your credit report
is to make sure that your mortgage, major credit cards, car payments, etc. are reported to all
three bureaus. If these are in good standing, contact the creditor (not the bureau) and ask
them to report it to the other bureaus. This simple housekeeping step can add a significant number
of points to your credit score.
Credit Surfing – This is the practice of using money from one credit card to pay off another in
rotating fashion. This can be very harmful – see the Section on Do’s and Don’ts in Chapter 6.
CRS (Credit Repair Services) Read about these in the section on ‘Using a Credit Repair Service’
in Chapter 8, and be aware that you should use these services only with certain cautions listed
in Chapter 8.
CUNA (Credit Union National Association) – Almost anyone can join a credit union these days,
and they offer excellent banking and credit services to their members, as well as great rates,
and savings account loans to help you rebuild your credit (adds positive trade line to help
overshadow negative credit in your file). To find one in your area, contact CUNA via the
information in the Appendix.
Current Status – On a credit report, this means the present status of an account as of the date it is
being reported. I.E., ‘paid as agreed,’ ’30 – 60 – 90 day lates,’ ‘delinquent,’ ‘behind in
payments,’ etc.
Date of Last Activity - (DLA) This is a heading on your credit report that shows when a debt was
charged-off or became a collection, or the last time that the creditor reported any of your
account(s) to the credit bureaus. This date is important so that you can prove, if needed, that it
is past the Statutes of Limitations, or has been re-aged. (See sections on Statutes of Limitations
in Chapter 8, and the definition of ‘Re-aging’ in this Chapter.)
Date Opened – This is a heading (section) on your credit report that shows the date that a
particular account was opened or established, or the first date the creditor reported it to the
credit bureaus.
Date Reported – On your credit report, this date reflects the last time your account was updated
by the creditor/collection company. On old open accounts that have not had any activity for
years, you may see that the creditor has stopped reporting and the last date reported may be
several years old. Also once you do again begin using the account (credit card) the creditor
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would then report that current date to the credit bureau. It would then be considered a good,
'seasoned' account and could help your credit score. (Also see 'last reported.')
Debit Card – A card linked to a bank and your checking account. Instead of accessing a line of
credit, like a credit card, it can only be used to access money you already have in your
checking or savings account, or a brokerage account. It can only be used up to the amount of
money that is in your account. You have the option of using it like a credit card for purchases,
and many people think that using a debit card as a credit card, when given the choice, means
the purchases will be reported to the credit bureaus, which is not the case. Since this is using
money of your own, from your checking account, and not from a bank or lender, it is not
reportable. One big difference between a debit and credit card is the amount of protection you
have in case of fraud. Debit cards are covered by the Electronic Funds Transfer Act, which
limits your liability to $50 (same as a credit card), but only if the bank is notified of the theft
(fraud) within 2 business days of the occurrence. Fortunately, two of the major debit card
companies, Visa and MC, have policies that give you unlimited protection in cases of fraud.
An ATM card is also a type of debit card.
Debt – See section “What is Debt?” in Section A of this Chapter.
Debt Consolidation – This is a loan to pay off all of your other loans. A company that does this
for you will typically combine all of your outstanding loans (credit cards, etc.) into one big
loan, and instead of paying a lot of creditors, you are now just paying ONE – the Debt
Consolidation Company. Generally the total amount of this one payment is lower than all of
your others were, but the fee charged by the DCC is also added in, and in the long run, you
will be paying it for a longer time. A debt consolidation loan helps some people to make a
smaller, more manageable payment NOW, but doesn't really solve the problem of all of the
debt you owe. Before considering a debt consolidation loan, try every other alternative first,
such as:
o a loan from your bank to pay off your debts (then you can pay back the bank,
without the high fees charged by the DCC);
o negotiating lower rates on your credit cards or getting one new lower rate card and
transferring your higher interest balances to that card;
o sell something you can get by without – a boat, RV or second car;
o borrowing on your life insurance policy;
o consider using money from your retirement holdings;
o you could borrow from a relative and pay back at a much smaller interest rate;
o cash in precious metals, antiques, collections, or other valuables to get yourself out
of debt;
o or even a home-equity loan (read the definition of this and be aware of the cautions).
Either way, always do the math and consider interest rates so that you aren't jumping
from the frying pan into the fire. Like anything when it comes to math, it must make sense.
Then begin using the credit-building principles outlined in this book from this point forward
to get yourself out of debt and stay there.
Debtor – One who owes a debt to another. This could be an individual debtor, or a business entity
with a loan.
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Debtor's Anonymous – If you or someone you know is having serious problems with debt, this is
an organization that can help. Similar to AA, they help compulsive or chronic debtors get
their problematic debt under control with a 12 step support process designed to stop all forms
of debting. Contact info in the Appendix.
Debtor-in-Posession (DIP) – In a Chapter 11 reorganization, the debtor retaining possession of the
assets involved in the bankruptcy is referred to as the DIP.
Debt-to-Credit Ratio – There are acceptable levels (percentages) beneath which your credit card
account balances should remain in order to get the optimal credit scores. The rule of thumb
for the best scores is to keep the debt-to-credit ratio UNDER 30%. For example, on an account
with a credit limit of $2500.00, you should never charge over 30%, or about $800.00. The
higher your outstanding balance, the lower your credit score. People who consistently keep
their accounts under 30% are considered good managers of their credit by lenders. (See the
term “Revolving Credit” to understand the dangers of these accounts.)
Deed-in-Lieu – This is an arrangement made by a person whose home is about to go into
foreclosure – it allows you to give your home back to the lender without having a foreclosure
listed on your credit report. While this is becoming more popular recently, most lenders will
still try every conceivable way to resolve this before going this route. Keep in mind that the
'deed-in-lieu of foreclosure' may still appear as a negative on your credit report and to future
prospective lenders.
Default – Non-payment of an agreed-upon debt. It usually results in a charge-off or a collection.
Deficiency Judgment – If you've lost your home in a foreclosure and the lender is able to sell
the house for less than the outstanding balance of your mortgage, the courts may award a
judgement against you for the difference between the two figures. The lender is entitled to
collect this money from you, possibly along with their foreclosure expenses. This 'deficiency
judgment' can go on your credit report in addition to the foreclosure.
“Deleted” – A term you may find on a “Result Report,” which is issued by the credit bureaus after
you have contacted them and asked them to remove an item that was inaccurate. This
indicates that they have, indeed, removed the item and it should never reappear on your
credit report. Keep good records because this item could be placed on your credit report at a
later time by another collection company.
Delinquent – This is the state of being overdue on a loan payment, but not yet in default. Many
loans have a ‘grace period’ which allows the borrower to be late up to a point without being
penalized. After the grace period ends, certain repercussions begin (late fees, etc.).
Demographic – This is something about a person that quantifies or qualifies them as belonging to
a certain type, or group. I.e., a demographic about you would be whether you are a male or a
female. We are all classified under hundreds of demographics. Have you ever received a
solicitation for a certain type of magazine or service? Chances are someone bought a mailing
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list with your name on it because you were classified into a certain category that made them
think you might like that magazine or service. One of our clients recently attended a “moneymaking” seminar, and now the offers for free tickets to other money-making seminars are
flowing in almost daily. Do you think the people holding this seminar purchased a mailing
list somewhere? Of course, and it had information about you (a demographic) linking you to
their particular service or interest. (For more information on demographics, see the definition
for Credit Profile)
Derogatory – Anything on your credit report that is negative or unfavorable.
“Dings” on your credit – This is a slang term which means any derogatory item listed on your
credit report that lowers your score.
Discharged – A term referring to a debt that has been eliminated through a bankruptcy. Having
the debt discharged relieves the debtor of those debts that are dischargeable (incurred prior to
filling for bankruptcy).
Disclosure – This is a word meaning 'revealing' of information. A consumer has the right, under
the Fair Credit and Charge Card Disclosure Act of 1989 (Part of the Truth in Lending Act), to
have the details up front about the costs involved in their credit cards. Previous to this act, a
credit card company could issue a card without letting the consumer know anything about the
charges until after they had the card, and by then, most consumers were ready to just go out
and CHARGE! – with no thought to how much it would cost them (and many still do that
today!). The charges that must be disclosed are the annual fees, finance charges, various
penalty charges, charges for missed grace periods, and their method of calculating your
interest. (See the definition of each of these terms for further information. See also the penalty
charge definitions – i.e., late fees, over-the-limit fees, transaction fees and cash-advance fees.)
Understanding every facet of each of these fees, particularly the fees for calculating interest, is
difficult and confusing to say the least. The most important thing to remember about most of
these fees is that if you follow the principles taught in this book, you will be avoiding paying
most of them most of the time – perhaps all of the time. If you are just beginning to obtain
credit cards and establish credit, then paying some of these fees on small balances will be wellworth it to get your credit rating up to and above 720 and keep it there – the pay-off will come
in lower interest rates on everything you purchase for the rest of your life, and that can add up
to hundreds of thousands of dollars.
Dismissal – A bankruptcy filing that is basically ‘cancelled,’ wherein the debtor has decided not to
proceed with the bankruptcy after the initial filing was completed. Even though it is recorded
as “dismissed,” this record of the filing itself can remain on your credit report and do a lot of
damage. With a letter and some diligence, however, you can likely have it removed.
Duplicate Accounts – Often you may find that one account (credit card, installment loan, etc.) is
reported on your credit file more than once. Legally, any account can only be reported once,
and any duplicates should be removed. There are several reasons these accounts could be
duplicated. One reason may be due to the fact that some creditors issue both revolving and
installment accounts. Another way they can appear twice may be due to a change of your
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address, where the creditor transferred your account to a different location and issued another
account number. For another reason, and the one perhaps occurring most often, see the
section on “Working with Collection Agencies” in Chapter 5.
ECOA – This is the Equal Credit Opportunity Act of 1974. On a credit report, this indicates who is
responsible for this account. In general, it was an Act that, among other things, ensures that
women will have rights equal to men in regards to credit.
EFX (Equifax) – one of the 3 major credit reporting agencies (businesses). See definition of Credit
Bureaus for additional information.
Escrow – An account held by a lender into which a homeowner (borrower) pays money, over and
above their loan payment, for the payment of taxes and insurance. This assures the lender that
the borrower will not become delinquent in their taxes, which would result in a tax lien
against the property, or allow the home to become uninsured, which would jeopardize the
lender’s interest in the property should the property be destroyed or damaged due to a
disaster. Another type of escrow account is one in which documents and down-payments
(monies) are held by a neutral third party prior to a home loan closing.
Equity – The difference between the current market value of a piece of property and the amount
owed on the mortgage. If substantial enough, this equity will often be used as “collateral” for
a second loan on the property. (See also ‘home equity loan.’)
ETA (Electronic Transfer Account) - This is a low cost account at a bank, credit union or savings
& loan, to which a Federal benefit, wage, salary or retirement payment is deposited
electronically. This account is not available to anyone, but only people receiving one of the
types of payments mentioned, and only at a participating financial institution. There may be
certain conditions imposed on these accounts. An ETA Provider is required to open an
account for any person receiving these Federal payments, regardless of credit problems, unless
the person previously had an ETA that was closed because of fraud at their institution, or any
other financial institution.
Examiner – A court officer who may be appointed to investigate the financial affairs of a debtor
(i.e., in a bankruptcy filing, or a collection proceeding).
Exempt Property – The property of a debtor that is protected by law from the actions (seizing) of
creditors – usually the home, automobile and necessary furnishings, etc.
Fair Credit Billing Act – (or FCBA) – a consumer protection act which, in part, gives
consumers the right to 'charge back' merchandise (return it and get their money back) if it
is not 'what it was cracked up to be.'
Fair Credit Reporting Act – (or FCRA) – See FTC
FACT – Abbreviation for the Fair and Accurate Credit Transactions Act (HR 2622), which
provides protections regarding the use, accuracy and privacy of consumer credit reports.
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FDCPA – The Fair Debt Collection Practices Act of 1978 (Amended in 1996) – it’s purpose was
to amend the Consumer Credit Protection Act to prohibit abusive practices by debt
collectors. This act regulates the actions of debt collectors only (not creditors) and clearly
outlines what they cannot do in their efforts to collect money from a consumer. It protects
us from unnecessary harassment and strong-arm tactics, which were fairly commonplace
at one time.
FDIC – Federal Deposit Insurance Corporation. For our use here, this organization governs
credit concerns (complaints) dealing with state chartered banks that are not members of
the Federal Reserve System.
Federal Reserve Board – For credit related issues, this board governs its members (banks,
except national banks and federal branches/agencies of foreign banks) and any complaints
you have about your credit file regarding their member banks should be addressed to
them (contact information in Appendix).
FICO Score– Synonymous with the term “credit score”, based on a system used by credit bureaus
for calculating credit ratios and scores. In the 1960’s, Fair Isaac Corporation started working
on a system which could be used by lenders to evaluate the likelihood that a person would
repay a loan. It was designed to take the “human error factor” out of the equation when
lenders were trying to determine whether or not a consumer was worthy of the credit they
were considering extending. Thus FICO was born, and by the 1980’s, it had evolved to
become a standard used by any and all lenders. (More about this in Chapter 4)
File – This term, when used in reference to a consumer, means any information recorded and
retained by a CRA relating to that consumer.
Finance Charge – The percentage of the principal (amount borrowed) that is charged annually
for the use of the money borrowed. It is the fee you are charged for using OPM (other
people’s money).
Foreclosure – Act of foreclosing; specifically a proceeding which prevents or ends a mortgagor’s
right to redeem a mortgaged property. The person purchasing the property (mortgagor) is
“closed out” of the property, due to non-payment of the agreed upon mortgage. It becomes
the property of the lender to resell in order to salvage as much money back as possible. This
can be extremely damaging to your chances of ever purchasing another house.
FOI’s – Furnishers of Information (to the credit reporting agencies). Anyone who provides
information to any CRA is supposed to notify you within 30 days prior to or after furnishing
this information to be added to your credit file. Chances are, you have not been notified by
any of these creditors, and if they claim to have notified you, they need proof that they did
(only a certified letter with a return receipt bearing your signature could possibly constitute
this proof). For more information, see the definition of “furnishers” in this Chapter.
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Fraud – Knowingly or intentionally deceiving a creditor or lender by giving false information on
applications for credit.
Fraud Alert – If you suspect or know that you are a victim of identity theft, you should file a notice
(fraud alert) with your credit card companies, the 3 credit bureaus, and the ITDC. You should
also contact your local police department (and obtain a copy of the resulting police report to
send to creditors if needed). All contact information is in the Appendix, except your particular
credit card companies. To protect yourself, or for aid when this happens, make copies of all of
your credit cards and keep them in a safe place at home, and write phone numbers near each
one on the copy, so that you can quickly access their contact information.
FTC – Federal Trade Commission, the government agency which regulates the credit bureaus.
They produced the Fair Credit Reporting Act, which basically says you have the legal
right to dispute any and all inaccurate, unverifiable or misreported information on any of your
three credit reports.
Enacted in 1970, this Act was passed in response to rising concerns about the consumer
reporting system, to provide industry standards and protect consumers. It was designed to
promote accuracy, fairness and privacy of information by those who organize, store and
distribute the information, and by those who are making credit decisions about you. Prior to
the enactment of the FCRA, even if consumers were able to find out what their credit report
contained, there was no way for them to challenge it or have corrections made. In passing this
Act, our Congress realized that the consumer credit industry is necessarily dependent on
accurate and fair credit reporting. The Act was amended in 1996, and we will not go into the
intricacies of it here, as it would be too lengthy. See "Your Credit Bill of Rights" in Chapter 4,
Part VII. For more information you can get a copy of the FCRA from the Federal Trade
Commission (see contact information in the Appendix).
Furnishers – These are persons or businesses who provide information to consumer reporting
agencies (CRA’s). Furnishers are subject to the FTC’s jurisdiction and must comply with all
applicable regulations. The FCRA imposes responsibilities on furnishers, and the complete
Code regarding furnishers can be found on the website of the FTC (see Appendix for contact
information). One item of note, in Section 623(a)(1)(A) and (a)(1)(C) is that furnishers are
prohibited from providing information to a CRA that they know or have reasonable cause to
believe is inaccurate. However, the furnisher is not subject to this prohibition if it lists an
address to which consumers may write to notify the furnisher that certain information is
inaccurate. In other words, they can report anything, accurate or not, as long as they provide
an address for you to contact them and dispute the item. If you find inaccuracies on your
credit report, you may want to consider disputing it directly with the furnisher, rather than
with the CRA, or dispute it with both, for the best chance of getting it removed. In Section
603(p), it states that financial institutions that furnish information to CRA’s must notify the
consumer in writing if they plan to furnish or have furnished negative information to a CRA.
Thus, you should be notified every time a financial institutions provides any negative
information about you to a credit bureau. Since this doesn’t always happen, it can be grounds
for having the item removed. These are just two of the ways furnishers are regulated, and
there are many more. For the complete regulations, visit the FTC’s website.
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Garnishment (Against Wages) - This is a court order allowing a creditor to collect a portion of
your wages (paycheck) in repayment of debt owed. This can go on indefinitely until the debt
is paid. I.E., child support, or a collection or judgment, or any type of debt can be garnished
from your wages.
Grace Period – Sometimes called a 'free-ride' period or 'free-money' period, since many people
think they can charge up their credit card and make their payment before the end of the grace
period and not pay any interest. In reality, the grace period is the period of time between the
closing date of the billing cycle and the date that you must pay the entire balance in full to avoid
a finance charge. If you pay the whole bill prior to that due date, you won't be charged any
finance charge, but if its not paid IN FULL by that date, you will get charged the interest.
Check your credit cards to see whether or not you have a grace period, and if you do, and
want to benefit from it, pay your balance in full by the due date every single month. NOTE:
While in the credit building mode, it is good to leave a small balance on your card every month – as long
as the balance is within the 30% rule – what you lose in interest now, you'll gain later by obtaining
lower interest rates due to having a higher credit score (see 30% rule info in Chapter 5).
Guarantor – Another name for a person who co-signs for someone else’s loan. See the information
on Co-Signing – we don’t ever recommend that you do this.
Hard Inquiry – These are inquiries placed on your credit report when creditors “pull” your credit
as you search for a loan or credit card. Each hard inquiry will cost a minimum of 2 points, and
could be much more (as high as 50 points in some cases). Pulling your own credit will not
constitute a ‘hard’ inquiry and will not count against you.
High Credit – The credit limit, or the original amount of a loan or credit line, or the highest
balance of an account.
HIPAA – The Health Insurance Portability and Accountability Act of 1996, which was enacted to
protect the privacy of the medical information of consumers. This states that medical
providers are only allowed limited release of your medical information, and need your written
permission to release it to a third party. Have you ever given this permission? If a medical
provider has assigned your debt to a CA for collection, without your written permission, you
could dispute this collection based on a violation of HIPAA, and force the medical provider to
deal only with you in settling this. If necessary, you can file a complaint with the U.S. Dept. of
Health and Human Services, but in any event, if the bill is yours, you still owe it and should
work out arrangements to pay it. Most medical facilities will work with you over time to pay
large medical bills, as they would rather get regular payments on it, than nothing at all.
Historical Status – (# Mo.) On a credit report, this is the number of months reviewed to establish
the 30/60/90 day time period a payment was past due.
"Holds" – These are placed on your credit card by hotels or rental car agencies when you give
them your credit card authorization to 'hold' a room or car for your use. They will 'run' the
card to make sure you have enough credit to cover their estimated charges (sometimes more
than you think they are) and that amount will then be 'frozen' on your account, no longer
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accessible by you until the 'hold' is removed. Even if you pay by cash or other means when
you arrive at the hotel or car rental agency, the hold may remain on your credit card for
several days, which could cause you problems when you try to use the card elsewhere. This is
just a 'kink' in the current system, and one which is being addressed by credit card companies.
If you are using a credit card to hold something, find out the EXACT amount being held so
that you can plan around it, or use a different credit card just for 'holds'.
Home Equity Loan – This is a second mortgage (loan based on the equity in your home as
determined by the current appraised value of your home.) These are usually obtained through
your local bank. For example, your home appraises for $300,000.00, and your first mortgage
balance is $200,000.00. Your equity is the difference between the two, or $100,000.00. The
bank calculates a certain % of this (differs with each financial institution, but it might be, for
the purposes of our example, $50,000 or more), and makes you a loan for this amount of
money – in the form of a revolving line of credit via a credit card (keyword here is revolving –
you only pay interest or payments on the amount you actually use – so if you never use any of
it, you'd never owe a payment.) The problem is, managing your credit. Most people will
immediately take out all or most of this money to use for vacations, remodeling, paying off
other credit cards, kids' college education, etc. As you charge up the card past 30% of the
limit, your credit score goes down accordingly. And once the card is charged up to it's limit, it
is reflected on your credit report as a maxed out credit card. Thus, you need to be careful to
stay within the guidelines of the 30% rule (see Chapter 5).
Many people fall into the 'trap' of getting a second mortgage on their home without even
realizing it. For example, you decide to put in a new pool and patio, cost $20,000.00. You
don't have the cash, and none of your credit cards have that kind of limit (you wouldn't want
to use them for that anyway), so the 'pool guy' says, "Don't worry, we can finance the whole
thing for you – you'll just pay $350/month to have this great new backyard." They will then
obtain a loan against your equity, which is, in fact, a brand spanking new second mortgage.
(Did you think you would be paying the pool company with your pool and patio as security?)
Most second mortgages are ARM's – adjustable rate mortgages, that can escalate to a payment
you may not be able to afford. And guess what, if you default on this payment, this could
force your home into foreclosure. Be careful about using home equity loans.
Homeowner’s Insurance – Insurance required by most lenders when purchasing a home– this
protects both the homeowner and the lender in case of damage to or destruction of the home,
and is a combination of both liability coverage and hazard insurance.
Identity theft – This is when someone takes and uses your personal information (such as your
name, SSN, or credit card number) in order to steal money from your accounts, establish
fraudulent accounts in your name, or borrow against your credit. Every person should take
precautions to keep their personal information as secure as possible. If you are a victim of ID
theft, it can destroy your good credit rating overnight, and cause you literally years of work to
clear up. Many cases of identity theft occur among family members or someone you know
well. For example, an estranged father with a son (junior), who has the same name, might use
his son’s SSN and name to establish credit accounts. By the time the child is grown, he could
have thousands of dollars of debt on his credit reports that he must now prove aren’t his. Or,
perhaps you have a close friend of the family who picked up your mail while you were on
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vacation. See our section on methods of preventing ID theft in the Do’s and Don’ts portion of
Chapter 6.
Income-to-Debt-Ratio – When applying for a home loan, the percentage of your income to your
debts (car payment, credit cards, etc.) will be a factor in determining your eligibility for the
loan. You could have the best credit score in the world – 720 or even 800, but if your incometo-debt-ratio is unbalanced (because your net income isn’t high enough to justify the tentative
mortgage payment), you could be denied the loan by your lender, based on that alone. Often,
they may suggest to you that you find a lower priced home that will fit into your income-todebt-ratio, or pay down some of your debt to improve the ratio.
Incorporated (INC) – Becoming a company – corporation, which is an entity recognized by law as
constituted by one or more persons and as having various rights and duties together with the
capacity of succession. Many people form a corporation, that stands on its own, for the
purpose of accepting liability in place of an individual or the individual partners of a business.
It is often used to protect assets.
Inflation – The rate at which prices on goods and services increase each year. Inflation erodes the
purchasing power of the dollar, so that each year, slightly more (dollar) is needed to purchase
the same amount of goods purchased the previous year.
ITDC (Identity Theft Data Clearinghouse) - This is the Federal Government’s centralized
identity theft database. This is maintained by the Federal Trade Commission. Should you be
a victim of identity theft, in addition to calling the 3 credit bureaus, your credit card
companies, and the police, you should also notify the ITDC (contact info in the Appendix).
Innovis Data Solutions – IDS is the 4th largest credit reporting agency in the U.S., and one from
which more and more banks and credit card companies are purchasing consumer information
for use with pre-approved credit promotions. Any negative information they may have about
you could prevent you from getting new credit card offers. You may want to contact them for
a copy of their credit report as well as the three major bureaus. (Info in the Appendix)
Installment Loan/Account - This is basically the opposite of a revolving account, especially in the
way it can affect your credit score. If you purchase an item, say a refrigerator, for $1500, on
credit, it will be reported to the bureaus as an installment loan, meaning you are paying the
$1500 in small, regular, monthly payments, until the total is completely paid. If paid as
agreed, these accounts can have a positive effect on your credit score. A revolving account,
however, means a particular merchant has given you a certain credit limit, like $1500, which
you can spend on merchandise in their store, over and over again, up to that limit. If you
make a purchase of $300.00, you now have a remaining limit of $1200. Once you pay off the
$300, your limit is back at $1500. There is a danger with a revolving account. If your limit is
$1500, and you make a purchase for any amount over 30% of that limit, i.e. $1000.00, it then
shows a high debt-to-credit ratio, which can adversely affect your credit score (see info on the
30% rule in Chapter 5). Then the credit bureau will treat that particular credit card as if you
opened the account and then went out and charged it up, and you will lose points because you
are over the 30%.
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Interest – This is the same as a finance charge – a fee for borrowing OPM (other people’s money).
Inquiry – An inquiry is a prospective creditor ordering a copy of your credit report. Whenever you
apply for new credit, the lender, or creditor, will ask for permission to pull your credit from
one or all of the three credit bureaus in order to determine whether or not you are
“creditworthy.” This (often called “hard” inquiry) will help them decide if they will extend
credit to you, and how much. Having your credit pulled will show up, as an “inquiry,” on
your credit report the next time a prospective lender pulls it. Each inquiry will count as a
negative item on your credit report and can cost you from 2 –50 points in lost score, with 3 – 35
points being the average. “Soft” inquiries, on the other hand are not scored against you.
NOTE: One way to avoid inquiries when you are shopping around for a car or home loan, is
to get the first lender to give you a copy of the credit report he ran. Then block out your SSN,
and use it to fax to other lenders or mortgage companies. Have them use that information
while they ‘shop around’ for the best financing for you. Or, simply get your midscore from the
first lender, and tell the future lenders what it is at this point in time, and they can revise
accordingly later on if it turns out to be different. Whiting out your SSN is important, because
without it, they cannot run your credit. With it, some of them may go ahead and run it
without your permission, and you may never catch that it is on your credit report, lowering
your score. Also, if you do all of your ‘loan shopping’ within a 30 day period, it will only
show up on your score as 1 inquiry.
NOTE: Pulling your credit with any online service will not show up as an inquiry or deduct
points from your credit score. However, having it pulled by any creditor will show as an inquiry and
count against you. There is one online service we definitely do not recommend anyone using, and that
is TrueCredit.com; for an explanation of this, see the definition for TrueCredit.com we have provided in
this section. Instead go directly to either Experian.com or Equifax.com to get your reports and scores for
all three bureaus.
Inquiry Information – On your credit report, this is a list of the organizations that have accessed
your credit file within the last 2 years.
Judgment – We found it interesting that several of the definitions given by Webster refer to God’s
judgment, as in “A calamity regarded as sent by God, by way of punishment.” The definition
we use in this book refers to, “the pronouncing of a formal opinion or decision” by a court in
regard to monies owed by one party to another. When a judgment is placed on your credit
report, indicating that the court has decided you do owe an amount of money to a creditor, it
will have very negative ramifications on your credit score. A judgment remains on your credit
report for 7 years.
Judicial Lien – A lien created by a court order, such as a lien created by taking a judgment against
a debtor.
Last Past Due – On a credit report, this is the comment field that lists the date the account was
past due.
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Last Reported –This indicates the last time the creditor sent information to the three credit bureaus
confirming the status of the account. This could be a reporting of a late pay, or a reporting of a
monthly payment received on time, or “paid as agreed.” It should also be noted that some
creditors only report quarterly, so one monthly late pay may not show up on your credit
report for several months. (See also 'date reported'.)
Last Status (or Last Activity) – This is the last time you made a payment or charged on the
account.
Late Fees – If you don't pay your credit card bill (or mortgage, or rent, etc.) on time, you may be
charged a late fee. Most credit card companies now impose late fees if you are just one day
late, and even if the payment doesn't reach them by a certain time on that date. If this
happens, they likely have a clause in their fine print that gives them the right to escalate your
interest rate due to you being late. Be sure to ask about these fees ahead of time so you can
plan to pay early enough to avoid falling into this trap.
Late Pay – This is a derogatory notation on your credit report placed by a lender to whom you
have been late in paying any agreed upon monthly obligation. It will lower your score and
can stay on your credit report for 7 years. A late pay on your mortgage will lower your credit
score 30-50 points on your credit report and will definitely affect your ability to get another
mortgage, as the lender will consider you a much greater risk. The myth out there is that once
you bring your account current, the late pay will just go away. It doesn’t. Again, it remains on
your credit report for 7 years, even after the account is paid and/or closed.
Lender – The person (or institution) whose money you are using, or who extends you credit or
makes a loan to a borrower to purchase real estate.
Lexis Nexus – This is a CRA that specializes in public records. Should you have undergone a
bankruptcy, or have judgments, tax liens, or other public records, they will be tracking it.
They offer a free copy of their report. (Contact info in the Appendix)
Liability – A debt, an amount which is owed. Can also be another kind of liability, such as “My
daughter is a real liability to me because she never stops spending.” (No implication to anyone
I know, by the way.)
Liable – Bound or obligated by law or submission to other forces. I.E., “I am liable for the
damages to your car since I drove it without your permission.”
Lien – A legal claim against a property that must be paid before the property can be sold, or paid
at the time of closing on the property. Generally a written paper documenting that one person
owes money to another, wherein the person 'holding the lien' (lienholder) has the right to
control or enforce his/her claim against the other until the debt is paid or satisfied. A lien is
usually held in security for the repayment of a debt, but it could also be another party’s
interest in the property due to work completed or a ‘partnership’ agreement of some type.
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LLC – A limited liability corporation, wherein the owner's liability is limited to the assets of the
business – if sued, their personal property is not endangered. They can lose their business, but
not their home.
Loan-To-Value Ratio (LTV) – The loan-to-value ratio is the original loan amount divided by the
sales price, or the appraised value, whichever is lower. This is similar to a Debt-to-Credit ratio
in reference to a credit card debt or other credit accounts.
‘Maxed Out’ – This is when you use a credit card right up to its maximum limit, and, instead of
paying it down in large payments, you continue, over time, to pay only the minimum
payment. Thus the card has no room left for you to charge anything additional, and your
balance begins to accrue ever higher due to the added interest and small payments you are
making. This is one of those mistakes that many, many millions of people are doing, month
after month, that is keeping their credit score low. You must pay at least a little over the
minimum so that the balance starts to go down. As long as you continue making only the
minimum payment, your balance will actually begin to go up and up and up, well over the
limit you have been given. Didn't you ever wonder why you had a credit limit of only $1000
and yet your bill shows you owe $1350 at this time, and it will be $1375 or so next month, and
so on? Did you think they raised your credit limit? Many people think just that. Owing as
much on that card (or more) as your limit, is not only 'maxed out,' but it is dragging your
credit score down, further and further each month.
Medical Information Bureau – A CRA that tracks your medical history and produces reports that
could be affecting your health insurance rates, or your ability to get health insurance at all.
You may want to contact them (see Appendix) for a free copy of their report and make
corrections if they have any errors about you.
Midscore – This is not the “average” of your three credit scores (from the three credit bureaus), as
many believe. Rather, it is the score that falls between the other two, and there is a big
difference. For example, if you have a score of 698 from Experian, 699 from Equifax, and 750
from Trans Union, your midscore would be the 699 from Equifax. This is the score used by
virtually all lenders to determine your creditworthiness for their loan.
Minimum Finance Charge – Not to be confused with other finance charges, or penalty fees, this
fee is a 'rounding up' of any finance charge amount on your bill between 1 cent and 49 cents.
Thus, if your finance charge that month is 35 cents, it will be rounded up to 50 cents. The fine
print in your disclosure statement will state that there is a minimum finance charge of fifty
cents, thus if the finance charge that month is OVER 50 cents, you will be charged the actual
amount – i.e. a finance charge of 85 cents will remain 85 cents. This is just one more way the
credit card companies can make a little extra money on the consumers.
Money Market Account – (or cash investments) – These “bonds” include government bonds,
special bank savings programs, savings and checking accounts, and CD’s (Certificates of
Deposit), and are usually considered the safest of all investments. With Money Market
Accounts, your money is safe and free from loss, or even shrinkage which may be caused by
inflation or market losses. These accounts may have very short term or long term maturity
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periods, and either is very stable. This may be a good way to have a portion of your
“investment portfolio” in a safe, secure place, while still liquid. There is one bank in
California, where investors nationwide place their funds at a pretty good interest rate, and
there is no minimum amount on the account (see Western Financial Bank in the Appendix).
Many money market accounts have large minimum amounts which make it impossible for the
average “investor” to place funds there. Other safe places to make fair returns are through
church organizations, such as the Baptist Foundation, etc., where your money is invested in
planting new churches and is paid back by the congregations of the church over time. With
these accounts, the longer you agree to leave your money in the account, the higher the
interest you will earn.
Mortgage – The legal document prepared by a lender to secure a piece of property until the full
amount of the loan is repaid.
Mutual Funds – This is the major type of investment that most people seek, with thousands of
mutual funds available, and millions of people investing in them. They are a method of
diversifying your investment without having to have the knowledge of each type of
investment and of the market. Hundreds or even thousands of investors have their money
pooled and managed by a fund manager, and there are different types of funds that produce
different results for people with different investment objectives. Your money purchases shares
in the fund and the value of these shares can rise or fall, affecting the amount of money you
make. They are popular for many reasons, but mainly because beginning investors can put
the burden of making the purchase decisions on the expertise of the fund manager, and
because they are diversified throughout many stocks and/or bonds, which provides some
safety. Mutual funds are also popular because they are liquid assets, which means you can
easily pull your money out should you need it at any time. The convenience is another factor,
since you can make regular deposits through your bank, the mail, automatic deductions from
your account, etc. One drawback to mutual funds is the fees or commissions you will have to
pay to the managers of the fund. It pays to shop around and compare fees before deciding on
a mutual fund investment. Different funds have different tax consequences, and the fund
manager and your tax accountant will be able to help you decide which funds are best for
your individual situation.
National Banks – These banks will show up on your credit report with the word ‘National’ or the
initials ‘N.A.’ appearing in or after their name. They are governed by the Office of the
Comptroller of the Currency, and any complaints about their actions regarding your credit
report should be addressed there (contact information in Appendix).
National Fraud Information Center (NFIC) – This center will refer you to both federal and state
enforcement agencies and consumer-protection offices where you can file complaints about
any fraudulent dealings you've had with telemarketing and other companies. Contact
information in the Appendix.
NCTUE – The National Consumer Telecom & Utilities Exchange - This CRA was designed to
help the utility companies identify high-risk accounts among customers applying for new
service. Inaccuracies on their report could mean you would be required to pay a higher
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deposit for telephone service than other consumers, and additional upfront deposits for utility
and gas hook-ups. It could also mean you will be denied service altogether.
We had a client with a first hand experience with NCTUE. He moved, after many years at
the same address, and called to have new utility service hooked up, with a different server.
He was refused service due to an old utility bill that had been collecting interest for years, and
was told that this bill, now over $1000, must be paid. Upon investigation with NCTUE, it was
found that the bill had actually belonged to a tenant of his whose address had been
interchanged with his own (as the landlord), and he was able to straighten it out, saving $1000
and getting his new utilities set up. However, it took some time and delayed his move. Thus,
obtaining copies of reports such as these from time to time could be helpful. (Contact
information in the Appendix)
Net Income – This can be net household income, or net business income. It is the amount of
money earned by you or your business after all deductions (not including expenses, such as
mortgage payments, etc.) are taken out – deductions include SS taxes, state and federal taxes,
possibly health insurance premiums. Net income can also include other sources of income
such as investments, rental income, child support, alimony, SSI, etc.
Net worth – This is the value of your estate, or business, that is remaining after the deduction of all
charges, outlay, losses, etc. Simply put, net worth is what you own minus what you owe on
what you own.
OC – Abbreviation for ‘original creditor.’ This is the lender or financial institution with whom you
contracted for credit or for a loan (such as your mortgage company or a credit card company).
Offices of Thrift Supervision – This is the organization that handles complaints against Savings
Associations and federally chartered savings banks (those with the word “Federal” or initials
“F.S.B” appearing in their name on your credit report). Contact information in the Appendix.
OPM – A drug used in the Orient - oh, that’s opium, sorry. OPM stands for “Other People’s
Money.”
Origination Fee – The fee the lender charges for processing a loan application. Also called
‘points,’ it is stated as a percentage of the mortgage amount. This fee can often be negotiated
between the borrower and lender.
Over-the-Limit Fees – When you charge above the limit on a credit card, it is much like
overdrawing your checking account, and you will have to pay a penalty for doing so. This is
called an over-the-limit fee and you may be asked to pay the overage in FULL
IMMEDIATELY, as well as paying additional interest charges and a penalty. You should pay
the overage right away regardless of whether they request it all, because they may charge you
a penalty fee for the overage every single month that you remain over the balance (and a
higher interest rate, too). This could end up costing you a lot, and many people aren't even
aware of it. These things can affect your credit rating, so develop a habit of awareness of your
credit limit, and be careful to NEVER charge over that amount.
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Paid As Agreed – On a credit report, a term used to designate an account in good standing, with
no late pays or problems.
Past Due – On a credit report, this is the amount past due (late) as of the date reported.
Personal Property – Property that is not in any way permanently attached to the land, or is
moveable – as opposed to a structure, cement slab, fence, etc. that ‘goes with’ the property.
PITI – The abbreviation for the ‘principal, interest, taxes and insurance’ portions of a mortgage
payment, which may or may not be included in the monthly payment. Some payments may
be ‘principal and interest’ (PI) only, and the 'taxes and insurance' portions (TI) are left to the
responsibility of the borrower. When given a monthly payment quote by a loan officer, verify
whether it includes TI, or is just the PI. Some of our clients have had unethical loan officers
quote them payments as PITI, when it was only PI. Then, at COE they were shocked to find
out the lender isn't collecting for TI (not included in the payment), and they suddenly had to
come up with a couple of hundred dollars more in their budget every month to pay these
'extras'. By then, they had waited so long for this mortgage to close, and had already sold their
own home and made arrangements to move out, so they were literally 'forced' to accept these
'unacceptable' terms or start all over again from day one. It really pays to know EXACTLY what
is included in the monthly payment you are quoted – get it in writing!
PMI – Short for Private Mortgage Insurance. It is insurance provided by non-government insurers
that protects the lender in case the borrower defaults on the loan. Many people mistakenly
think that this insurance protects the borrower and would pay off their loan if they became
deceased.
POA – Abbreviation for ‘power of attorney,’ which is a signed document giving another person
the authority to act on one’s behalf in legal matters.
Points – A term that represents a percentage of the amount of the mortgage, but is a one-time
charge added on by lenders (fee for loan processing) to increase their profit. The amount of
points you are charged can be a negotiable item.
Post-dated Checks – Other than to trusted friends or relatives, we do not recommend using postdated checks (a check with a date that is postponed or dated 'down the road' from today's
date). Some people use these to satisfy someone to whom they owe money that they intend to
pay the debt, but they are basically stating, "I don't actually have the money to pay you now –
but I will on the first of the month," or whatever. If you do this with creditors, write a
notation in red ink and bold letters on the check 'VOID UNTIL THIS DATE' or something
similar to make it stand out. Many creditors receive thousands of checks daily and could
easily and legitimately make the mistake of cashing your check immediately, which would
cause you all sorts of problems.
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Pre-Qualified – This is the state of having been approved, ahead of time, for a pre-determined
amount of money for which a borrower is eligible, prior to applying for a home loan. Some
real-estate brokers now require that a prospective home buyer have a loan pre-qualification
before they will spend time showing them homes.
Prime – If you have a credit score above 680, you are considered a “Prime” borrower, and will
have no problem getting loans, and at good interest rates. However, a 720 score will get you
even better rates. Prime is also a term associated with interest rates. The prime rate is the
interest rate banks charge to their most worthy customers – thus a ‘prime borrower’ gets a
‘prime rate.’
Principal – A capital sum placed at interest, due as a debt, or used as a fund. It is the amount of
money that was borrowed or is remaining unpaid. The word principal also applies to the
portion of the monthly mortgage payment that reduces the outstanding balance of the
mortgage.
Proof of Claim – This is a document filed in court in a bankruptcy case. It’s purpose is to establish
a creditor’s (or lien-holder’s) claim for payment against the debtor filing for bankruptcy. A
‘secured proof of claim’ is one that is secured by a lien, a judgment, or another type of security
interest.
Public Record – On a credit report, this refers to information that is available to the public, which
can be reported to your credit file (i.e., a judgment, lawsuit, bankruptcy, etc.).
Qualifying Ratios – These are ratios (guidelines) used by lenders to determine how much money a
prospective home buyer can afford to borrow. Based on certain percentages, such as how
large the monthly payment will be in comparison to your total income, the lender can easily
see how large a loan you will get. If the ratios work out in your favor, you will be considered
‘qualified’ to purchase a certain home or a home up to a certain value. The lender may tell you
that with 10% down, for example, you can purchase a home up to $200,000 in value (that is the
amount for which you are ‘qualified’). This helps the borrower to limit their search only to
homes within their ‘price range.’
Rapid Rescore – This is a procedure used by mortgage loan officers that allows them to quickly
(possibly as fast as 72 hours) get your score recalculated by the credit bureau(s) after you have
made some positive changes to your credit profile. For example, say you need 10 more points
to qualify you for a better interest rate on a home loan. After reviewing your credit report, I
might advise that this 10 points could be achieved if you paid a remaining balance on a
particular credit card (say, $100.00). Once you’ve paid the balance, either by phone or online,
and you get proof of this to your mortgage company, he/she can work directly with the credit
bureau(s) to do the ‘rapid rescore,’ re-pull the credit showing the updated score, and proceed
immediately with your loan. At HCS, we do this procedure with our clients all day long, and
they love it. So do the loan officers we work with, which is why we get so many referrals.
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Re-aged – Old items on your credit report can be “brought current again” (re-aged) by creditors
who have decided to “re-start” their pursuit of you for past due accounts, or who have sold
your account to a collection company. When this happens, they treat the account as if it just
happened, meaning that the date listed on your report is very recent, as opposed to the
original date, which may be close to the 7 year removal time, or even past that time. We have
seen 10+ year old accounts “re-aged” and placed once again on a consumer’s credit report as if
they were new. Keeping up on these accounts, and having them removed at once, is your
responsibility and can only be done if you stay abreast of new items being reported on your
credit report. That's why it’s important to pull, print and save credit reports at least twice/yr.
Redemption – In a bankruptcy proceeding, this is the right of the debtor to purchase (or buy back)
certain real property or personal property from a creditor (who has a lien) by paying the
current value of the property instead of the total amount owed on the property or debt. An
example would be an automobile which had depreciated below the remaining balance owed.
The debtor could purchase it for the current ‘blue book’ value instead of paying off the total
amount owed to the lender. Also called the ‘right of redemption.’
“Remains” – This is a term on your Result Report, after you have disputed an issue(s) on your
credit report, which indicates that the Credit Bureau, at this particular time, is NOT going to
delete the item from your credit report. This doesn’t mean that you can’t redispute the item in
the future, and send additional proof that it should be removed.
Repository – Mortgage companies, banks and lenders use “repositories” (third Parties, linked to
the “credit bureaus”) for the purpose of pulling your credit. These repositories are linked (see
FCRA) to the three credit bureaus, and they take the burden off the credit bureaus by acting
like a “middle man” between the mortgage companies, banks, and lenders, and the bureaus.
These repositories are updated monthly, on the first business day of the month, by the 3 credit
bureaus. Depending upon how you managed your credit the past month, this updated
information will determine whether your score will go up, down or remain the same. While
the credit reporting industry has developed consistent and uniform methods of reporting, not
all creditors necessarily report to all three major bureaus, and credit reporting agencies have
different schedules and procedures, which means that the three major repositories may, at any
point in time, contain different information. Thus, a report from one bureau can give a very
different “score” than that of another, and your score may be high enough to qualify you for
one lender’s loan package, but another lender, using a different bureau’s score, may deny you.
Repossession – Taking back something that has not been paid as agreed (usually a car). When a
“repossession” is placed on your credit report, it will greatly damage your Score. (See the
definition of ‘Secured debt’)
Resellers (or Credit Brokers) – These are companies that purchase credit reports for such
businesses as medical offices, insurance companies, and landlords, who are mostly infrequent
users of reports. They often group several smaller creditors together, such as a group of
medical offices, and are thus able to purchase reports for less, and resell them for a profit.
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Result Report – The report you can obtain after you have disputed your negative credit issues
with the 3 bureaus. This report will tell you what was done on each account.
(For more information on the types of results and what they mean, see the section on
“Reading and Interpreting Your Credit Report in Chapter 8.)
Revolving Credit – (See also “Dangers of Revolving Credit” in Chapter 5.) This is having access to
a continuous fixed line of credit. As you begin to make repayment on the credit used, the
amount you paid once again becomes available for your use. Most credit cards allow the user
to have revolving access up to a set credit limit. Credit cards can be your best friend, or your
worst nightmare. It all depends upon how you manage them. There are many guidelines I
will give you later on to help you manage your credit cards in the way that will bring about
the highest possible score for you. A large part of your credit score is based on your
management of these cards. Because a credit card can have a large available credit limit today,
and be maxed out by tomorrow, the creditors are very interested in seeing a history of how
you have managed your accounts. The bureaus will penalize you heavily for mismanagement
of your accounts.
There are two types of revolving credit cards – one issued by banks, and another issued by
stores. The bank card functions as stated above, and can be used for any purchase, anywhere,
while the store card is a horse of a different color. It can only be used in that particular stable
(store that issued it) and if its issued for a specific amount to cover a specific purchase (like a
$2000 limit for a $2000 computer purchase), then it will immediately show on your credit as a
‘Maxed Out Card.’ This will put you way above the 30% ratio (100% in fact) and lower your
score. For more information, see the sections on the 30% rule in Chapter 5 and the definition of
“Installment Loans.”
S.C.A.N. (Shared Check Authorization Network). It’s used to verify checks at over 77,000 retail
locations – owned by Deluxe (Check Printers). Nearly three billion transactions worth over
$175 billion are processed by S.C.A.N. every year. S.C.A.N. will consult the Deluxe database
to determine if the consumer has written any unpaid bad checks at other retailers recently, if
that specific checking account has already been closed, or if the consumer has a general
negative check-writing history. Any of these will result in the check being rejected. The
S.C.A.N. system may even become suspicious if checks are presented out-of-sequence (e.g. this
is check #500, while the last known check written on this account was #450.) Checks bounced
at S.C.A.N.-using retailers may result in being rejected for a new bank account. Deluxe's main
competitor in the areas of new-account and retail verification is a company called Telecheck.
Deluxe's collection agency, National Revenue Corporation (NRC) pursues debts for 30,000
creditors. Deluxe Data Resources sells detailed consumer demographic information on 100
million households. The printing division, Deluxe Financial Services, Inc., holds over 117
million check-ordering histories. More recently, Deluxe has developed a much more
sophisticated and detailed reporting system called the Debit Bureau, which claims a billion
records, and consolidates data from all of Deluxe's other divisions. The Debit Bureau was
created with help from database company Acxiom Corporation, and risk-scoring specialist
Fair, Isaac.
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Seasoned – This would be any account, referred to as a trade line, that has been reported on your
credit report for at least two years, and has a significant positive impact on your overall credit
score. Most lenders would like to see at least 3 seasoned accounts to qualify you for most loan
programs.
Secured Creditor – a person who has a ‘security interest’ in a piece of property. This is a creditor
whose debt is secured by a lien on the property of the debtor, which protects him if the debtor
defaults on the loan. He can then take over the property (repossess it) or prevent it from being
sold to anyone else without first being paid what he is owed.
Secured Debt – Loans that are backed or guaranteed by property or assets owned by you. Secured
loans are for cars, homes and other real property. If the borrower becomes unable to repay
the loan, the “security” (car, boat, home, etc.) can be repossessed or foreclosed upon. A
secured debt may also be a credit card, secured by a savings account deposit.
Segment – On a credit report, this identifies which CRA reported the information.
Settlement – This is an arrangement made between a debtor and creditor wherein the creditor
agrees to “settle” for a payment less than the full amount owed by the debtor. Both parties
agree that this smaller payment will constitute the “end” of the debtor/creditor relationship
and no further attempts will be made to collect the balance in the future. The debt is
considered as “paid in full,” but it will not go on your credit report as a “paid in full” account,
however, but as a “settled” account, which still has the effect of being derogatory and
lowering your credit score. It will be treated with the same severity as the original collection
charge-off, and may even be extended to remain on your report for another 7 years. It does,
however, serve to assure the debtor that the creditor no longer has any claims on him for the
debt. Before sending any money for settlement, be sure you get a letter from the creditor
showing the terms you both agreed upon.
Soft Inquiry – While there are no good inquiries, some inquiries are actually neutral (or soft
inquiries), not affecting your score. These are inquiries initiated by you, the consumer, when
you request a copy of your own credit report, and pre-approved credit card offers which are
not factored into your score unless you accept them. (If you wish to be excluded from these
solicitations, call 1-888-567-8688.) Other “soft” inquiries are those from insurance companies.
SSN or SS# – Abbreviations for your Social Security Number. This number is assigned to
every new baby, by the government, at birth, so that the child can be 'tracked' throughout
his/her life for purposes of employment, taxes, etc. It accesses a 'wealth' of information about
you, including your entire credit file, and is required for numerous kinds of transactions.
Years ago, a child was not assigned a SSN until he/she began working at their first job.
Today, a baby is not supposed to leave the hospital without this number being assigned, and
in some states it is right on your driver's license. Technically, there isn't a law that prevents
organizations from requesting or requiring your SSN, but there also is no law that requires
you to provide it. We suggest that you give out your SSN ONLY when absolutely necessary –
protect yourself and your private information as much as possible. Often just giving it out
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may be taken as granting someone the liberty of running your credit, which of course, gives
you an 'inquiry' and costs you points on your credit score.
Statutes of Limitations (SOL) – This is a law to protect your rights. SOL's are set up by each state
(and they vary), and each state sets a time-table (# of years) that open accounts are collectable.
For example, in the State of Arizona, that timeframe is 3 years. A debt that occurred prior
to 3 years, and has been a negative (collection or charge-off) on your credit report, is now
uncollectible according to State Law. However, if you don’t know your rights, any debtor can
be awarded a judgment, garnishment, etc. against you even past the 3 years. When you are
aware of this, you can use this legality as leverage and a negotiating tool to have creditors
“cease and desist” pursuing you and/or get the debt deleted from your credit report.
Understand that the Statutes of Limitations has nothing to do with the fact that a debt will
remain on your credit report for 7 years, but if successfully negotiated, the debt can be
removed by the creditor prior to the 7 years (see Chapter 8 in this book). The fact that the SOL
has “run” (expired) on a particular debt will not necessarily prevent a lawsuit from being filed
(via a Summons And Complaint), but the defendant can have the suit dismissed on the basis
of the SOL if they know about this law. The SOL only covers lawsuits, and SOL expiration
periods do not affect other collection actions or the reporting of delinquent accounts to the
credit bureaus. While credit cards are generally considered Open Accounts, automobile loans
and other installment agreements are considered Written Contracts. Each state sets their
guidelines as to the timeframe for collection on oral, written, promissory and open accounts.
If there has already been a lawsuit, however, resulting in a judgment, that judgment has a
separate SOL period beginning when the judgment is awarded. In Arizona, the law states that
once any open account is over 3 years old, SOL has expired. A party taking you to court will
lose, provided you know of this law. (See Sec. II B in Ch. 8 and 'Sample letter in Appendix.)
Statutory Lien – This is a lien against a property that was created by operation of law, rather than
a court order. It could be a mechanic’s lien or a tax lien. This type of lien does not require the
consent of the parties involved. (See 'tax lien'.)
Stewardship – This means being a good manager, or administrator, of that over which you are
given responsibility. The Bible teaches us that God owns everything, and he gives each of us
things to look after, or manage. “The earth is the Lord’s, and all it contains, the world, and
those who dwell in it.” (Psalm 24:1) People who believe this understand that when we do a
good job, it shows God that He can trust us and then He may give us more to manage.
Stocks – A form of investment where you purchase a share of stock, or ownership, in a company.
When the company grows, your stock rises in value. If the company has difficulties and fails
to grow, or goes under, your stock will drop in value, and you can lose the money invested
altogether. Stocks have no absolute value, like bonds, so the value fluctuates according to
what the market will pay for it on any given day. The goal with investing in stocks is to
purchase them when the value is low, and sell when it is high to make the most money. Your
stock will also pay you dividends, which, with a profitable company, can become a good
source of income. Stocks have traditionally been the best wealth building investments over
time.
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Sub- Prime – If your credit score is under 680, you are considered a “sub-prime” borrower and
will pay higher interest rates on loans than “prime” borrowers will pay, and a score below 620
will pay even higher rates.
Tax Lien – A (type of statutory) lien against one’s property due to property taxes which were
owed to the government that have not been paid. While the taxes remain unpaid, and the lien
remains in effect, the property cannot be sold. Having a tax lien added to your credit report is
tremendously damaging and may remain for 10 years from the time you pay it.
Terms – This is the amount and timeframe of your estimated or scheduled monthly payment on a
loan. For example, $1500/month for 30 years at 10% interest might be the 'terms' agreed upon
between two parties where one is lending money to the other.
Title – A legal document which establishes the right of ownership on a piece of property or an
asset (such as an automobile).
Title Report – A report generated by a title company which outlines, in great detail, every bit of
important information relevant to a piece of property, so that the property can be transferred
to a second party who is purchasing it from the first party. It includes such things as the
parcel number, legal description of the property, and all other information which
distinguishes this property from all others so that there can be no confusion down the road as
to which property was purchased, or where the boundaries are, for example.
Trade Information – Another word for trade lines, see below.
Trade lines – Any type of credit account established with the credit bureaus and reported by the
creditors, such as mortgages, installment loans, (such as car loans) credit cards, etc. These help
increase your score or keep it high if they are in good standing and paid on time.
Transaction Fees – This is a "use" fee that is charged by your credit card company for each and
every time you use your card. The fees may be as much as $.50/use, which can really add up
over time. Most people are not aware that they have this, but you should check into it and
avoid cards with these fees attached.
Tri-Merge Report – This is an easy-to read analysis of all three credit bureaus in one report, and
outlines which bureaus are reporting each of your accounts. Mortgage companies often pull
this type of report because it gives a quick snapshot of your situation, and saves them having
to pull all three reports. Do not, we repeat, do not order a copy of a tri-merge report from
TrueCredit.com through the TransUnion website (see next entry). If you desire a tri-merge
report, we recommend that you go to Experian.com or Equifax.com and order it there. In most
cases, it will not be necessary for you to order your scores (and pay the extra fee) since the
score isn't the thing you need to correct. Just check the report for any erroneous, outdated or
unverified information, extra names, etc., and then wait until corrections are made to get the
score, if you really need it. In applying for credit, the lender will run the credit and get the
score, so you won't need to do this.
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TrueCredit.com – Should be called ‘False Credit.com’. As of this writing, we strongly recommend
to our clients that they should not use this service to pull credit online. TrueCredit is
associated with TransUnion and is a source where people can go to get copies of their credit
report for a fee. Unfortunately, the credit scores given by TrueCredit are not only inaccurate,
but grossly so. Some of our clients' scores from TC.com have been up to 100 points lower than
the scores given by going directly to each bureau, i.e. Experian.com, and Equifax.com. Here
are some examples of what has happened with some of our clients recently:
One client, in ordering the tri-merged report from TC.com (all three bureaus combined
into one report, with each separate score listed), was given an Equifax score of 575, an
Experian score of 567 and a TransUnion score of 637. Since we suspected that these scores
were extremely low, compared to the previous month, when, in fact, they should have gone
up due to his positive activity from implementing the principles of this book, my client went
directly to each bureau and ran the scores again. The Equifax score, just as we had anticipated,
was in fact, 666 (compared to 575), the Experian Score was 592 (compared to 567) and the
TransUnion score was 676 (compared to 637). WHAT A DIFFERENCE! Had we not re-run
these (at additional expense, of course) this client would have believed his efforts were in vein
and he had done something to mess up his credit, when in fact, just the opposite was true –
they had gone up from the previous month. Another reason we don’t recommend this service
is that, following this, we did a 3-way call with TC.com, asking them to justify this huge
difference in scores. Their response was, ‘we have a different scoring model, and if you read
our website, you should understand that our service is designed only to show you how you
can improve your scores.” Upon hearing that comment, our client asked, “Then why are you
even giving out the scores, if you know they are incorrect.” After requesting a full refund of
$38.90, he was told, with no apology of any type, that they could only refund the portion of the
fee that was payment for the score, $9.95. To appease our client, the representative quickly
offered to refund the $9.95. We don’t see any reason why their scores should be so drastically
different from the scores given by the SAME bureaus, at the SAME time, on the same day, and
since they were so quick to refund the score portion of the fee, it appears that this is a very
common practice which they use to appease those who take the time to investigate with the
other bureaus directly, and then complain. When asked if there was anything else they could
do for him, he replied, ‘Stop selling the scores since you admit they are useless,’ and he hung
up. How many hundreds or thousands of people are being duped by this company and their
unfair scoring system? Here again is another big bureaucracy (credit business) that has no
business being in business until they get their act together. If a person was getting their
financial house in order in preparation for applying for a mortgage, and used this service as an
indicator of their credit-worthiness, this person would have believed he was totally out of the
ballpark score-wise and not even tried to apply for a loan at this time. This is TRAGIC !
Another client called me after we completed our work for her, and she was obviously very
upset. She said, basically, "What did you do to my credit? I thought I was working with a
Christian I could trust?" After calming her down, I asked her to fax me over a copy of the
credit report she had just run, which showed her scores way down from what they were when
we started. I bet you'll never guess where the report was from – yep! "FalseCredit.com." Of
course, I suggested that she run it again at Experian.com or Equifax.com, and the results were
everything we had expected them to be. We feel bad for the millions of people out there that
are being abused by this company and many other credit-related businesses in this industry.
We hope it will be a few million less after people read this book.
Steve Mertes and Jeri Koppleman
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Truth-In-Lending (TIL) – A federal law that requires all lenders to disclose fully the terms and
conditions of a mortgage. It must be in writing, a part of the documentation of the loan, and
must include the APR and other charges.
TU (TransUnion) - One of the 3 major CRA's (see listing 'Credit Bureaus' for more information).
Type of Report - When ordering a credit report, you will have to order one of three types – either
XPN = Experian, TU = Transunion, or EFX = Equifax (the three major CRA's).
“Updated” – a term you may find on a “Result Report,” which is mailed to you from the credit
bureaus after you’ve disputed an issue. This indicates that an item you requested to be
removed will not be removed. In fact, when you submitted your dispute, you just furnished
the bureaus with all your new, updated information (address, etc.) to be added to your file.
Don’t be surprised if this causes some new activity by collection companies who had lost track
of you. To help combat this, see our information on state Statutes of Limitations in Chapter 8.
Underwriter – This is the person in the mortgage process who actually evaluates your loan
application (the underwriting) and determines the risk involved for the lender. The
underwriter basically makes the decision on your loan – evaluates the facts and figures and
decides whether or not you actually get the loan. You never actually meet or speak to the
underwriter, so everything presented to him/her comes second hand, and no bias will enter
into it – just the facts as they speak for themselves. This makes it easy for your loan officer to
“pass the buck,” - i.e., “Well, it’s not my fault – our underwriter came back with these figures,
and there’s nothing I can do.” Not too many decades ago, people used to meet person to
person with the lender (banker), and that person is the one who gave them the money. It was
personal then, and you could state your case and get some sympathy and understanding for
your cause – and often a handshake was all that was needed to close the deal.
Unsecured Debt – Also called a “signature loan,” which would include credit cards. These are
based on your credit worthiness instead of owned assets, like homes or cars. Default of
signature loans results in collections, charge- offs and even judgments, rather than
repossessions or foreclosures. An unsecured creditor is one who provides these types of loans,
and thus has no real security for the debt.
U.S. Treasury Bills – A type of bonds, these are short-term securities, only up to 1 year in length,
and can be used as an interim holding place for cash. You earn interest, as with any bonds,
and it will be figured on the difference between the discounted purchase price and the mature
selling price. These bonds are very safe investments, and like all bonds, are more for a steady
income than for wealth-building.
U.S. Treasury Notes and Bonds – These investments represent a major source of funding for our
government and are sold in amounts of only $1000 and higher. Since they are backed by the
U.S. Government, they are very safe, but have lower interest rates (thus less return) than
corporate bonds.
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Validation – These are comments placed on your credit file to identify specific important
information.
Verification – This term, in regard to a credit report, indicates that a disputed item has been
checked out by the CRA (verified) and has been found to be accurate and thus will remain on
the individual’s credit report.
WFIP (Women’s Financial Information Program) – A seven week study specifically designed for
middle aged and older women to learn money management skills. This is one of the programs
sponsored by AARP.
XPN ( Experian) - One of the 3 major credit bureaus (see listing under Credit Bureaus for more
information).
IN SUMMARY:
The terms involved in the subjects of debt and credit are many, and most were probably
familiar to you, at least in one or another of their applications. As you can see, however, the
ramifications of many of the terms, when applied to the subject of debt and credit, are of immense
importance. Hopefully, you now have a better knowledge of these important terms, which will
help you as we refer to them throughout this book.
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
Steve Mertes and Jeri Koppleman
83
PART 2
LEARNING THE IN’S AND OUT’S OF THE MAZE
(and How to Get the Cheese Without Being Trapped)
Chapter 4
Know the Basics
I. Where Are We Heading?
According to a lot of forecasts, we are heading for nothing short of an “ARM’s Race” as
thousands of homeowners across our nation are trapped in too-high monthly payments, due to
adjustable rate mortgages adjusting upward and housing prices and appraisals dipping lower. For
many who need to refinance soon, their low credit scores will prohibit them from doing so. For
many others, their 720 or above scores are taking nosedives as they ‘max out’ credit cards or
neglect other payments to meet their increasing mortgage obligations. It’s unfortunate that, in the
recent runaway market, many buyers, sellers, loan officers and lenders were so excited about
making deals, that they neglected to make SMART deals, and everyone will soon be paying the
price. Where are we headed? Into an era of more and more foreclosures, with more and more
people caught in the credit trap, unless they arm themselves with the knowledge necessary to
correct and avoid these situations.
One expert states that more than $300 BILLION dollars worth of hybrid ARM’s will readjust
for the first time this year, and monthly payments will leap right along with them – to amounts
many homeowners just can’t afford. That number will jump up to about ONE TRILLION dollars
in 2007, leaving behind a wake of people with ruined credit due to foreclosures. Many are hanging
on by the ‘skin of their teeth,’ hoping to survive and keep their credit in tact until they can
refinance. No one can solve this problem that looms over us, but reading and applying the
principles in this book can start people on the right track, and may help thousands of consumers to
bring their scores up enough, in the next few months, to refinance their way out of this trap. We
are praying that this help will come in time for many to save their homes, but if not, at least you
will learn what you need to do to avoid these situations in the future.
Things sure aren’t what they used to be. In 1970, one average income could support a family
of four. In 1990, it took two average incomes to support the same size family. In the near future,
economists are predicting that it will take three average incomes. Where will those third incomes
come from? Are you prepared to “move in with the folks”, or take in a boarder to share expenses?
It stands to reason, that we will need more income and less debt.
The average American knows and understands little about the concept of managing their debt.
Some feel that a debt consolidation program may be the answer, but these programs only delay,
and never solve, people’s financial problems. Don’t be fooled by debt consolidation loans which
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How to Escape The Credit Trap For Life
lower your monthly payments. What you may not know is that they, in fact, increase the amount
of interest you end up paying. They give you temporary relief now, by lowering your total
monthly obligation for the time being, but you will end up paying for it all a lot longer, in order to
pay off the added interest. The debt consolidation company makes a lot of money on consumers in
trouble.
With the uncertainty of the future and the economy, there will be more and more of a need for
people to be debt free and in a position to pay cash for their purchases, excluding, of course, such
major purchases as a home or automobile.
Are you, like many Americans,
tired of having most of your money going toward paying interest?
living with uncomfortably high monthly payments?
tired of receiving late fees and over-limit fees?
wishing you had a higher credit score so you could get lower interest
rates, and consequently lower payments?
o tired of receiving harassing collection calls?
o using cash advances on one card to pay another?
o behind in payments due to a sudden emergency?
o
o
o
o
Think about these examples. With a credit card balance of $2100 (pretty much average, these
days) @ 19% interest rate, it will take over 24 years to pay off, if you make only minimum
payments month after month, as many people may be doing now. In the end, you will pay a total
of $7,582.51 to pay off this debt.
On an average 30 year mortgage, at 8.5% interest, you will only pay down 11% of the principal
in the first 10 years. If your mortgage is just $100,000.00, this will be $92,269.00 in total payments
over those first 10 years, with only $11,397.00 of those payments being paid on the principal. You
will still owe $88,602 on the mortgage. Of course, these scenarios would be much different if you
were a good manager of your credit and had a lower interest rate on this loan.
We are greatly penalized by having poor credit. On a $200,000 mortgage, for instance, at 9.25%
interest, your payment with a score in the mid 500’s is $661.00/month MORE than a person with a
score over 700, who gets a 4.25% loan. That amounts to almost $8000 in the first year alone.
The following chart shows just how much the difference in interest payment can be according
to your credit score (based on a hypothetical situation):
---------------------------------------------------------------------------------Interest Rates by Credit Scores (For the purposes of illustration only – understand
that these rates are subject to change at any time.)
---------------------------------------------------------------------------------------------Credit Score
Interest Rate
500-559 560-619
9.29%
8.53%
620-674
675-699
700-719
720–850
7.75%
6.62%
6.08%
5.95%
---------------------------------------------------------------------------------------------This clearly shows you how beneficial it is to have a good credit score. The difference between
the top and bottom scores is worth hundreds of dollars PER MONTH in savings.
Steve Mertes and Jeri Koppleman
85
Thus, learning how to manage your credit and your debt could be saving you a lot of money.
With knowledge and education, consumers can regain and retain control of their credit scores and
credit profiles, and begin to enjoy the benefits of lower interest rates on such things as mortgages
and credit cards. Millions of people struggle every month, living paycheck to paycheck, trying to
make ends meet without success. They are gradually increasing their debt load each year. Prior to
the establishment of the new bankruptcy laws, more than a million families in the U.S. were
declaring bankruptcy every year. Naturally, credit card companies have all of these losses factored
into their rates so that what they lose on some, they make up on all the rest in exorbitant rates to
others. Don’t kid yourself, they aren’t in business to lose money – they are still reaping
humungous profits.
In Part II, we are going to explore and learn to understand many truths about playing the
credit game that will put you in a position to becoming one of the winners. Let’s begin with some
basics.
II. Basic Facts You Should Know About the ‘System’ that No One Ever Taught You
The credit reporting system is composed of millions of computer files kept on every individual
consumer who transacts any type of business anywhere. These files are maintained by the three
credit reporting agencies, and contain personal information about you, and everyone else – such as
how much money you owe, how well you have paid your debts, who you work for, where you
have lived and are now living, whether or not you are deceased (sometimes in error), your social
security number, as well as any public records available on you.
They may obtain new information from their sources whenever you accept credit from a bank
or retail store, fill out an employment application (if a credit report is used as a background check),
have a court record established, have problems with a utility company, have a collection company
go after you, etc. These sources may report information about you to the bureaus each month.
The bureaus then give the information to a second group of regional reporting companies, who sell
it to retailers and banks or anyone who requests information about you which is supposed to
happen only with your permission. Obviously, this is not always the case, and the bureaus make
huge profits selling your information.
(Remember the old adage,
'Before you criticize someone, walk a mile in their shoes –
that way if they are upset, you'll be a mile away and you'll have their shoes.')
The problems really began showing up about a decade ago, when the Big 3 CRA's had become
well-established in their present roles as huge credit 'businesses'. An administrative law judge for
the FTC, James P. Timothy, handed down a decision against one of the credit bureaus regarding
this exact thing (selling of information), as reported by the Macomb Daily Money and Business,
August 27, 1998. He ruled that TransUnion “invades consumers’ privacy when it sells consumers’
credit histories to third-party marketers without consumers’ knowledge or consent.” The article
goes on to state that a spokesperson for TU couldn’t be reached… for comment.”
And in the midst of all of this reporting, selling and maintaining of your personal information,
mistakes are common. In 1995, FTC spokesman, Howard Shapiro said, “It’s one of those things
that doesn’t seem to end – people having problems with the privacy and accuracy of credit
reports.” The article, in the Associated Press (February 2, 1995), goes on to say that, “The FTC had
accused Equifax of violating the Fair Credit Reporting Act, which is designed to ensure the truth
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and confidentiality of consumer credit reports. Among the complaints, Equifax failed to promptly
delete inaccurate or unverified information from reports after consumers complained, and then
failed to prevent the deleted information from reappearing. The company also was accused of
giving credit reports to third parties who had no legitimate reason to obtain them.”
The credit reporting agencies, or bureaus, do not collect information jointly for married
couples, as the information is based on individual social security numbers. Thus, accuracy can
only be assured by checking both the wife’s and husband’s credit reports separately, as each may
contain some of the same information, but may also contain different items as well.
The Fair Credit Reporting Act states that a credit reporting agency can only disclose your
credit report to others as follows:
1) If they are granting credit, reviewing your account, or collecting on your account.
2) If they are reviewing your application for employment purposes.
3) If they are reviewing your eligibility for a license or for government-related benefits.
4) If they are providing information for a business transaction, like renting an apartment.
5) If they have a court order.
6) If they have an IRS subpoena.
7) If they are someone to whom you have given written permission (such as a relative or
attorney who is acting on your behalf).
III. Creditors Adding and Removing Data From Your File
The credit reporting agencies alone have the power to remove items from your file, but there
are ways to get them to do this. The law requires that they must remove or correct all information
that is inaccurate, erroneous, or obsolete (has exceeded the reporting timeline for that item) when
made aware of it. You have, not only the right, but also the responsibility to make them aware of it
when it occurs, as these items are hurting your score. However, if an item appearing on your
report is, in fact, accurate and the bureau is able to verify it, then they will not, nor should they,
remove it.
In cases where you and your creditor do not agree on the facts, you may add a personal
statement to your credit history. Your statement will remain for seven years and can be viewed by
anyone who reviews your file. Thus, you should think carefully about sharing certain types of
information in your statement (such as certain medical information, etc.)
You can also have positive data added to your report if it can be verified. The person or
company in charge of the data must be willing to submit it to the CRA's so that it can be added
onto your credit report (At HCS, we are able to get your good rent payment history added onto
your credit report from the date you entered into your rental agreement up to the present, which
will create a nice trade line for you to enhance your credit score). (See # II in the Appendix.)
Once an item has been removed, it could possibly be reinserted at a future time. According to
the FCRA (Fair Credit Reporting Act), however, one of the requirements for reinsertion of items is
that a consumer must be notified within 5 days of this taking place. Usually the consumer is not
notified at all, let alone in 5 days, thus developing a habit of checking your report regularly is
essential so you can spot this and have it removed again, based on the law. Listen to this quote
from USA TODAY:
“In the past, many consumers found that mistakes re-appeared after they were
deleted from their credit reports. Often the faulty information was reinserted by a bank
or other business. Now they also are legally obligated to clean up their records.”
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The information on your report does not belong to either you or the credit reporting agency,
but rather to the creditor or merchant who placed it there. Credit reports from the three bureaus
do not look alike and do not necessarily contain the same information.
The banks use computerized scoring systems to rate consumers (more about that later, also),
and unfortunately, these computers are regularly making credit decisions that affect you and your
future. In a December, 1997 article in the Wall Street Journal, an interesting story was reported. It
seems a man named Lawrence B. Lindsey, who had excellent credit and was, in fact, a governing
member of the Federal Reserve Board at the time, was denied a simple credit card application due
to something he had been warning people about for some time – computers making credit
decisions. Said Mr. Lindsey, “I would expect credit-scoring type procedures to be overwhelmingly
dominant by the end of the decade. . . We will obtain the fairness of the machine, but lose the
judgment, talents and sense of justice that only humans can bring to decision making . . . If you are
just starting out in life or if you’re starting out again after a divorce, a credit-scoring model isn’t
going to work in your favor.” He goes on to argue that computer models, which obey
antidiscrimination laws and rules, may actually hurt the intended beneficiaries, since “the young
person who may have grown up on the … wrong side of the tracks and has little capital or credit
history, but whose teachers said, ’This kid’s a go getter,’ a human might give him a loan to finance
his small business. A computer surely wouldn’t.” Ruth Sussweiu, Exec. Director of the Bankcard
Holders of America, adds, “. . . there’s no room for extenuating circumstances, and that can be very
financially limiting to many consumers.”
The current “scoring” system began in earnest in the mid-to-late 1990’s, when mortgage
lenders began using scores as predictors of a consumer’s future behavior as a mortgage customer.
An article in Homes and Real Estate, dated Sunday, Nov. 26, 1997, stated “Fannie Mae, the Federal
National Mortgage Association, recently told its nationwide network of lenders that it plans to
begin scrutinizing borrower credit scores for mortgages it purchased from January 1996 onward.
Freddie Mac, the Federal home Loan Mortgage Corp., urged its nationwide network last July to
begin using credit scores to evaluate all new loans . . . send us mortgages that have subpar credit
scores and we just may send them back to you and get our money back. The new policy will
accelerate a trend already under way. The use of credit scores not only to evaluate loan
applications, but to establish rates and fees, as well as how borrowers are treated once the loan is
closed.”
The problem, though, is the fact that the system was set up, but no one gave the consumers
any guidelines to understand and effectively use the system. We were kept completely in the dark.
In light of the way the ‘system’ has evolved over the last decade (in many ways it's gotten worse,
instead of better), it is imperative that you take charge of your own credit situation, and do it now.
We will discuss this in more detail in Ch. 8.
IV. Credit Scoring
While the Fair Isaac Company in California developed the original credit score (FICO), many
credit scores are used by different lenders. In fact, most large financial institutions now develop
and tweak their own credit scores. Credit scores fluctuate according to the age of accounts, current
usage, the number of accounts, and the payment status contained in your credit data.
The methods of obtaining your FICO (credit score) can differ from bureau to bureau. When
obtaining your credit score from any of the bureaus, understand that your score doesn’t come
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directly from FICO, but rather it is adapted to each bureau and given its own name. I.e., Equifax
uses “Beacon,” Experian uses “Experian/Fair Isaac,” and Trans Union uses “Emperica.”
A credit score is an index of risk. It is an unbiased indicator of whether you, the consumer,
will repay a loan on time. It changes as new information is added to or deleted from your credit
file, and it can change any moment. It is based on all credit-related data, not just negative data.
Credit scoring has a tremendous impact on your ability to purchase a home or any other major
purchase you may be considering. Your score can mean the difference between getting a good
interest rate, and thus, living in the home of your dreams, or perhaps not even getting a home at
all. For this reason, it is important that you, the borrower, understand the credit scoring process
and what your credit score is when you set out to obtain mortgage financing.
Lenders use a credit rating, or credit score, as an indication, or prediction, of how likely you
are to pay back your credit purchases and/or loans. These scores are developed based on a
combination of several things – their interpretation of your credit report, your debt ratio, and often
other factors. There are some factors, such as your race, religion, etc. that they are not allowed, by
law, to use in developing your score.
No one piece of information determines your score. As the information in your credit file
changes, the importance of some of the factors (pieces of information) may change in your FICO
score. Lenders look at many things when making a credit decision, including the kind of credit for
which you are applying. However, your FICO score does not reflect these facts, as it only
evaluates the information retained by the credit reporting agency. Some people have a great score,
but lack income, and others have great income, but lack score. In today’s world, you need BOTH.
Several parameters in your credit file, including length of credit history, number of open
accounts, public records, and other things are formulated to produce a three-digit score between a
low of about 300 to a high of about 950. This score places the borrower in one of three main
categories: Prime, Sub-Prime, and Cautious.
PRIME – You are considered a “Prime borrower” if you have a credit score above 680, or better yet,
720. You will have no problem getting a good interest rate on your home loan, car loan or credit card,
provided you have the income to make the monthly payment.
SUB-PRIME – If your credit score is below 680, you are considered a “Sub Prime” borrower and
will pay a higher interest rate on your loans. You may be able to get credit cards, but they will probably
require high set-up fees or recurring monthly fees, and will have limited credit lines. They may also
require cash deposits, and may not even report your positive activity to the credit bureaus.
CAUTIOUS – With a score below 560, you are perceived cautiously by creditors. You may still get
some credit, but you may also have to pay security deposits or high acquisition fees. You will also have
much higher interest rates, likely 22-23%, and home mortgages and new car loans will probably be out
of the question for you until you get those scores up. You will probably pay more for insurance and
have other obstacles, like getting a job, as well.
A. What Do Underwriters Consider?
They consider 5 factors that make up your credit score, which are, in order of importance:
Steve Mertes and Jeri Koppleman
89
1) Your Payment History – This comprises 35% of your score.
A lender wants to know all about your payment history. They need to know if you
have paid all your payments on time, if you have any current lates, etc. This part of the
score is very important. The more favorable your history of on-time payments and paidoff accounts, the better your credit rating will be. And of course, the reverse is also true.
The more late or missed payments you have, or collections and charge-offs, the lower your
credit score will be, making it much more difficult for you to get credit in the future.
Delinquencies over two years old have a smaller impact than those occurring in the past
two years – all recent negatives carry more weight than older ones.
They will look at credit cards, retail accounts, installment loans, finance company
accounts, and mortgages. They also check collection items and public records for such
things as judgments, bankruptcies, lawsuits, liens, collections, and garnishments, all of
which are considered quite serious.
They use three factors to calculate (put together) their information –
o Regency – how long ago was the last delinquency, how old is the late pay,
etc. A 30 day late pay last month will effect your score much more than a
90 day late payment from 5 years ago.
o Severity – what level of delinquency was reached, how late was the
payment made – 30, 60 or 90 days, or even worse, is it still delinquent?
o Prevalence – How many credit obligations have been delinquent? This
would be the number of past due items in your file. They compare the
number of negative items to the total amount of credit. Five accounts
showing 3 late payments, which is 60% of your accounts being late, is
much worse than 10 accounts showing 4 late payments, which is only 40%.
One of the most important factors is how many accounts show NO late
payments (number of accounts paid as agreed). A good track record on
most of your credit accounts will increase your overall FICO score
considerably.
2) Outstanding Credit Balances – (or amounts owed) – comprises 30% of your score.
This is your “current level of indebtedness,” or the “debt-to-credit” ratio, which
means the difference between the outstanding balance and the available credit on each
card, and on the total of all cards. Ideally, these balances should be kept as close to zero as
possible, and definitely less than 30% of the available limit. This is especially important if
you are trying to obtain a new home mortgage or a refinance. Paying off your credit cards
in full every month doesn’t mean they won’t show a balance on your report. Your total
balance on your last statement is usually the amount that will show in your credit report.
Specific types of accounts, such as installment loans and credit cards, are scored
differently. In some cases, the lack of a specific type of balance may be a factor. A large
number of accounts, even with small balances, can be a factor here as they may indicate a
higher risk of over-extension. Several credit cards or other debts with balances
approaching the credit limit will effect your score negatively, even if you’ve made the
payments responsibly. The FICO score will factor your overall ratio of debt to your
overall limits, as per these examples:
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How to Escape The Credit Trap For Life
_______________________________________________________________________________
Overall Ratio
_________________________________________________________________
Account
Amount Owed
Limit/Loan Amount
Percentage
----------------------------------------------------------------------------------------------------------------------Visa
$500
$1000
50%
MC
$50
$1000
5%
Car Loan
$11,000
$25,000
44%
Mortgage
$95,000
$145,000
65%
---------------------------------------------------------------------------------------------------------------------Total
$106,550
$172,000
61%
_______________________________________________________________________________
The 61% ‘overall debt ratio’ used in this example is for illustrative purposes only. The various
factors, including the percentage formulated by each consumer’s own personal data, is plugged into
a computer program which weighs the information according to all of the other data on that
particular consumer, and comes up with a score. Thus, in this example, it is impossible to isolate
the 61% as either ‘good’ or ‘bad’ since so many other factors are to be taken into consideration, by
the underwriter, along with it (such as the person’s income, for example).
_______________________________________________________________________________
3) Length of Credit History – This comprises 15% of your score.
The history is the length of time you have had each credit or trade line. It is measured
from the time it was established to the present, and this is where “seasoned” trade lines or
accounts are very helpful (those you have had for 2 or more years) as they weigh heavier in
the mix. The longer the credit history, the better your score. However, since this factor
makes up only 15% of your total score, even young people or those with short histories can
still score high overall as long as the other factors show well. If you are new to credit, there
is little you can do to improve this part of your score. Open an account and be patient.
They will consider:
o time since accounts were opened, or how long your accounts have been open,
or the number of months you have been in the credit bureaus’ files,
o time since accounts were opened by specific type of account,
o the age of your oldest account and the average age of all your accounts,
o time since account activity, or how long it has been since you used certain
accounts as well as the mix of older and newer trade lines.
4) Types of Credit – This has a 10% impact on your score.
Here underwriters are looking for a mixture of various types of credit. For example,
an auto loan, mortgage, and various credit cards, such as retail accounts and trade lines is
much more positive than just a report with credit cards alone. The types of accounts you
have, and how many, can make a big difference, although the factoring here depends
upon your personal profile, and can differ greatly from person to person. Too many open
installment loans is one factor that can lower this portion of your score. Also, too much
credit card debt, with none of the others, reflects a concentration of debt that can be
negative.
Steve Mertes and Jeri Koppleman
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5) Inquiries (or new credit) – These have a 10% impact on your score.
There is no such thing as a good inquiry. They are seen as a request for credit, and, as
such, they are factored as though you are searching for credit. Every time you fill out an
application for credit to get something free, you are also getting an inquiry added to your
credit report. While there are no good inquiries, some inquiries are actually neutral (or
soft inquiries), not affecting your score. These are inquiries initiated by you, the
consumer, when you request a copy of your own credit report, and pre-approved offers
which are not factored into your score unless you accept them.
Underwriters will look back over the past 6 months and determine the number of
inquiries that have been made on your credit history. Each hard inquiry will cost a
minimum of 2 points, and could be much more (several combined could even be 50 pts).
New credit, especially several very recent accounts, can look bad. The creditor may
be wondering, “To what extent is this consumer trying to open new credit accounts?”
Primary consideration is given to:



the number of inquiries in the last 6 months,
the number of trade lines opened in the last year,
the number of months since the most recent inquiry.
So, take it slow and space out your applications for additional credit/loans.
While we are on the subject of inquiries, we should mention that there are ways to cut
down on inquiries when you are “loan shopping.” See the section on Controlling Credit
Inquiries in Chapter 6.
The credit scoring model seeks to quantify how likely you, the consumer or borrower,
are to pay off their debt. Remember that these scores are computer generated, so no
personal factors are taken into consideration in the calculation of your score. However,
while credit decisions are based on all of the above factors, lenders also often take into
account things other than credit scores and credit data. They often consider factors like
income, monthly expenses, years on your current job, and educational levels when
processing applications for credit. If you are denied credit, employment, or insurance, you
are entitled to a free credit report within 60 days of that denial, so that, should you wish
to, you can get back to a lender and contest their reasoning.
(Remember the old adage, ‘That’s the way the cookie crumbles . . .
and that’s the way your credit score tumbles.’)
It may be beneficial to obtain a “Tri-Merge” credit report, which combines 3 scores in
one report – the FICO score (Experian), the score generated by TransUnion (Empirica)
and the score produced by Equifax (Beacon Score). Each scoring system varies from the
others in their results, so a more rounded profile is available to a lender in using the TriMerge report. They will look at the mid-score (middle score) of the three and discard the
other two. Often, this will work to your advantage, but it can be far from an average, thus
it may also work against you – i.e., three scores of 660, 665 and 730 would show a midscore of 665, which is well below the average of the 3 scores, which would be 685, putting
you into the "prime borrower" category for obtaining better interest rates.
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B. Reasons for Credit Denial
If you are denied credit, 4 “reason codes” will be listed to indicate why you were denied.
The three bureaus may each have denied the credit for different reasons, based on their
compiled data, and therefore the 4 codes given to you may differ from bureau to bureau. In
addition, each bureau uses their own numbers to correspond with each reason, therefore, the
reason could be the same, but still appear as different codes. These reasons, and their “codes,”
are listed on the next page for each bureau (note, however, that the codes often change, so
these are for educational purposes only as they may not represent the current codes when you
receive a denial).
Your denial letter will include a readout which shows each bureau and the four reasons
they gave for denying your credit application. Here is what it would look like from one of the
bureaus, TU, and the others would look the same. The reasons listed are in order of
importance:
TU Score: [00650] (this is your Trans Union Credit score – 650)
Reason1=[022] Reason2=[024]
Reason3=[030] Reason4=[003]
Each report generated is simply today’s snapshot of your credit profile. Since it is today’s
picture, it can fluctuate, depending on your own activities, and could be dramatically different
tomorrow or a week from now. You should be aware of this when you begin the loan process,
and realize that it is in your best interest to abstain from doing anything that will negatively
affect your score while the lender is reviewing your file. The things to do and not to do while
working on a home loan will be covered further in the Do’s and Don’ts section of Chapter 6.
As previously stated, credit scores can range from a very low score of 300, to a high score
of 900 (one bureau, Experian, for example, ranges their scores from a low of 340 to a high of
just 820). As you will see from an upcoming section titled “How Fair is the Current Credit
Rating System”, in the chart entitled “Odds of Default,” the higher your score is, the less likely
it is considered that you will default on the loan. Typically, a good score is considered to be
720 or 750 and above. Approximately 20 percent of consumers rank between 750 and 800.
This certainly indicates that there is something wrong with our system.
A score above 800 is extremely rare, with only one out of about 1300 people in the U.S.
having achieved it. One reason for this is that it can take many years to attain the best credit
score because credit histories are not considered mature until they are well seasoned. Another
reason for this is that knowing HOW to achieve an 800 score is NOT common knowledge,
although it should be taught in high schools and colleges nationwide, perhaps as
Understanding Credit 101, (for which this manual could easily serve as the textbook). This
book will give you the knowledge necessary to achieve it in far less time.
Those with the coveted 800 score are able to walk away with the best interest rates on
every purchase, while about 1 in 8 prospective home buyers in the U.S. may not qualify at all.
For those who fall short, there are some simple ways to improve the numbers without
spending a dime – by increasing your credit limits, for example. This will be covered more in
Chapter 8.
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Steve Mertes and Jeri Koppleman
_________________________________________________________
REASONS FOR CREDIT DENIAL
Experian
TU
Equifax
Amount owed on accounts is too high
1
1
1
Delinquency on Accounts
2
2
2
Too few bank revolving accounts
3
N/A
3
Too many bank or nat’l revolving accounts
4
N/A
4
Too many accounts with balances
5
5
5
Consumer finance accounts
6
6
6
Account payment history too new to rate
7
7
7
Too many recent inquiries last 12 months
8
8
8
Too many accounts opened in last 12 mo.
9
9
9
Proportion of balances to credit limit too high
10
10
10
Amount owed on revolving accounts is too high 11
11
11
Length of revolving credit history too short
12
12
12
Time since delinquent is too recent or unknown 13
13
13
Length of credit history too short
14
14
14
Lack of recent bank revolving information
15
15
15
Lack of recent revolving account information
16
16
16
No recent non-mortgage balance information
17
17
17
Number of accounts with delinquency
18
18
18
Too few accounts currently paid as agreed
19
27
19
Date of last inquiry too recent
N/A
19
N/A
Time since derogatory public record or collect.
20
20
20
Amount past due on accounts
21
21
21
Serious delinq, derog. Public record or collect.
22
22
22
Too many bank/nat’l revolving accts.w/balances N/A
N/A
23
No recent revolving balances
24
24
24
Number of revolving Accounts
26
N/A
26
Number of bank revolving or revolving accts.
N/A
26
N/A
Number of established accounts
28
28
28
No recent bankcard balances
N/A
29
N/A
Time since last account opening too short
30
30
30
Too few accounts with recent payment info
31
N/A
31
Lack of recent installment loan information
32
4
32
Proportion of loan balance to loan amt. too high 33
3
33
____________________________________________________________________________
V. What Other Factors Can Affect Your Credit Score or Credit-Worthiness?
A. Having NO Credit History
People with little or no credit history (such as teenagers) will probably not have a credit
score available. Credit scoring models must have information in order to generate a score.
Without sufficient past credit history, there is nothing for the bureaus, or lenders, to use in
generating a score.
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How to Escape The Credit Trap For Life
If you have never had a credit account, try applying for a retail store account or a gasoline
station account, or a secured credit card through your own bank or open up a saving account
loan at your local credit union, to begin your credit history. If you keep your outstanding debt
low and pay your bills on time, before long you will begin receiving many mail offers for new
credit cards. The caution here is that you should only apply for credit that you really need, as
overdoing the number of credit cards will do more harm than good, as you will see in other
areas of this book.
It used to be that no credit at all, was just as bad as bad credit, but with the powerful no
qualifying programs that are now available today, mentioned in this book, people with no
credit can quickly build an awesome credit score (especially since they have no 'derogatories'
on their file to overcome). And we can help young people with no credit attain a great score in
less than 6 months, with no qualifying and no credit check programs (see Appendix, # II).
B. Marital Status
Many people today go into a marriage with a ‘contract’ to protect themselves and their
assets for the future, in case the marriage doesn’t work. What few think of is protecting
themselves from their new partner’s past. When you begin getting serious about marriage,
remember that whoever you marry brings their good or bad credit into the marriage (baggage,
and I don’t mean suitcases) and you really need to see the credit report of your intended.
Your theme song should be:
Roses are red, Violets are blue,
I must pull your credit before saying, ‘I do.’
This may sound harsh, but most marriages break up over finances. And hidden debt, that
wasn’t revealed prior to ‘tying the knot,’ can be a tremendous burden and detriment to the
marriage from the start, or as soon as it’s discovered. The big plans for buying a home or
starting a business, etc., are now shattered due to the reality of one partner’s credit problems.
There are many things that could have been worked out between you prior to the
entanglement of your credit histories, which could save you and your marriage a lot of grief
down the road. Again, this is another area that many people don’t even think about when
contemplating marriage.
.
If you hold a joint credit account, or have co-signed a loan or been an authorized user of
another person’s credit, these items could affect a score if they appear on your credit report.
It’s important to know that joint account holders or authorized users should understand,
going into the marriage, that their credit history does affect the other joint account holder or
main account holder. A credit account which is solely in the name of your spouse, a child, or
any other family member does not have any impact on YOUR credit score. When you get
married, make a decision to keep some accounts separate (reporting just under YOUR Social
Security Number, to the credit bureaus) in order to protect yourself in the event of a family
disaster or family crisis. It may be that one of you could no longer qualify for much needed
credit in that situation, but the other spouse still could, if you have maintained some separate
accounts. Check on the laws in your state as far as the responsibility of the surviving spouse
for the debts of the deceased spouse (cardholder).
Steve Mertes and Jeri Koppleman
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C. In the Event of Divorce
(Remember the old adage,
‘Love is grand, but divorce is ten grand.’)
A major concern of many of my clients has been the effect of a divorce on their credit. I’ve
heard many, many horror stories from clients in this regard. Some people think that once
they’ve filed for divorce, all the details of the divorce will be
outlined as far as who pays
which bills, etc. And what they don’t realize is that one or the other of the parties may not
follow through on payment of their court-ordered obligations.
You should know that a divorce decree does not supercede any original debt (contract)
with a creditor, and becoming divorced does not release you from your legal responsibility on
these accounts, even if your spouse agrees to pay them. Any debt incurred in marriage, that is
a joint obligation, will in fact remain as such on both credit reports – in spite of the courts
orders. One spouse has no control over whether or not the other is making timely payments
or handling the account as ordered by the court. Many clients that have called me are in
complete shock when they discover that the debts they thought were being paid, are
delinquent or have become charge-offs or collections and a CA is contacting them for
payment. They are upset to hear that the court decreed obligation of their spouse has no
jurisdiction over the actual payment of the debt. And they are also upset that the CA can
legally come after them for payment, in spite of the fact that their spouse was ordered to pay
the debt. To alleviate any chance of this happening to you, make sure your attorney demands
that all bills be paid and all joint accounts closed before any money (property) is split between
the two partners.
Once the debts are paid off, either remove the name of the spouse that is not further
obligated on this debt, or simply close the account. Many attorneys are really lax in this area
of preventing one spouse from ruining the credit of the other, and we see it all the time. If you
are already in this situation, and your divorced spouse is continuing to rack up additional
debt, or is neglecting to pay the obligation, you may find the only way out for you, to prevent
further damage to your credit in the future, is to pay off the debt yourself (ouch!) and have the
account closed, even though it was not your responsibility.
It won’t damage your credit any further to have a delinquent account paid and closed
than the damage that has already been done. At least you will stop any additional ‘bleeding’
and then you can begin working on building positive new credit for yourself. This is one more
reason why spouses should have some separate accounts, so that you don’t end up, at this
point, with no credit history left, or what is left, totally trashed!
NOTE: Any credit that you personally establish from this point forward, will only be under
YOUR SSN and you can rest assured that your ‘ex’ will not benefit in any way from your
new credit, nor will they be able to do anything to destroy it.
D. Co-Signing for Other People’s Loans
This can have a huge effect on your personal credit score. By co-signing for someone on
their personal loan, you are, in effect, signing a legal contract wherein you are assuming and
accepting full responsibility for the debt if they are unable or unwilling to repay the loan as
agreed. A co-signed loan may or may not appear on your credit report. Also remember that if
this loan does appear on your credit report it will help your credit score, but it will also count
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against you, because a lender will calculate the loan into your monthly obligations. Let's say
the loan is for your son or daughter for a car and the payment is $250.00 per month. A lender
would figure that into your income-to-debt ratio and it could disqualify you from getting a
loan for yourself in the future. And if they pay late, or default on the loan, you will be held
responsible for payment, and it will also be reported on your credit. Should this happen, will
you be able to make that payment every month for the balance of the life of the loan? If not, you
yourself could be forced to take an extra job, or neglect some of your own bills, or be forced to
refinance your home, or whatever, in order to handle this situation. Also, if you have a job,
they could even garnish your wages. Remember too, that even if the loan is handled
responsibly, the amount of the liability will be factored into your own debt-ratio and could
adversely affect your ability to obtain new credit in the future. No matter what, this is a big
risk for you, and from a credit standpoint, a real 'no-no!' If you have already co-signed for
someone, you should make every effort to see that the loan gets paid every month, to make
sure that it will not have a negative effect on your score.
(Remember the old adage,
‘Good things come to those who. . . never co-sign for another person’s loan.’)
E. Renting or Leasing a Home
Under normal circumstances, renting or leasing an apartment or home has no impact on
your credit score. (Our firm works with a company that has a method of getting this reported
to all the bureaus for you, which WILL have a positive impact on your score – see Appendix
for more information). But by having the presence of a real estate loan (mortgage) that has
always been paid on time, on your credit report, you have one of the best AND most powerful
“trade lines” possible. It shows lenders that you have established a strong credit base, and
that you are a responsible person with which to deal. Obviously, then, a credit score without a
mortgage reporting is not as high as it could be. Having the mortgage, as opposed to renting,
does show stability to a lender and the amount of the payment you are making is also a factor.
When they consider your monthly rent or mortgage payment, they also factor in your income
and area of the country where you live.
F. Your Address(es), or Lack of One
Moving often, with resulting multiple recent addresses, can have a negative affect on your
credit score. It shows a lack of stability that goes against you. And, not having a physical
address, but instead using a P.O Box is another factor which the scoring system can hold
against you. Often these old addresses, and even P.O. Boxes, can be incorrect. We have seen
credit reports with 2 or 3 mispelled addresses or with other errors that made it appear the
person had many different addresses. For instance, if you had a P.O. Box for your business,
and lived at a physical address at the same time, only the physical address should be on your
credit report. On one report we saw FOUR items listed where there should have been one. It
listed the physical address, plus the correct P.O. Box, and then, as a third address, they had a
completely erroneous P.O. Box, with the numbers reversed. The fourth address listed was the
street address of the Mail Box Store. All of this made it appear that our client had 4 different
addresses at the same time.
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97
Also figured in is the length of time you have been at your current address. You will get
the best scores for being at your current residence 5 or more years, and less than 1 year may be
counted against you. The longer you’ve been there, the higher your score!
This subject is addressed further in Chapter 6, in the section on 'Achieving the 800 Credit
Score' – 'Showing Stability', where suggestions are given to help with this situation. On page
148 you will also find a sample letter to send to the credit bureaus to get old and inaccurate
addresses removed from your credit report.
G. Bankruptcy and Other Delinquent or Derogatory Accounts
(Remember the old adage,
It’s always darkest before . . . Daylight Savings Time’)
Bankruptcy is a legal way for an individual to discharge their debts – a legal declaration to
the world (it’s public record) that you are no longer able to pay your debts. It will temporarily
freeze your obligation to repay any and all debts while you and the courts work out a plan for
their eventual repayment. This should be a person’s absolute last choice, when all else has
failed, because the repercussions on your credit score will be very negative and very long
lasting.
Many people are unaware that bankruptcies, which are reportable to the credit bureaus,
right along with any other delinquent or derogatory accounts, will affect your credit score for
a long time. According to the new bankruptcy law, which went into effect on October 17,
2005, it will be harder for consumers to prove that they should be allowed to clear their debts
in what’s known as a ‘fresh start’ (or Chapter 7) bankruptcy. In a Chapter 7 bankruptcy, your
assets (minus those exempted by your state) are liquidated and given to creditors who have
proof of an allowable claim against you, the debtor, and many of your remaining debts are
cancelled. In the past, many Chapter 7 filers didn’t have assets that qualified for liquidation,
so credit card companies and other creditors often received nothing. Thus, it has been argued
that consumers have abused the bankruptcy laws by using them to clear away debts that they
could have afforded to pay.
In a Chapter 13 bankruptcy, the debtor is put on a repayment plan of up to 5 years, and
any debts not addressed by the repayment plan don’t have to be paid. Under the new law,
people will be less likely to be allowed to file under Chapter 7, and more will, instead, be
forced to file under Chapter 13. There are provisions of the new law which must be met prior
to a consumer being allowed to file – such as meeting with an approved credit counselor,
attending money management classes (at your own expense) and qualifying via a ‘means test.’
For example, you won’t be allowed to file for Chapter 7 if your income is above your state’s
median and you can afford to pay 25% of your unsecured debt; however, you still may be
allowed to file for a Chapter 13. Under the old law, the court had greater latitude in deciding
whether debtors could file for chapter 7 by taking into consideration extenuating personal
circumstances. With the new law, however, debtors will have to prove that their ‘special
circumstances’ arose from a crisis which was beyond their control, forcing them to file. If they
succeed in proving this to the court, they may be able to file for Chapter 7 even if they don’t
technically qualify for it as a result of the means test. There are other provisions under the
new law, which you can check out more thoroughly by going online to CNNMoney.com.
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It is important to know that any bankruptcy filing should be done only as a last resort, as
this will do severe damage to your credit score for 10 years. Delinquent accounts that were
included in the bankruptcy will remain for 7 years from the date they were reported as being
included in the bankruptcy. Lawsuits and judgments will remain on your credit for 7 years
from the date of entry, and then even then judgments can be renewed just before the 7 years
are up, and thus literally remain on your report for years and years to come. Paid tax liens
remain for 10 years from the date they were paid in full, while there is no limitation as to how
long an unpaid tax lien may remain on your credit. Charged-off accounts and collections also
remain for 7 years. Most other adverse information will remain for 7 years as well, so it's
important, if you're just starting out with your credit history, to keep all of your accounts
current from the beginning and not ever let yourself get into a situation of over-indebtedness.
For more information on this, see the section on filing for bankruptcy in Chapter 5.
H. Employment/Being Self-Employed
Of course, your employment status will affect your ability to be considered credit-worthy.
Being unemployed will be a huge factor, unless you are on some type of permanent disability
(with income), and being self-employed can also make your situation more difficult. This is
another factor that is considered by lenders as showing a lack of stability and thus reflecting
negatively on your over-all credit-worthiness. There is also more on this subject in Chapter 6,
in the section on Achieving the 800 Credit Score – Showing Stability.
The best ratings will be for executive or professional workers, and skilled laborers will
also get good ratings. Blue collar workers and all other types of jobs will have the lowest
consideration when it comes to loan applications. The length of time on the job is also
important, with 1 – 3 years being very important, and 10 years or more on the job (in any
category) having an excellent bearing on your credit-worthiness. But on the other hand, it's
how you manage what you have. A teenager who works at a fast food restaurant, with 3 good
lines of credit can have a 720+ credit score. Our credit rebuilding program has helped many
teens and college kids with no credit attain a 720+ credit score in 90 days!
For entrepreneurs, here are some suggestions for things to do in advance of trying to
obtain credit:
o Use a generic name for your business – calling it Tomas Jones Enterprises lets
your prospective lender know that you are self-employed.
o Become an employee of your own business, with a title such as VP of Business
Services, or Office Manager, etc. This tells lenders that you have a job.
o Pay yourself a salary – the same amount, regularly. If this is a problem due to
fluctuating income, then settle on a small amount that you can pay yourself
comfortably, and when things are good, give yourself a bonus. The regularity
of those checks going into your personal account every week shows stability.
o If possible, hire an independent bookkeeping service to do your accounting, so
that someone else is making out your checks. Sometimes entrepreneurs are
asked to show their last 2 months of paychecks, and this could help.
o Have your business bank account at one bank for a long time. Over time, the
money going through your account will establish a 'reputation' with that bank,
and one day (perhaps 6 months to 2 years after opening the account, and
depending upon the amount of money your business is generating) they will
Steve Mertes and Jeri Koppleman
99
send you a credit card offer for your business. Accepting this card will NOT
help your personal credit score (or profile), but will help you get a Dunn and
Bradstreet rating which will be a plus when you're being considered for other
credit. Handle this business card exactly as you would a personal credit card,
applying the 30% rule to your spending, and paying down your balance every
month – not just making the minimum payment.
I. Having a Cell Phone Only
More and more people today are opting for eliminating their home phone, or “land line”
in favor of just a cell phone. They feel that there is no point in having two phone bills, when
the cell phone is really all they need. There are, in fact, good reasons for doing this, but there
is also a downside. One good reason is that you save money; another would be that when you
move, there is no need to transfer the land line to your new residence, which again saves you
money on installment fees, etc. A third is just the convenience of having only one line for
everyone to call on, with only one answering machine, etc.
However, the down side to this may be something worth considering. Did you know that
creditors see the lack of a land line as a stability factor? They will deduct points from your
score, or reduce their opinion of your “credit-worthiness,” when you have only the cell phone,
as they feel it portrays a person who moves around a lot and doesn’t want to be tied down to a
land line. Thus, from a credit stand-point, it may be “costing” you more to have a cell phone
only than just the amount of the land-line bill.
Other considerations about your telephone: having the telephone number listed in your
own name will be a plus, and having a land-line residential phone (as opposed to business
phone) listed in your own name will give you the highest rating.
J. Women and Credit
(Remember the old adage, ' Happy the bride who . . . gets lots of presents.')
To avoid credit problems, it is imperative that all women educate themselves about credit
and money management and establish and maintain their own credit, separate from their
husbands. Single women with an established credit history should have a separate credit
identity even after they marry. Married women who are currently sharing their husband’s
credit should build their own credit file, in their own name, with as few ties to their husband’s
credit as possible, such as a car loan and a credit card. Again, being married, this does not
mean to do this in secret, but as a hedge for problems that may arise down the road, such as a
way to keep 1 spouse credit worthy in the event of job loss, accident, etc.
The federal Equal Credit Opportunity Act (ECOA), enacted in 1974, was written to ensure
women that they would not be denied access to credit simply because they are women. It
doesn't guarantee credit to women or other minorities, but it does ensure them that they will
be judged by the same criteria as any other applicant. Often, without a credit identity of their
own, women who experience changes in their marital status are penalized by several factors,
including the following;
o Traditional female roles in society where women tended to take a back-seat to men
in such matters as money, credit applications, loan applications, etc.
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How to Escape The Credit Trap For Life
o The general lack of knowledge regarding credit reporting;
o A lack of understanding on the parts of men and women both, regarding the
importance of a woman having a credit history of her own;
o The generation in the past where the women did not usually work outside of the
home – these women were financial non-entities in the eyes of the credit industry;
o Today two income households are the norm rather than the exception, so it has
become easier for women to obtain credit; however, many women, like consumers
in general, remain uneducated in matters of credit and the credit bureaus and
reporting processes.
Because women generally outlive their husbands, and because of other uncertainties
in life, such as divorce, they cannot afford to remain financially naïve and vulnerable any
longer. They need to know how to manage their own money and credit whether they are
single, married, widowed, or divorced, by actively participating in the management of
their family’s finances and developing their own credit identities.
Many women don’t understand that being listed as an authorized user on their
husband’s accounts does little to build their own credit identity, or how much it can hurt
them if the account gets behind or goes to collection. Nor do they understand that they
risk losing that credit if they become separated, divorced or widowed. Some user status
designations are better for building credit than others, and they convey different messages
about a user’s responsibility for an account. For example,
Joint User Status – A woman who is listed on her husband’s account this way legally
shares equal responsibility for account payments, so it helps her build her own credit
history. This can also adversely affect her future credit if her husband mismanages
the account as it will appear on her history as well and lower her score.
Authorized User Status – This way, a woman has permission to use the account, but
has no legal responsibility to help pay for it. She is relying on her husband’s wages to
pay for the bills. It is, therefore, of little value in establishing a woman’s own credit
identity. Remember, if the woman is the authorized user, she is not responsible for
repayment of the debt, if the husband was to default on the loan. Also beware that, in
most cases, the history of how the husband is paying the account is also being
reported on her credit reports. Get a copy of your credit report and check to see if
these types of accounts are being reported. If not, your husband would have to call
the creditor to add you to the account. (For more information, see Section III B, Ch. 6.)
Individual Accounts or Married with Separate Cards– With these, a woman has sole
responsibility for payments and is the only one authorized to use her account. Since
she qualified for it without her husband, it provides her with a strong financial
position should their marital status change. She is not linked to his use of credit, his
history or his income. Every woman should have a couple of these on her own credit
report, such as a store account, or a Visa or MC. Remember, marriage is a unity and
we are not promoting each spouse to open up SECRET ACCOUNTS. We suggest this
as a way to 'KEEP YOUR BOAT AFLOAT', if a crisis hits. This strategy proved very
beneficial in our marriage, when we ran into some serious financial problems. We
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were able to save my wife's credit rating, which allowed us to "keep the apple cart on
the track" and our heads above water".
Women should use the same principles and approaches, as outlined in this book, for
building their new credit history that we recommend for everyone to use.
(Remember the old adage,
‘It’s more common for people to fight for their principles
than it is to live up to them.’)
There are other factors and legalities involved for women living in community property
states (which are AZ, CA, ID, LA, NV, NM, TX, WA, and WI), where husbands and wives are
viewed as economic partners and their earnings and property are considered jointly held and
controlled. In these states both are responsible for each other’s debts and legal action can be
taken against one for the debt incurred by the other. If you live in a community property state,
you may want to look into the legalities specific to you in your state, by checking with your
banker or a financial advisor/CPA.
There is a program available to women, the Women’s Financial Information Program
(WFIP), which is designed for middle-aged and older women. It is offered through groups
like the YMCA, community colleges, and AARP. For more information, contact AARP at (202)
434-2277 or write to the address in the Appendix.
K. Your Credit Profile
In addition to the other demographics mentioned in this section (marital status, renting as
opposed to owning a home, using a cell phone only) there are dozens of factors, in levels of
importance, based on demographics, that are used in narrowing down the type of credit risk
you are to a potential creditor. See the definition of Credit Profile in the definition section of
Chapter 2. These can include such “far-fetched’ things as the clubs you join, the magazines
you read, your age, your hobbies, your health, the newspaper you read, the doctors you see,
being a college (or high-school) graduate, being a health club member, your income bracket,
whether you shop by mail, if you watch late-nite TV (and make purchases), the kinds of
medication you order, the type of job you have, whether you work from home, whether you
are a blue collar worker, an amateur golfer, or a professional ball player, and so on and on and
on.
(Remember the old adage,
‘Amateurs built the ark – professionals built the Titanic.’)
Anything and everything can be used to build your credit profile. Being unaware of this,
many people who pay their bills on time every month, and have all the right balances, and
appear to be doing all the right things, may have factors counting against them, and lowering
their score, that can be beyond their control – such as their zip code (area where they live). I
say “can” be beyond your control, but some of them “could” be controlled by you if you
wanted to change them. A person can GET married, MOVE to a nicer area, OWN a home
instead of renting, use a physical address instead of a P.O. Box, put in a land-line phone, etc.
These things are not always EASY to do, and may take a number of years. Just knowing that,
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over time, improving your lifestyle can, in and of itself, have a positive effect on your score,
gives you something else to work toward.
This categorized information can be used in many ways. If you belong to a certain
organization, say the “Cat Lovers of America,” and subscribe to a ‘cat’ magazine, you are
labeled as a cat lover. You may be solicited for a credit card given out by either the magazine
or the club, available to “their subscribers only,” or “their members only.” Often, just because
they know you are a cat lover, it implies to them that you are a kind, caring person, and
probably one who owns a home (if you can have pets) and therefore you deserve a credit card
for that reason alone. You may not even have to qualify for the card. They feel that the “facts
speak for themselves.” Thus, being ‘qualified’ by various demographics can also be used to
help you build credit in many cases.
People with the highest profiles tend to share certain characteristics, and these have
become almost like ‘standards’ by which credit grantors rank you. For instance, people who
have had the same job, or worked in the same field for many years, who consistently earn an
above average income, pay all or most of their accounts on time, and have good debt-to-creditratios, are among the highest profiles and will almost always have a very high credit score. On
the other hand, those who earn less than average incomes, have high debt-to-credit ratios,
have one or more past-due accounts, and have only recently started their jobs, are considered
low profile and will have resulting low credit scores. They will probably not be considered for
any type of new credit. Most of us fall somewhere in the middle, and may qualify for new
loans, but we will pay a higher interest rate than those with the higher profiles.
L. Checking/Savings Accounts
(Remember the old adage, 'Being overdrawn is
nothing more than just being under-deposited.")
Another factor which can be considered for your credit-worthiness, especially if you are
applying for a bank credit card, is whether or not you have both a checking and a savings
account. Having both will give you a better chance of obtaining the desired credit than having
neither or just one or the other. Also keep in mind, that you have a better chance of obtaining
the credit card if you have received a pre-approved application from the bank, than if you go
into the bank and ask to apply for a credit card or fill out a brochure from their counter. A
person who has received one of their pre-approved offers has already been ‘pre-screened’ and
generally fits the mold of the type of person they want most to work with. If you find that you
can’t get a checking account with a major bank because of problems you’ve had in the past, see
the section in Chapter 8 on ‘Getting a Checking Account after Credit Problems.’
M. Time of Month You Purchase
Another factor in the score you have during any given month is the activity that took
place on your account the previous month. Each creditor has a certain ‘billing cycle’ and if
you know the day of the month that they complete this cycle, it can help you to get more ‘bang
for your buck.’ As you know, to prevent paying astronomical amounts of interest, you should
pay your account balance down to a minimal amount each month. By waiting until the ‘cycle’
date to make major purchases (actually the day after is best), they won’t show up on your next
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statement (and thereby change your debt-to-credit ratio and lower your score). It won’t show
up for another month, by which time you'll have made your payment, bringing it up to
balance. Using this technique essentially allows you to ‘use’ OPM for a month, interest free.
N. Having Your Credit Pulled at the Wrong Time of the Month
(Remember the old adage, 'Two wrongs don't make a right,
but they don't make a left, either.')
Your credit score is calculated every month by each credit bureau. Creditors have until
the last day of the month to submit to the CRA’s any activity that took place that month – such
as a payment missed or made – and because of this, many companies that report to the credit
bureaus wait and do their reporting on the last day of the month. It can consequently take the
CRA’s 5 – 6 business days or more, into the next month, to calculate and update any new
activity on your credit report, and for your maximum new score to be reflected. Therefore,
pulling your credit too early in the month can be a major factor in the score you obtain,
because it's not reflecting your true score and you are basically cheating yourself out of
valuable scoring points. We suggest you wait until the 15th of the month to have anyone pull
your credit for any reason, just to be on the safe side, and to be sure of obtaining the maximum
benefit from any positive activity generated by you in the previous month.
O. Co-mingling
Sometimes another person’s credit file information gets mixed in with your information.
This will occur most often among people with common names, or between Jr’s or Sr’s in the
same family. Naturally, any derogatory information contained in their file, that happens to get
listed in your file due to the ‘co-mingling,’ will affect your credit score. You can avoid this
problem by always using the same spelling of your legal name, and only that one name. This
is also another good reason to check your credit report regularly.
P. Being an Immigrant
Race and nationality cannot legally be used by lenders as a basis for turning down a loan
application, however other factors associated with being an immigrant may be considered.
Such factors might be lack of a permanent residence, a P.O. Box, no land line phone, or even
immigration status (as being a stability factor and one in which they may feel they would have
a hard time collecting on their loan if this person left the country for any reason). While they
can't use race and nationality against you, being a U.S. citizen can be a factor that works for you.
Q. Being a Senior Citizen
Lenders may not legally use age as a factor in considering one for a loan, but there are
some facets of being a senior citizen that could be considered. One big concern is that many
seniors have a lack of established credit since they grew up in the ethic of 'paying for
everything as you go.' While still a good policy, some established credit is necessary these
days for almost everything in life – from reserving hotel rooms to getting a part-time job, or
even renting a vacation home. If you are over 50, and have little or no established credit, you
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may have difficulty getting a credit card. Lenders like to see a payment history in your credit
file, and without one, you may get turned down, no matter how many homes or cars you own
outright. You may have a lot of money, but with low cash-flow, you may be denied.
(Remember the old adage, 'Sometimes you feel like. . .
you're diagonally parked in a parallel world.')
In applying, go first to the bank where you have your checking and savings accounts. On
your application, be sure to list ALL sources of your income – social security, interest on
accounts, stock dividends, outstanding loans you may have made to your children, etc. You
may have to begin with a small saving's account loan or a credit card from a store that you
frequent regularly. Charge just enough to 'use' the card, and pay down most, but not all, of
the balance each month. You may have to start out much like a young person with no credit to
get some credit established, which will, in turn, lead to more credit. When you do get some
credit, manage it according to the principles in this book.
You may be in a position in your life where you just don't want to start the 'credit' thing at
all. If you really have few reasons to want or need credit, then simply settle for a debit card to
use when traveling, etc. This can easily be obtained from your own bank.
R. Doing Your Homework
In many respects, you and your own due diligence may be in small or large part
responsible for your ability to get credit (be credit-worthy). It is up to you to apply for a credit
card, and to choose the institution where you will apply, so why not do some research on the
institution prior to making application for their credit? For instance, you could contact them
and let them know that you don't want to waste their time and yours by filling out an
application unless you have a good chance of being accepted. If you are speaking to a person
who is 'in the know', then inquire as to the qualifications they look for in their credit card
holders – minimum income requirements, having an existing banking relationship with them,
types of past credit problems they might weigh against you, etc. The last thing you want is an
inquiry that can count against your score, so asking questions may help prevent this, and also
a rejection if they turn you down.
S. Good Accounts Not Listed
You may wonder why certain accounts you have paid on time and had in good standing,
are not reported to your credit file, or why they are reported irregularly instead of every
month. Unfortunately, your credit report doesn’t have to list all of your accounts, even though
the bureaus are required to keep their files updated and as complete as possible. Each lender
or credit card company makes their own decision about what to report, and whether to report
at all, and some lenders just don’t report to credit bureaus. Neither will the bureaus accept
information from a creditor who is not one of their ‘subscribers.’ They will only accept
information from creditors who are their regular ‘customers,’ whom they have been able to
check out, and a ‘new customer’ with a one-time report, will not be one of their ‘subscribers,’
so their information would not be accepted even if it were sent in.
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VI. How Fair is the Current Credit Rating System?
Obviously, many of us don’t think it is very fair at all. When you don’t understand how it
works, you may think loan officers are just “pulling a score out of the woodwork” and using it to
dictate whether or not you’ll get the loan you’re applying for – whether you can get a new home,
or refinance, and what rate you’ll pay. It appears that they are playing “God” and holding our
very future in their hands.
Today, more than ever, most financial dealings depend on the credit scoring system. Many of
us will fail or succeed in life depending on our credit score. If you want to buy a business, or
purchase equipment necessary to expand your business, for example, and you can’t get a loan, you
are pretty much “stuck” where you are today, doing what you are already doing, and you just feel
like you can’t get ahead in life. While it doesn’t seem fair, it is what it is, and that’s the way it is.
No one can do anything about it, unless many Americans complain to the various governing
agencies (FTC, congressmen, etc.) in writing, so that perhaps, eventually, through reaching
millions of consumers, positive changes will be made. There are, however, pros and cons to the
system that can make it seem either fair or unfair, depending upon how you look at it.
(Remember the old adage,
‘An optimist is a person who thinks this is the best
possible world, while a pessimist fears this is true.’)
Since the scores are based on equations, ratios and numbers, there can be no discrimination;
but these numbers don’t take into account any unusual circumstances that may be occurring in any
one person’s situation, like it used to be "in the good old days" before the credit system existed,
when you could sit down face to face with your banker. Based solely on your score, you may be
either turned down, or given a great loan, and there is no concern about your personal
circumstances.
Understanding how it works, however, can help you to get the system to work FOR you,
instead of AGAINST you. It can help you make the right decisions, learn how to gain points and
stop doing things that hurt your credit score.
The 3 major CRA's, where your information is compiled and reported, are Experian, Equifax
and TransUnion, (contact information is in the Appendix). They use a computerized algorithm
originated by the Fair Isaac Company (FICO) to give you an unbiased score which can change
daily. (See FICO in the list of definitions in Chapter 2.) Since creditors (banks, auto dealers, etc.)
report payment data to 1, 2 or all 3 bureaus, it can vary greatly from bureau to bureau. Various
lenders then obtain the varied information FROM these bureaus, with possible discrepancies.
Most companies use a tri-merged report (information from all three bureaus on one report) so
they will, hopefully, get ALL of the information available on you (what doesn't show up on one
report may show up on another). They then take the MIDDLE score (not the average score) to use
to determine where you stand on the “scale.” Scores range from about 350 to 850 – a higher score
indicating a lower risk of default on the loan. This chart shows why they charge higher interest
rates for people with lower scores (they are more likely to take a loss on the property if they have
to take it back in a foreclosure down the road).
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_______________________________________________
SCORE RANGE
ODDS OF DEFAULT
_______________________________________________
800 +
1,292 to 1
760 – 799
597 to 1
720 – 759
323 to 1
700 – 719
123 to 1
680 – 699
55 to 1
660 – 679
38 to 1
620 – 659
26 to 1
Below 600
8 to 1
_______________________________________________
As you can see, lenders and creditors have a lot more to be concerned about if a person’s credit
mid-score is below 600 than they do with one that is higher up the scale.
Many consumers feel it is unfair because of the “catch-22” situation it creates for us. If we
have a low score, it is difficult to get the credit extensions we need to begin bringing that score up,
but with out the credit cards and loans, we can’t bring it up. What it boils down to is, “No credit?
Sorry, then no credit.” Actually, it sounds worse than it really is, if you know the ins and outs of
this industry. There are many things you can to RIGHT NOW to bring your score up – in many
cases, WAY UP!
(Remember the old adage,
'In just two days . . . tomorrow will be yesterday.’)
If you start out right, following the guidelines in this book, you can get to that 720 or higher score
early on and keep it for life. If you are not there at this time, you can, eventually achieve it, but it will
take time, self-control and discipline. Remember, like anything in life that is worth having, you must
work for it, and EARN the right to a lower interest rate.
VII. Your Credit ‘Bill of Rights’
Here is a concise, paraphrased, summary of the rights you have as a consumer as given to
you by the FCRA:
A. You have the right to know what is contained in your credit file, and to obtain a copy of
the report (for a fee), and every consumer should take advantage of this right regularly
by ordering and examining their own credit file;
B. You have the right to obtain a ‘reasonably’ accurate and complete copy of your file, but
as outlined in this book, most credit reports do contain errors, so again, you need to
check it out;
C. You have the right to request that the Credit bureaus correct mistakes found in your
file, such as inaccurate, obsolete or unverifiable information; The CRA’s are obligated
to reinvestigate items of disputed accuracy via a ‘reasonable reinvestigation.’
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D. You have a right to be notified when your credit report has been used for any adverse
action by anyone requesting it. You have a right to receive a free credit report within 30
days of being notified that you’ve been denied credit, employment, insurance, etc., if
that denial was based upon information in your credit file; If any creditor does base a
negative decision on information in your file, they must tell you which bureau supplied
the report, so that you can order a free copy of that report;
E. You have the right to request that your name and address be removed from any and all
direct marketing solicitations that use data from a CRA;
F. If you disagree with a creditor and they refuse to change the information (and only if
you are disagreeing with the accuracy of the information), you have a right to have
your ‘side of the story’ included in the report, in a statement of 100 words or less. The
explanation you include doesn’t allow you to explain the circumstances leading up to
the problem;
G. You have a right to get a ‘fresh start’ as negative items are supposed to be removed
from your credit file after a period of time (based on the old Biblical principle of
forgiveness of debts). Most derogatory information will remain for 7 years, but
bankruptcies will remain for 10 years.
H. You have a right to be able to understand your credit file and the credit bureaus are
required to explain to you anything you don’t understand. If you have technical
questions about your file, call the bureaus (toll free numbers listed in the Appendix)
and speak to a representative to get help.
I. You have a right to know who has requested copies of your file for the past year or two
(two years for employment-related inquiries, and one year for all others). Those firms
requesting your file will be listed as ‘inquiries’ on your credit report, and it is law that
their complete name and address must be listed. If you would like their phone number
as well, and it’s not listed, all you have to do is ask the credit bureau for the number
and they must supply it.
J. You have a right to confidentiality. Only those people or businesses who have your
written permission (or a ‘permissible purpose’) are supposed to have access to your file,
however, the FCRA lists a number of exceptions to this rule.
K. You have the right to be notified that negative information will be or has been sent to
the CRA’s; any furnisher submitting negative information must give the consumer a
one-time written notice that they have done so or will do so.
L. You have a right to have your medical information protected – any medical information
in your file must be coded to obscure the specific healthcare provider and the nature of
the medical services provided. Creditors are prohibited from obtaining or using
medical information in credit decisions.
M. You have the right to sue the credit bureaus if they willfully violate the FCRA (but it
may be difficult to win and very costly).
For a complete copy of the Fair Credit Reporting Act, use the contact information in the
Appendix of this book.
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In summary, knowing the basics about the credit industry, how your score is determined, and
how lenders, in turn use that score along with other factors to decide on your credit-worthiness, is
essential to every consumer. Learning these things early in life, prior to getting into problematic
debt, will make a huge difference between a life of success, in the world’s terms, or a life of “just
getting by.”
Credit bureaus are businesses, and as such, they make money – a portion of it by running
credit reports. Most of it is made by renting out the lists of names (your name) to banks, who will
use the list to market credit card offers. Thus, your demographics and the “other factors”
mentioned in this chapter, can “classify” you for a certain type of card or offer, or can affect
whether you get offers or not, whether you can get your limit raised or not, and so on.
In Chapter 5, we will explore many of the misconceptions consumers have about the credit
industry. But first, we have included a few current facts (reprinted from page 4 for emphasis) about
the credit card industry that should shock you as well as show you the tremendous amounts of
money they are making, without even considering the items mentioned in the last paragraph.
Consider:
1.5 billion
8.6
is the number of credit, debit and gift cards currently in circulation in the US;
is the number of credit & debit cards carried by the typical American cardholder
(this is almost triple the number of cards needed for the best credit scores);
$16 billion is the total profits in 2005 for just the 10 largest U.S. credit card issuers;
$14.8 billion is the ANNUAL amount levied on cardholders in late and over-limit penalties;
$3.5 billion is the amount spent for the privilege of using cards with annual fees (this is in
addition to the $14.8 billion above);
$9,159
is the average credit card debt/household as of Jan. 1, 2006, compared to:
$2,966
which was the average credit card debt/household as of Dec. 31, 1990.
(The above figures are from the AARP BULLETIN January 2007)
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
Steve Mertes and Jeri Koppleman
109
Chapter 5
Myths, Misunderstandings and Half-Truths
(Remember the old adage,
‘Don’t believe everything you hear . . .
Your checking account CAN be overdrawn, even when you still have checks left’)
I. Where do These Ideas Come From?
There are many misconceptions out there, such as the idea that the government is, in some
way, in charge of the credit reporting agencies, or that they are a government agency. Of course,
this is not true – they are privately owned companies that are in business to make money, just like
the huge, billion dollar banks that run the credit card businesses. The credit reporting business is a
multi-billion dollar industry, and they generate this money, their income, by selling credit reports
to creditors, and by selling your name to anyone who will pay for the various lists they generate.
Some people believe that it is impossible to fix or improve your credit report – you’re just
helplessly stuck with it. Not only is it possible, as you will learn in this book, but it is also a
necessity for you to do so. Many also believe that it is illegal or immoral or unethical to try to
improve their credit score by disagreeing and/or disputing it with the credit bureaus. In fact, in
this area, at least, our Federal Government has stepped in, with the Fair Credit Reporting Act,
Section 1681e, which protects your right to dispute and eliminate mistakes on your credit reports.
So, there is nothing wrong with trying to dispute and eliminate mistakes on your credit report as
long as they are, in fact, mistakes.
In my consulting business, I am often asked about the ethics of altering one’s credit score, as
mentioned in the last paragraph. Some of the so called “credit repair” or “credit rebuilding”
companies out there do, in fact, use unethical procedures, such as having you claim an item is not
yours, when you know it clearly IS yours. The focus of my firm and this book, is to raise your
credit score by other more powerful means, such as teaching you new habits, and helping you to
avoid the mistakes you are making month after month that are causing your scores to stay low.
And showing you how adding good, new credit, and doing such things as changing your debt-tocredit ratios, etc., is far more powerful than to dwell on trying to correct or change the derogatory
items that are pulling your score down, most of which you may not be able to change, anyway, or
which may not even have an impact on your score. While making such corrections can add points
to your score and help you somewhat in the short term, changing your habits, avoid making the
mistakes that are month after month costing you points, and focusing on building new, 'nonqualifying, no credit check' trade lines and better credit for the future, is far more effective and
long lasting.
I can’t tell you how many times I have helped a client get negative items deleted from their
credit report only to have them repeat the same mistakes, and see their newly raised score go right
back down again – sometimes even AS we are working on raising their score, they are
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counteracting it by continuing their negative habits. This is one reason I’ve moved more toward
educating my clients so that they understand what it is they are doing to continually keep their
score lower than what it should be.
These techniques are outlined in this book, and this provides you with the tools to not only
improve your score now, but to continue improving it and keep it high forever. And, of course,
there are items on almost everyone’s credit report that ARE erroneous, inaccurate and/or obsolete,
which you certainly should dispute as often as they appear.
It has always been my goal (now even more so with publication of this book) to provide
services that educate people, and benefit everyone, from my clients to their lenders, and even to
the entire credit industry. Then you, the borrower, can re-enter the playing field with a renewed
credit profile that is stronger, more accurate, and more positive, than you had before, and with
new habits and a game plan for the future.
Most of my clients are referred by lenders who want to help them get the loan they want. By
sending them to me, we are able to improve their credit-worthiness so that they can, in a very short
time (often just several days), qualify for the credit for which they would have otherwise been
denied. It is a win-win situation. The client wins, the lender wins, and I also win. This book will
allow me to stretch myself to “work with,” at a very low cost, thousands of people whom I
otherwise would not have been able to reach.
Along with the above myths, what other misconceptions do you perhaps have about the credit
industry? Hopefully, some of the questions and statements discussed in this chapter will help you
to better understand this industry.
(Remember the old adage,
'A watched pot never boils . . . until the doorbell rings.')
II. The FCRA Has Solved all the Problems with Credit Reporting
Don’t we wish! Actually, the enforcement of the FCRA has not been as successful as we
would hope. In fact, the abuses of the CRA’s continues, even though they know they are violating
the FCRA and even state laws. These violations have been so serious that the Attorney Generals
from 19 states, together with the FTC, filed lawsuits against them based on the following statistics
regarding consumer complaints:
o 63% of consumers had contacted the CRA 5 or more times without the errors being
corrected;
o 79% of the complaints against CRA’s alleged that the consumer was denied credit
due to errors on their credit report;
o 95% of consumers complaining had another person’s bad credit on their credit
report and were consequently denied credit.
So, you can see, if you’re having problems, you’re not alone. And as of yet, the system,
including the FCRA, is far from perfect. We are hoping that this book will help shed light on the
situation and put us into a position to work for reform of the system in the near future.
I just want to reiterate, and you’ve probably read it in numerous other publications, that you
can submit disputes on your own behalf to the credit bureaus, or you can hire others to “repair”
your credit for you (this will be discussed more in Chapter 8 – urgent that you read that before you
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hire a credit repair service). Keep in mind that ONLY THE CREDIT BUREAUS CAN REPAIR
YOUR CREDIT. They, and they alone, can remove or delete erroneous or inaccurate information
from your credit report, once it is called to their attention. They will, in turn, make an effort to
verify these items, and if they cannot, they will delete them.
Some people will, due to lack of time or knowledge, find it to their advantage to hire a third
party to do this for them, figuring that the expense is outweighed by the time they would have to
spend doing it themselves. However, to be done right, you will still have to spend time with the
“contester” to go over all of the items on your credit report, and you will need to give this person
(attorney, credit counselor, credit repair service, etc.) a power of attorney to act on your behalf.
If you have such items as late pays, charge offs, collections, judgments, student loans,
repossessions, tax liens, bankruptcies and bankruptcy related accounts that are in error, or cannot
be verified as yours, or in the case of ID theft, you will have a very good chance of having those
items removed, which will bring up your credit score accordingly.
Once you have done so, focus on following the techniques in this book to create POSITIVE,
NEW credit, of the right kinds and amounts, and pay attention to the pointers given for avoiding
loss of points, and developing new habits that will help you keep your score up month after
month. You can overcome and overshadow most negative items on your credit report, without
even disputing them, by changing these habits and acquiring positive new credit, and soon
enough, you’ll get your score up to 720 or higher.
III. A Creditor will Only Pull my Credit Once
Don’t kid yourself. Have you ever gone to a car dealership because of their ad saying,
"Everyone Approved – Your Job is Your Credit," and fallen in love with a new car and wanted to
take it home? What is the first thing they do? They begin their ‘finance’ negotiations, and ask
how much you can afford to pay. Then they ask for your permission to pull your credit – “We
can’t do anything until we know about your credit!” Once you have given your permission for a
credit ‘pull,’ look out! They will begin by submitting your information to one of their lenders; if
they turn you down, they continue 'farming out' your information to many lenders until they find
one who will accept your 'paper.' The worse your credit, the more lenders they will 'farm it out' to,
creating inquiries into your credit from a number of different finance companies, in their quest to
'get you a deal.' Did they ask if they could pull your credit 5 or 10 times? Of course not. You never
would have allowed it, because you know that each ‘pull’ is an inquiry on your credit. Even if the
pulls don’t count against you (because they are within the 14 day period allowed for ‘car
shopping,’ and thus are considered ‘soft’ inquiries) they can still look bad to another potential
lender several weeks or months later. This new lender sees all of those ‘dings’ and thinks you
couldn’t get approved, so he doesn’t want to take a chance on you either, especially if you didn't
buy and you are car shopping again.
Be sure you specify exactly what you are having your credit pulled for, and let them know you
want to approve each and every time they have it pulled. This forces them to tell you which
lenders they are considering, and how many lenders they have to go through to get the finances to
fit your acceptable monthly payment and financial directives.
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IV. Will Bringing Your Bills Current Raise Your Credit Score?
Many people do not understand this industry, and mistakenly assume that if they get behind
on a bill, and then bring that bill current, all is well. Little do they know that the late pay(s) they
created will be on their credit reports for 7 long years.
Or, they think that if they pay off a collection or charge-off, everything is fine and the account
will automatically be removed from their credit report and their score will increase. Wrong again!
This account will stay on their credit report for at least 7 years, paid or unpaid, and will still be
reported as a negative account, drastically affecting your overall credit score, all that time. As the
years go on, the negative account ages, and it does bear less and less weight in detracting from
your score. Because the collection or charge-off is considered a negative, any activity INCLUDING
PAYING IT OFF, is still considered by the credit bureaus as negative, and it will NOT increase
your score. In fact, the credit bureaus can now extend (re-age) this item for ANOTHER 7 YEARS
from the date you paid the account off, so it can go right on keeping your score low for a long time.
(Remember the Old Adage, 'Better Late than . . . paid')
This is an intentional practice used by collection companies, especially when they purchased
the collection from another creditor. There is a “chain reaction” process, which makes lenders
think that the item is more recent than it really is, because the new collection company tacks on
their fees, updates the date of last activity (this is a heading on your credit report that shows when
a debt was charged-off or became a collection) and reports it to the three credit bureaus to make it
look like a new item. Even though credit bureaus are required to delete the previous collection
company entry, it's up to the CA, when re-selling the account, to notify the bureaus to delete the
entry on your credit file (and it's a violation of the FCRA if they do NOT remove the old account).
This is very often totally overlooked, however, thus creating multiple entries for your one original
debt, with the end result being an even lower credit score.
Naturally, a person with integrity knows they are accountable to pay their bills, and a responsible person should do just that, and then try to rebuild and re-establish good credit to overshadow
the existing bad credit, which can easily be done as you can see from Chapter 6 in this book. Over
a few short months, by following our principles, you will see your scores steadily increasing.
V. Why Do Lenders Insist on Debts Being Paid Before Loan Approval?
If a lender requires that you pay off certain debts (i.e. collections, charge-offs, etc.), prior to
closing on your loan, one would think by doing so that it would improve your credit score and
give you a lower interest rate. However, nothing could be further from the truth. Paying off a
negative debt, which is on your credit report, as you just read in the last section, will not improve
your score and may even lower it.
Lenders may require this for one reason and one reason only, and that is to safeguard their
loan. This will make them feel more secure, since they may fear that these debts may turn into
judgments that creditors could come after you for, which might jeopardize their loan down the
road. If there is no other way around paying these off in order to get the loan, pay them off at COE
(Close of Escrow) by having the title company cut the checks for each payoff. Your paying them
off, with these checks, AFTER COE, will ensure that your score will not go down prior to getting
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the loan. This safeguards you against some lenders, who may run your credit again just prior to
closing, using the new lowered score against you and giving you a higher interest rate, or charging
you more points, or even refusing to close the loan at all.
VI. Dangers of Revolving Credit
(Remember the old adage, 'You can't judge a credit card by it's promotional offer.')
Many people do not understand the dangers of using revolving credit as far as the role it plays in
defining your credit score. In the definition section, in Chapter 2, we discussed both installment
loans and revolving credit (see both definitions for additional insight into these terms). Since this
is an important and often misunderstood concept, we will reiterate this concept briefly here.
An installment loan is basically the opposite of a revolving account, especially in the way it
can affect your credit score. The installment loan/credit gives you a “loan” with which to buy a
specific item from a specific merchant, such as a car from an automobile dealership. The amount
advanced is the total purchase price of the item. For a car, that might be $20,000.00. The loan is
repaid over a specified period of time (say, 5 years), with specified monthly payments (say,
$230.00/month), with a specified interest rate (say, 12%), and once you have completed the
scheduled payments (totaling the amount loaned plus interest), you own the product and the loan
is “paid off.” It has been reported all along to the bureaus as a “paid as agreed” account, as long
as you have paid on time. When it is “paid off”, it is then reported to the credit bureaus as “paid
as agreed, zero balance.” An account like this is good for establishing credit, and is worth positive
points on your credit score. The 30% rule does not apply to installment loans (see the next section),
thus these types of loans will help your credit score immediately as long as you’re paying each
month as agreed, as opposed to revolving credit, where you have to be careful about how much
of your limit you use (keeping it below the 30% ratio).
Revolving credit, however, if not managed properly, can cost you points and lower your score
significantly. A revolving account means a particular merchant or lender has extended you a line
of credit with a limit, like $1500, which you can spend on merchandise, over and over again, up to
that limit. If you make a purchase of $300, you still have a remaining balance of $1200 to spend
(borrow), the difference between what you have already spent ($300) and your limit ($1500). Once
you pay off the $300, you again have $1500 to use for purchases. Many people soon “charge” right
up to the $1500 limit, and then make small monthly payments, often charging additional goods as
they have credit available. Sometimes a creditor will raise your limit by extending additional
credit (say up to $2000) if they feel you are paying regularly, and on time. Then there is the
temptation to once again charge right up to the limit, and make small monthly payments.
Banks and stores prefer to use revolving credit – can you blame them? They are all playing the
same game and you need to learn the rules so you can beat them at it. They want customers to
‘pay the balance down and come back for more!’ With an installment loan, you see, once the
customer has paid it off, the loan is closed – paid – a done deal! With revolving credit, however,
you can pay it down and charge it up again, and pay it down and charge it up again, and pay it
down and charge it up again – and the creditors LOVE it that way. They even entice you with preprinted checks in the mail several times a year to use for purchases. Did you know the use of these
checks is considered a 'cash advance,' and in the fine print, they state that you will be charged a fee
for any 'cash advance.' Be sure to read the fine print, and read more on this subject later in this
section (letter 'C').
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A. The 30% Rule
Using revolving credit can be very dangerous, unless you know how to play the game and
keep your scores high. The cheese inside the trap always looks good, and many of us are more
than willing to 'take the bait.'
In looking at our previous example, if your limit is $1500, you should not make purchases
for any amount over 30% of that limit, which is the acceptable level (or percentage) beneath
which your credit card balances should remain in order to get the optimal credit scores. In this
scenario, this would be any purchases totaling over $450 (30% of 1500), as this would then
show a high debt-to-credit ratio. Charging above 30% can and will adversely affect your
credit score. For example, charging $1000 on a card with a $1500 limit would put your debt-tocredit ratio for that card at 66.6%, which is well above the 30% level. Charging it to the “max”
would put it at 100%.
If you have several revolving accounts, your credit score will be figured as an “average”
of those accounts. For example, if you have three cards, with debt-to-credit ratios of 10%, 30%
and 50%, they would total these (to 90%), divide by 3, and your average for the 3 cards would
be “right on” at 30%.
The rule of thumb, if you want to maximize the number of points on your credit score, is
to keep the debt-to-credit ratio on all of your credit cards and revolving charge accounts
UNDER 30%. The higher your outstanding balance (and thus your debt-to-credit ratio), the
lower your credit score. People who consistently keep their accounts under 30% are
considered good managers of their credit by the current credit scoring system. This shows
prospective lenders that you are in the habit of managing your credit cards well, and they do
not have to fear that you will suddenly go out and “max out” your cards. If a person does
NOT manage their cards well, then the lenders fear that your new monthly payments will be
too high for you to pay, and you may default on some of your debts, one of which may be
theirs, or even declare bankruptcy.
One way you can often bring your debt-to-credit ratio down, and thus raise your score, is
to contact a creditor and request an increase in your credit limit. Let’s say you have a card
with a $1500 limit, and have charged $1000 on it, way above the 30%. Ask for an increase to
$3000, and then don’t use it – leaving a balance due of $1000, which is now 33%. Now pay it
down by $100 and you are below the 30% debt-to-credit ratio. Or, if possible, ask for an even
higher new limit, say $3500. If you’ve paid on time (as agreed) all along, even just the
minimum, there is a good chance they’ll “up it” as you’ve requested, sometimes even more,
which helps your overall averages. If you have one card that has a ratio over the 30%, and
another under, the scoring system will average them to determine if your total card debt is
within the 30%. No matter how many cards you have, the scoring system will average them
to get your debt-to-credit ratio. (See also Section II F in Chapter 8.) Remember, before you
make a purchase, think about how it will affect your ratio and your monthly score calculations
on the 1st – 15th of next month. Do all you can to keep your score high at all times.
B. Beat the Store at their Own Game.
In the example about Mr. and Mrs. Smith, in the introduction section of this book, here is
how they could have gotten what they wanted and still kept their spending under control.
Had they applied the 30% rule with their $4000 credit limit, they would have calculated $4000
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x 30% = $1200, and realized that they should only spend $1200 on their initial purchase. As
soon as they paid that down, they could purchase more furniture. Perhaps they could have
still taken advantage of the sale price by putting some of the furniture on ‘lay-a-way'. If not,
and they lost out on the current sale price, they would make up for it in a higher credit score.
Another way they could have handled this would have been to apply for a higher amount
of credit. Let’s say that in the store they actually saw $7000.00 worth of items they would
eventually like to purchase. When the store approved them for $8000.00, they could have
made the wise decision to purchase only 30% of the 8,000.00, or $2400.00. If refused the higher
amount of credit, you may just want to refuse the purchase altogether. So often, after you get
home and have time to think it through, you find yourself thinking, "You know, it was
probably best that we didn't get that furniture right now, because we didn't really think about
. . . (that vacation we are saving for, or the new washer and dryer we will need soon, or . . .)".
This kind of good management of credit will raise your score instead of lowering it.
Knowledge is power – power to play the game to get what you really want in the end – a
720 or higher credit score. With that kind of score, you will save even MORE in interest the
next time a good deal comes along. In applying for that NEXT store credit card, however,
keep in mind the rules for not having too many credit cards (covered in Ch. 6).
(Remember the old adage, 'The early bird gets the only car on the lot
that had the price quoted in the ad.')
C. Read the Fine Print
When you receive a solicitation for a credit card, be sure you read the fine print. Watch
out for special offers, with enticements such as “no interest” for a certain period of time, since
they always have strings attached. For example, you will most likely find that being late on a
payment will automatically cancel the enticement and accelerate your interest rate, which
could then be even higher than the rate you initially had.
Another danger in the fine print may be that, if your payment doesn’t reach them by the
due date, by signing their agreement, you have now given them the power to legally raise
your interest rate and contact all your existing credit card companies so that they will, in turn,
also raise their rates on your other cards. This applies to any and all credit card solicitations
that you may receive, including balance transfer offers. By applying and getting approved,
and signing their agreement, you may have exposed yourself to the unfair and dangerous
practices of many unscrupulous creditors.
Here is an exact quote found in the small print of a major credit card company’s
solicitation (the underlines were put in by us for emphasis – we also wrote this in small print so
that you would see that it's no fun reading the small print, but so that you'd start getting some
practice, because from now on you really need to read the small print:)
“…for balance transfers made by July 31, 2006, the rate will be 2.99% for the life of the transferred balances. See the enclosed Terms and
Conditions for details of this rate calculation, cash transaction pricing, fees, payment allocation and additional account information.” (Their's
is actually even much smaller than this – you'll probably need a magnifying glass to see it – it looks like a decorative line across
the page bottom.)
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You’d best be certain that you read the enclosed Terms and Conditions (if you can find
them). In those Terms and Conditions, you’ll find that the “low 2.99% fixed APR” is just on
“those transfers for the life of the transferred balances.” What does that mean? Simply this.
Let’s say you transferred a $2000 balance from another card to this new card. And while you
were in the process of paying that off, over time, you charged an additional $2000 to the card.
Only the original $2000 would be under the 2.99% financing. All of your other charges would
be at their normal, much higher rate. Thus, you are being charged two different rates on the
same card, and on your total balance. A portion of it is at 2.99% and the rest could be at 24%.
And, once the $2000 original transfer was paid off, your entire card balance would progress at
their normal, higher rate. I’ve often wondered, with interest added and all, how does one
even differentiate the original $2000 from the added interest and the other new charge
amounts – who really knows to which amount the 2.99% is really applied? You make only one
monthly payment, so is it being applied to the original balance transferred at 2.99%, or to your
new purchases at 24% - only your creditor knows for sure.
The fine print, in our example, then goes on to say (again, we added the underlines for
emphasis):
“All of the terms of your account (including rates) are subject to change by us. This means that your account rates, including any
introductory or promotional rates offered, are not guaranteed; all account rates may be increased, fixed rates may change to variable rates, and
variable rates may change to fixed rates. We may change your account terms (including rates) at any time for any reason.”
Wow! No guarantees whatsoever. But if you sign, YOU must guarantee to make the
payments, regardless! How would you like to have a home mortgage with a clause like that in
it? Who would ever agree to that? But we do it on credit cards all the time.
But, wait! It gets worse. Additional fine print reads:
“We may also change your account terms (including rates) if any Events of Default under your account agreement occur, which includes
(without limitation) if we do not receive at least the minimum payment due on your account for any billing cycle by the date and time and in
the manner shown on your billing statement, or if you exceed your account credit limit, or if you make a payment to us that is not honored by
your bank, or if you fail to make a required payment when due or are otherwise in default on any other account you have with us or any other
creditor, or if you do not keep your credit rating in good standing, or if we determine that you present a risk of future non-payment or the
basis on which we determined your creditworthiness and eligibility for your account terms has changed."
We could have underlined the whole quote, because everything stated here puts you at
risk. However, we wanted to especially draw your attention to several facts in this fine print
excerpt. First of all, the statement including “by the date and time” indicates that a payment
could be considered late, even if you made it on the right day, but after a certain time of the
day. You’d better be sure you know what time that is, or you’re in trouble (notice, they don't
tell you here what time of day that is and you'd better take time zone changes into account, as well).
Or, what if you have a problem at your bank that isn’t even your fault? I had a situation
like this personally about a year ago. My bank called me to say that I was being issued a new
debit card on my account for “security” reasons, along with many of their other customers.
There had been some sort of security breach, and they felt that, to be safe, they would issue
new cards. It would take about 10 days for me to receive the new card, and I was to go ahead
and use the present one during that time. It didn’t make sense to me, but I could get no better
explanation than this. In the meantime, a payment that I had authorized to be taken from my
account was declined by the bank. It caused all sorts of havoc and took me considerable time
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to straighten out. Had it been a payment to a credit card with this type of “fine print,” I would
have been in a lot more trouble.
According to the fine print on this credit card offer, “If you make a payment to us that is
not honored by your bank” you will be in default of this agreement. And guess what, they are
stating that if you are late on one payment with “any other account you have with us or with
any other creditor,” they can raise your rates or call the account due. Thus, as previously
mentioned, one creditor, with whom you have defaulted, has the right, by this agreement, to
contact your other creditors, and they can ALL raise your rates. And it wouldn’t just be a little
raise in rates, it would probably be to the max. What would that do to your monthly
obligations if, suddenly, ALL of your credit cards raised your interest rate by double or triple
or more?
NOTE: Due to the way many Americans are managing their credit cards – by just making the
minimum payments – many creditors are now doubling the amount of the minimum payment
as a matter of new policy. It may be good, because it will actually get people to start paying
down on their cards, but it may also take a lot of people by surprise (especially if they have a
lot of cards) and force them into serious credit problems.
Now, do you think for one minute that the credit card companies are going to drop you a
line and let you know that your rates have gone up, or are about to go up? Sure – "Hi, Joe –
you've blown it completely, and we're raising your rates from 12% to 39% - have a great day!"
Or is it possible you just may notice one day that your minimum payment has gone up, or
finance charges have been added, or whatever? (Some people never even notice at all.)
And, what if your credit rating drops by a few points due to some inquiries, or some ID
theft that was beyond your control, or a new maxed out revolving account you just opened?
Don't kid yourself about these 'terms.' According to the section we underlined in the last 'fine
print' passage above, if your credit rating drops, for any reason, they can decide that 'your
credit rating is no longer in good standing,' and just raise your rates to whatever they please.
This may have never happened to you – YET! But, I have had numerous clients have this
happen to them – banks WILL take this action!
We all know that once in a great while, even the most dependable and responsible people
have unforeseen and unpreventable things happen to them. In fact, in my experience with
clients, I have found that MOST of them had excellent credit ratings not long ago, but events
took place that were beyond their control, suddenly ruining their credit. These events, such as
sudden medical/health conditions, loss of job, divorce or death in the family, or even identity
theft, can happen to any of us at any time. Credit card companies are not in the business of
being understanding, compassionate or even reasonable. The catastrophic event that got you
into a situation of having one late pay, or one missed payment on ONE account, should not
put you in danger of losing your entire credit rating, and yet that’s exactly what can happen
because of these “fine print” clauses.
And you’d be surprised how many people never read these statements, and just sign up
for the card. All they see is the big headlines that say they’ll get this or that FREE, or at a great
discount, or whatever, and they have no clue what they may be getting themselves into. The
point here is, before jumping into what seems to be a deal that’s “too good to be true,” read the
fine print – all of it – because it probably IS!
One of my favorites is the offer for a card that pays you money back for every dollar you
spend. Just think, if you spend $1000.00, you will get a few dollars back (perhaps 2%). You are
encouraged to “spend more, and you’ll earn more.” What about the interest you are paying
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on that balance? In truth, if you “spend more,” you’ll pay more interest, and the small
percentage you get back is so insignificant that you might as well forget it. But, again, people
reason “I’m going to spend the money anyway, so I might as well put it on that card and get
the money back” (or the free airline miles, or whatever). These are just gimmicks by each
credit card company to get people to use THEIR card instead of another one. If you do all the
math, you’ll undoubtedly find that these “great deals” aren’t really so great after all.
A NOTE ABOUT 'RESTOCKING FEES':
One other item of ‘fine print’ that we’d like to mention has to do with
purchases from many of the major retail chain stores these days. They are eager to get your money, and get you to purchase
‘today,’ but they never tell you about the “restocking fee,” so you need to look for it on their contract or ask what will happen if
you decide to return this item. With these clauses (in the fine print) even if you bring the item back the same day, you will pay a
restocking fee of anywhere from 15 – 25%. Say you purchase a computer, take it home and open the box, and decide there is
something about it you don’t like. In order to return it and select another one, you will have to pay the restocking fee (deducted
from your refund). On a $1000.00 purchase, this is at least $150, up to $250. Ridiculous, isn’t it? But, it’s reality. Bottom line, ask
before you purchase, or read the fine print before leaving the store or opening the box. In fact, it may not even be on the contract,
but it may be in the fine print on the back of your receipt. You can plead all day that you didn’t read the back of the receipt, but to
no avail. What a racket! They’ll justify it by telling you they have to sell it now for a reduced fee since the box has been opened.
Buyer beware!
Bottom line, have only 3-5 credit cards, use them wisely, and keep the balances below
30%. Pay them down every month so that you aren’t paying huge amounts of interest. And
buy your own airline tickets. The great score you will eventually achieve will end up saving
you thousands and thousands of dollars over the years on loans that will have much lower
interest rates because you’ve earned it. And that’s the best “reward” you can get.
VII. Can You Really Get No Interest for Years, and other “Bargains”?
(Remember the old adage, 'Zero interest rate usually means nothing.')
I’m sure you all remember the old adage, ‘If it sounds too good to be true, it probably is’?
Let’s take a close look at one such offer we just received in the mail. It is very typical of these types
of offers. It came from a local furniture store, that is offering a ‘2Good2BTrue’ Furniture Credit
Card (we changed the name to protect the guilty), issued by ______ Bank. Their “grabber” caption
says,
“BUY WHAT YOU WANT, WHEN YOU WANT IT
WITH A 2G2BT FURNITURE CREDIT CARD.”
It goes on to say, “A 2G2BT card is an easy and convenient way to pay for your furniture purchases.
Plus, as a preferred customer, you can enjoy exclusive special benefits throughout the year, such as: (here
comes the ‘clincher’)
o 12 months “Same as Cash”* option available (we’ll discuss this * in a minute)
o No annual fee
o Advance notice of Preferred Customer events
o Open line of credit for all your purchasing needs
o Convenient monthly payments available
o Quick approval
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OK, here comes the ‘fine print’ about the “Same as Cash” offer with the asterisk after it. They
figure most people don’t even read the asterisk part, and of those who do, many don’t understand
it, so they will get plenty of people who will fall for this. I just hope you aren’t going to be one of
them after this. Let’s examine the fine print. Notice first, however, how they quickly stuck in a
bullet point about ‘no annual fee.’ They figure this will distract you from thinking about the
asterisk long enough to forget about reading it. They also figure this ‘no annual fee’ statement will
grab a lot of people right away who will think, “Wow, it looks like I can buy today, make no
payments for a year, then pay the total, and there won’t even be any fees – that’s a great deal!”
And, guess what? It will work on a lot of people, just like they thought it would.
Remember, their goal is to get you purchasing over and over again (revolving credit) in THEIR
STORE, and none of these retailers or lenders care if you can’t manage your credit and you end up
in trouble down the road. That’s your tough luck as long as they make plenty of money (and
believe me, even when a large percentage of people default on these things, they still make enough
on those who don’t to make it VERY worth their while). Now, here is what the * goes on to say:
“*On your 2G2BT Furniture credit card, subject to credit approval. If balance on these purchases is paid in
full before the expiration of the 12 month promotional period and your Account is kept current, accrued
Finance Charges will not be imposed on these purchases. If balance on these purchases is not paid in full,
Finance charges will be assessed from the purchase date at the Standard Rate of 23.9% APR. For Accounts
not kept current, the Default Rate of 27.9% APR will apply. Minimum Finance Charge $1.00. Certain rules
apply to the allocation of payments on your 2G2BT Furniture credit card. Call 1-888-000-0000 or review
your cardholder agreement for information.”
Even as I typed the first ‘sentence’ in the above paragraph, the computer itself was smart
enough to recognize that those words don’t form a complete sentence. Did you pick up on that?
The computer underlined it and wanted me to correct it (the underline doesn’t show in your
version), but I left it as it was, because that’s the whole point. Many people would just be drawn to
the words, “subject to credit approval’ and not think about the incomplete sentence.
Perhaps the easiest way to really analyze this * statement is to write it again with our notations
inserted. This time, their wording will be in standard print, and the italicized words within
parentheses will be our comments. Let’s see what this REALLY says:
“*(Twelve months “Same as Cash” option available) On your 2G2BT Furniture credit card, subject
to credit approval. (What this really says is that only people with a certain credit worthiness can get this
12 months same as cash deal, even if they have the credit card. So, they want you to sign up to get their
credit card, so you’ll spend lots of money with them, even if you don’t qualify for this special deal, and they'll
still sell you the items, but at a higher interest rate.) If balance on these purchases is paid in full before
the expiration of the 12 month promotional period (in other words, you pay it off early) and your
Account is kept current (meaning you are making a monthly payment during the 12 month period, even
though you aren’t supposed to have to make one), accrued Finance Charges will not be imposed on
these purchases (they won’t charge you the interest rate that is accruing from day one). If balance on
these purchases is not paid in full (in other words, if you actually dare to take advantage of the free 12
months you thought they had offered you, and don’t pay it off in full prior to the 12 months concluding),
Finance charges will be assessed from the purchase date at the Standard Rate of 23.9% APR (they
will go back to day one, when you purchased the items, and charge you 23.9% for the whole year). For
Accounts not kept current, the Default Rate of 27.9% APR will apply (and if you haven’t been making
any monthly payment, which you thought you didn’t need to make because of what you thought their offer
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offered, the interest rate beginning at the 12th month will automatically escalate to 27.9%, and your new
monthly payment amount will be much, much higher than you ever thought it would be. If you aren’t
prepared to pay it off then, you will be assessed this high rate forever, as long as you keep the card, and as
long as it takes for you to pay it off.) Minimum Finance Charge $1.00 (you’ll notice they’ve not
mentioned what the maximum charge can be – you’ll pay at least a dollar, but you could be paying $25, or
$50, or who knows how much per month for a finance charge – they didn’t tell you how much it was for a
reason). Certain rules apply to the allocation of payments on your 2G2BT Furniture credit card (Oh,
oh – what does THAT mean? You’d best find out BEFORE you consider taking them up on this offer). Call
1-888-000-0000 or review your cardholder agreement for information (if you actually do this, you’ll
probably be one in about 10,000 customers who will).”
You would think that 12 months same as cash would mean you don’t have to pay anything for
12 months, and then you can pay the same amount you would have paid today, if you had paid it
in cash. And that is exactly what they hope you will think. Again, be careful about such offers.
Do the math and read the fine print. You may be surprised to find out what those years of no
payments and no interest will really cost you in the end. Again, if it sounds too good to be true, it
probably IS!
Another one we found recently, by a major mattress company, is a great example (we have
one of their mattresses and it's GREAT – but we saved up and paid cash for it). They take out a
FULL PAGE ADD, FULL COLOR, BOTH SIDES OF THE PAGE, and fill it full of great prices and
sale deals on mattresses. So far so good. On the front side, it says, in
HUGE letters, 0% interest until 2008 – no money down, no interest.
But if you're clever enough to LOOK for the small print, you'll find it at the bottom of the back
side of the two pages, in such small print that it has the look of a 'grayish' smudge across the
bottom of the paper. In fact, due to the way it's printed (on news print), there are small 'holes'
spread evenly across the entire fine print area, making it almost impossible to read completely,
even if you are lucky enough to find it. Just in case you can't find it or can't read it, I just had to
print it for you here, because it's a 'doosie.'
"Special terms of 18 months no interest with equal payments will apply to qualifying purchases of $1499 and above charged with approved credit to
your mattress firm card issued by _____ Bank. The minimum monthly payment will be the amount that will pay for the purchase in full in equal payments
during the special terms period. You may avoid paying the interest by paying the required payments on time. APR is 24.90% subject to credit approval. .
and it goes on. Notice, not all purchases above $1499 will qualify, and you have to get their store
card to participate in this deal. So, once again, you will have a 'maxed out' credit card
immediately, bringing down your score. So, if you go for this deal, you need to say to them, "I'll
do it if you'll triple the amount of credit you issue me." If you mess up, and one payment is late, or
you don't pay it in full by the end of the 'free period,' they will go back and tack on all of the
interest, at 24.90%, from the date of your purchase. That's a lot of interest. Who in their right mind
would finance ANYTHING at 25% interest, and that is the rate for the people who QUALIFY
(approved credit). And, did you see the amount your minimum monthly payment will be? Do the
math. I hope you can see that, if you just have to have this mattress right now, you'd be better off to
go take out a small loan at your bank or credit union and buy the mattress, then pay back the loan
at about 6 or 8% interest.
."
(Remember the old adage, 'The 50-50-90 rule is invariably true – it says you have a
50-50 chance of getting something right, but there's a 90% probability that
you'll get it wrong.' – this makes about as much sense as that fine print!)
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VIII. Filing for Bankruptcy Will Get Rid of My Debts
Bankruptcy has long been a legal way for an individual to discharge their debts – a legal
declaration to the world (its public record) that you are no longer able to pay your debts. It has
often been abused by consumers who were perfectly able to pay their debts. With the new laws,
however, filing for bankruptcy is not what it used to be. See Chapter 4, in the section entitled
‘What Other Factors Affect your Credit Score’ for complete information on bankruptcy filing.
Contrary to what many people think, filing a Chapter 7 bankruptcy does not prevent creditors
with secured loans from seizing and selling your property to repay the debt – in fact, your assets
are liquidated and given to these creditors. It also does not cover certain types of debts, like recent
charge card accounts, many student loans, some taxes, child support or alimony payments, and
criminal fines, to name a few. Neither is the goal of a Chapter 13 bankruptcy to discharge your
debts, but for you to have protection from creditors until you can work out a plan to repay them.
It's a method of reorganizing your debt with a plan to repay everything at a later time.
This should be a person’s absolute last choice, when all else has failed, because the
repercussions on your credit score will be very negative and very long lasting. If you do file for
bankruptcy and then get into trouble again, the scoring system will really hit your score for this
happening a second time. See also the information on bankruptcies in the section on Important
Definitions in Chapter 2.
As we will emphasize over and over in this book, building positive new credit in your file,
with such things as timely monthly payments, well-managed credit card accounts, and new trade
lines, is much more powerful than removing such items as a bankruptcy. With good new habits,
and enough positive credit, you can overcome the derogatory effects of even a bankruptcy.
You can also overcome a bankruptcy by taking a positive attitude about it from the beginning
and following some positive steps. Simply accepting that it is on your credit and will remain there
for years is not the answer. Many people who have undergone this procedure become depressed
and defeated due to the ‘unhappy’ circumstances that caused the filling, and consequently they let
it keep them down for years. Instead, set out immediately to create enough positive new credit to
overcome the bankruptcy. Do this by getting new credit cards (secured if necessary, no qualifying
and no credit check – see information in Appendix and contact our office for a current list) and
establishing good payment records on those accounts for the next year or two. This time, in
starting over, closely follow the principles outlined in this book and don’t repeat any of the
mistakes that led you into bankruptcy in the first place.
IX. One Late Pay Can’t Really Hurt My Score, Can It?
This is one myth that really needs correcting. Little do most people know how much one item,
a late pay, an inquiry, or something as simple as an old address, can affect their score.
(Remember the old adage, 'Generally speaking,
you aren't learning much when your lips are moving.')
Often, these items on your credit report can be inaccurate. Over 85% of Americans have
inaccuracies of one type or another on their credit reports. Were the reported “late pays” really
late? Do you remember? Did you keep track? Did they? Do the creditors have proof that you
were late? Do the late pays show up on all three credit bureaus, or just 1 or 2. Are the creditors
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reporting negative information on your credit report from places that you have never done
business with? Are there collections that are still reporting that were paid years ago? Did you
authorize those inquiries? Can the lenders that made them prove you authorized them?
Below is a breakdown of how greatly negative information on your credit report can affect
your credit score, and what may be deemed as “negative.”
______________________________________________________________________________
POINTS FOR LATE PAYS, ETC.
______________________________________________________________________________
1 Late Pay on your current mortgage lowers your credit score 20 – 30 points.
1 Late Pay on your car payment lowers your credit score 15 – 30 points.
1 Late Pay on your credit cards lowers your credit score 15 – 30 points.
Each Inquiry in the past 90 days lowers your credit score 2 – 3 points.
Each Auto Inquiry in the past 90 days lowers your credit score 5 – 10 points.
Each Old Address lowers your score 1 point
Each Thousand Dollars of Increased Balance on your credit card can affect your
score. For example, assume you have a card with a $10,000 limit.
Balance under $3000
Balance $4 - $5000.00
Balance is $6000.00
Balance is $7000.00
Balance is $8000.00
Balance is $9000.00
Balance is maxed out
- (30%) has a positive effect (increases your score)
- begins lowering your score
- lowers your score at least 10 points
- lowers your score at least 20 points
- lowers your score at least 30 points
- lowers your score at least 50 points
- could be well over 50 points against you.
Carrying more than 3 – 5 credit cards will also lower your score.
Unpaid Tax Liens may remain on your report indefinitely.
Civil Judgments will remain for 7 years (and can then easily be re-filed ( by law)
by the creditor. This process could keep the judgment on your credit forever.)
Some of the items are inaccurate as well as obsolete, such as a long list of old addresses, jobs,
or AKA’s (various forms of your name – see AKA in the list of definitions).
It’s up to you to inform the 3 credit bureaus of the items you want corrected. For example,
you can write a letter (or use the one in the Appendix), informing them of the one and only correct
spelling of your name, and have them eliminate all others. For married women, there may be your
maiden name, as well. Be sure the one spelling you specify is the only way you legally sign all
documents from this point on, or other spellings will just start to reappear.
Bottom line, close monitoring of your own credit reports, (pulling them every 6 months,
printing and saving a copy) from all three bureaus, is important to keep up on all these things.
And, don’t let anyone “pull your credit” or “make an inquiry” without your permission, and
without good reason. Many times a business will tell you that it’s their procedure to “pull your
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credit” right off so that they can begin to work with you. You need to tell them that it’s your
procedure, not to have your credit pulled until YOU have determined that you want to do
business with them.
X. Cutting Down on Credit Inquiries – It’s Possible!
Since inquiries can and do have a negative effect on your score, it’s important to monitor and
limit them. A client recently had a lender pull his credit without his authorization, after he
consulted with them about a home loan. He was shopping around and did give his SS#, but
specifically told the loan officer NOT to pull credit until he had talked to another loan company.
As soon as he discovered the inquiry on his credit report, he had to have the loan officer write a
letter stating that he had pulled the credit report without authorization in order to have the inquiry
removed. Fortunately, the loan officer was honest and admitted his mistake, and was willing to do
what was necessary to have it removed. Not without attempting to persuade my client that this
inquiry would have “little or no” impact on his score, however. My client, being educated, knew
better, and in fact, at that point in time, the 3 points that his score was “dinged” was just enough to
put him below 680, which was where he needed to be. He knew all along that he couldn’t afford
to have even one inquiry show up until he had made the final decision on the mortgage company
he would use. This was, in fact, the very reason that he had specifically told the loan officer NOT
to pull his credit. You just can’t be too careful.
You can cut down on inquiries from auto finance companies by keeping them within a 14 day
period within one calendar month. All inquiries by mortgage companies, no matter how many
different companies, if made within any 30 day period, will count as only 1 inquiry, because they
will assume you are loan shopping. Inquiries spread out beyond the 30-day grace period will
negatively affect credit scoring. Therefore, when going “shopping” for a home loan or refinance,
plan to contact all your prospective lenders within the 30 day period.
Keep in mind that the credit bureaus will update any inquiries on the first of every month. So
be sure to keep all your inquiries within that one calendar month. In auto shopping, if you haven't
found a car within the 14 day period, it's best to wait several months to try again, or be prepared
for a drop in your credit score.
Another way to cut down on inquiries, even when shopping for a loan, is to get your own
mid-score (or ask the first lender), and then follow this procedure – at each subsequent lender you
shop with, tell them your current midscore and ask them to provide you with a good faith estimate
based on that score. For example, “My midscore is 730, and I would like a 30 year fixed rate loan,
with a down payment of 30% of the purchase price.” Then you can review all the closing costs,
including what the lender will charge you in origination and other fees and can compare it with
other companies with whom you are considering a loan. Or, you can obtain a copy of the report
from the first loan officer, white out your SSN on the paperwork, and then fax it to many other
lenders giving them the same scenario. Without your SSN, they will be unable to pull your credit
without your authorization. You can do this until 'the cows come home,' with no further inquiries.
Inquiries affect credit scores the least of all the factors, and for most people, the small effect
they would have should not be a big concern, if they are done within the timeframe mentioned
above. Do the same thing the next month or two months later, and it will have a huge effect on
your score.
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XI. Working with Collection Agencies
You’re not even going to believe some of the things I’ll be telling you in this section.
Let me start with a “fairy tale.” Once upon a time there was a family who went out for pizza.
They had a great time, played some games, ate their pizza, paid their bill of $20.80 with a debit
card, and then went home. Little did they know that their bank account was overdrawn and their
bank declined paying the bill. Because it was such a small amount, the pizza company didn’t
bother to send them a bill, or call them, but instead turned the bill over to a collection company.
The collection company also felt it was too small to bother with, so it remained on their records for
some time, while the family was still completely unaware of it.
It was sold to one collection
company after another, and each time the new company added on their fee. Little by little, with
interest and ‘fees,’ the amount went up, until it finally became profitable for a company to actually
contact this family for collection. They felt there was nothing they could do but pay the bill,
because they didn’t want it on their credit report, so they buckled under and paid a whopping
$420.00 for their pizza dinner. As you’ve probably already guessed, this was no fairy tale – but a
very true story. Unbelievable, but true!
So, what’s the ‘skinny’ on collection agencies and how do you deal with them?
As stated previously, creditors ‘sell’ charged-off accounts to CA’s, who in turn may sell them
to other CA’s, etc. Each time additional fees are added on and the new company assigns their
account number, etc. All of this can get very confusing. Legally, the Credit Bureaus cannot have
more than one account listed on your report for the same original debt. Furthermore, the CA
selling the debt is required, by law, to submit documentation to the CRAs to remove/delete their
newly sold account. Thus, only the CA who is currently trying to collect should have this
collection appearing on your credit report. Even though this is a law, it is hardly ever enforced,
and only a few very ethical CA’s will take the time or trouble to abide by this law, thus it is up to
you to spot these duplicate accounts, contact the CA, and get them removed, so the only collection
account showing is the newest collection company.
Even if you succeed in having the duplicate accounts removed (see the sections on debt
negotiation in Chapter 8), which will, in itself, raise your credit score, keep in mind that once the
OC has ‘charged-off’ the account, they will no longer deal with you on it. However, you still owe
the debt and it must be negotiated and paid to someone. So, it is always in your best interest to
communicate with the OC right from the start, and work with them to set up a payment plan, if at
all possible, to keep the account from going to collection or charge-off status, and destroying your
credit score. Again, the key word is ‘communication.’
NOTE: When the OC assigns or sells the account to a CA, their own original account should be
deleted from your credit file. This often doesn't happen, however, causing a duplicate listing (and loss of
points for you), so it may be up to you to get this account removed from your credit report.
Remember this for the future, and try to avoid these messy situations at all costs, by staying
current on all of your monthly payments and staying in communication with your creditors if you
begin having problems.
You may have heard that you can dispute collection company accounts, and get them deleted
on the basis that you were never a party to any contract with this collection agency, in an attempt
to get a collection deleted that really is yours. This is outdated information, however, as most
creditors now have a clause in their contracts, which you signed when you obtained the card,
extending to collection companies the authority to collect this debt, enforce the validity of the
original contract, and add their fees. Of course, CA’s are supposed to remain within the legal
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guidelines of the Fair Debt Reporting Act and not use unethical or abusive practices to coerce
consumers into paying debts that may, in fact, be erroneous, obsolete or unverifiable.
It is well known, that many (unethical) CA’s do, in fact, use these tactics, some of which you
probably wouldn’t even believe unless they’ve happened to you, and if you are a victim of such
tactics, you need to know your legal rights, some of which are:
1) You can stop a CA from contacting you by writing a ‘stop harassment letter’ after which
they may only contact you one more time, to tell you there will be no further contact or
notify you of some specific action they are taking (see sample letter at end of this chapter);
2) If you have an attorney, the CA must contact them, rather than you. They may contact other
people you know, but only to find out where you live or how to contact you, and they
cannot tell the person that you owe money;
3) Within 5 days of first contacting you, the CA must send you a written notice telling you the
amount of money you owe, the name of the creditor, and what action you should take if
you feel you don’t owe the money;
4) The CA is prohibited from:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)
l)
m)
n)
o)
p)
q)
r)
s)
Using threats of violence or harm;
Publishing a list of people who refuse to pay debts;
Using obscene or profane language; or
Repeatedly using the phone to annoy you;
Falsely implying they are attorneys or government representatives;
Falsely implying that you have committed a crime;
Falsely representing that they operate or work for a credit bureau;
Misrepresenting the amount of your debt;
Making false implications about the papers being legal forms;
Stating that you will be arrested for non-payment of the debt;
Stating they will sieze, garnish, attach, etc.
Stating that actions will be taken against you, such as a lawsuit which legally
may not be taken, or which they don’t intend to take;
Giving false credit information about you to anyone;
Sending you documents that look like they are from an official court or
government agency, when they are not;
Using a false name;
Collecting any amount greater than your debt, unless permitted by your state laws;
Depositing a post-dated check prematurely;
Using deception to make you accept collect calls;
Contacting you by postcard.
5) If you owe more than one debt, any payment you make must be applied to the debt
you indicate;
6) You can sue a CA in a state or federal court within one year from the date the law was
violated and recover money for damages plus up to $1000, and recover costs and fees.
7) Report problems with CA’s to your state Attorney General, and the FTC (contact
information in the Appendix).
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Whatever you do, don’t pre-pay with a debit or credit card over the phone – get a written
statement in your hands (with the terms you’ve negotiated and the schedule of payments, if any)
before you make the payment, and pay with check or money order, making a notation on your
check or money order that acceptance of this check constitutes payment in full. Make sure your
agreement states that they will report the item as paid to each bureau (list each bureau that has the
account shown). Don’t let the CA bluff you with statements like, “We must have the agreed-upon
payment today, or we can’t honor this pay-off amount.” That is a scare tactic and a way for them
to get your money before they send you anything in writing, and you have no protection. They
can, in fact, and will take payments. Most charged-off accounts are purchased for ‘pennies on the
dollar,’ often as little as $.25 per $100 in face value owed. Thus, even if a CA collects 1% of the face
amount of the debt, they may still be making 4 times what they paid for the account. So,
NEGOTIATE, NEGOTIATE, NEGOTIATE! ! ! Their added-on fees aren’t really even necessary for
them to make money, and they would rather have something than nothing.
(Remember the old adage, 'I've got half a mind to . . .
hey, who took the other half?')
Here is what recently happened to one of my clients, and something similar could have
happened to anyone of us. This client switched cell phone companies, and got nailed with the
early termination fee for three phones at $150/phone. He did what many of us would do, and
failed to communicate with the cell phone company, but instead simply sent in a small payment
toward the balance ($50.00). Because they had not received full payment, as billed, and he had not
contacted them to arrange a payment plan, they turned it over to a CA. Additional fees were
added, and he has since agreed to pay their full fee, thinking it would protect his credit. (Note:
Rule # 1 – Don’t ever acknowledge upfront to a CA that any debt is yours.)
He worked out a 4 payment plan with the CA (which could have been done for less with the
OC, had he taken the time to work with them instead, protecting his good credit). Most creditors
won’t suggest a payment plan, unless you do, because they are going to try to get all the money up
front every time they possibly can. Working with you is their last resort, but one you have to
pursue. This story actually goes one step further. This client, on the initial phone call from the
CA, was pressured to give them his debit card number for an immediate payment on the account,
without having any type of written agreement as to the total amount to be paid. For his own
protection, our advice to him was to immediately call his bank and close out that account and have
a new debit card issued. Now, when the CA recontacts him, he will be in a position to begin
negotiations the way he should have done in the first place, as outlined above.
If a CA contacts you and you agree to pay them the full amount or an amount less than what is
owed, either way, the account will be marked ‘paid’, but will not be removed from your file. Thus,
it behooves you to negotiate the best price - and get in writing, before making the payment, that
they will send documentation to the CRA’s marking the account ‘paid’ upon receipt of your check.
Remember, however, that this procedure will do nothing to raise your credit score. In fact,
according to the FCRA, the debt CANNOT legally be removed or deleted, but only marked ‘paid,’
and left on your report for the duration of the 7 years. Now, at least, you can feel better that you
took care of the debt you owed. (This is why we advocate overshadowing this ‘negative’ with lots
of positive credit instead of worrying about getting it removed). Most credit repair services, who
may tell you they can delete these accounts, are likely using unethical methods to do so, in hopes
that the 30 day period will expire and the account will be considered unverified and removed by
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the credit bureaus. This is possible, because many CA’s lack the staffing to respond to such
verification procedures, and this could in fact result in the 30 days passing with no verification.
However, if the CA re-sells it to another collection company after that, it will undoubtedly
reappear as another new collection, and you’re right back where you started.
(Remember the old adage, 'On the other hand . . . you have different fingers.')
WATCH OUT FOR THIS ONE! One of the illegal tactics used by unethical CA’s is for them
to actually make a small payment on your account (such as $5.00), just before the Statute of
Limitations runs out. This payment serves to update your account so that the Statute of
Limitations now starts all over again, and they have another period of 3 or more years (varies from
state to state) in which to collect from you, or sell the account again to another CA. (See Ch. 8 for
more information on Statutes of Limitations.) They can now take you to court and try to get a
judgment, unless you know your rights. THIS IS WHY IT IS SO VERY IMPORTANT TO PULL
YOUR CREDIT FILE, PRINT IT AND SAVE IT EVERY 6 MONTHS as proof of when this account
became a charge-off or collection. Remember, it doesn’t matter which CA is currently trying to
collect the debt. But what DOES matter, is the date that the account became a collection or chargeoff. Depending upon which state you live in, the Statute of Limitations applies from that date.
Knowing this, when a CA contacts you for payment, you can ask them to verify the validity of the
debt, (you can request that they verify the debt by mailing you a copy of the original contract) and
make them prove that any recent payment made came from you. (For more information about
CA’s, also read the definition of CA in Chapter 3, Section “C”.)
XII. Getting Free Credit Reports
Other than your one free credit report provided for all consumers annually by the
government, there are no really free credit reports. Some credit repair manuals have encouraged
people to use a clause in the FCRA for the sole purpose of obtaining free credit reports. The clause
in the FCRA that states, “Upon the direct request of a consumer . . .who asserts upon good faith the
suspicion that the consumer has been or is about to become a victim of fraud or related crime,
including identity theft, a consumer reporting agency . . . shall (A) include a fraud alert in the file
of that consumer . . .” They then assert that once this alert is placed on your credit file, you are
entitled, by law, to a free copy of your credit report (from that one bureau only), simply for the
asking. Unless you truly have been an identity theft victim, or your bank informs you that there
have been invasions on some accounts and wants to change your debit/credit card numbers, etc.,
you should not use this technique simply to get a free credit report. The actual cost to purchase
your credit reports is really minimal, anyway.
Once again, we want to encourage you to be ethical and honest when dealing with the whole
issue of your credit and your finances. God will honor a person who does so.
XIII. It's Impossible to Plan Ahead and Control Your Own Credit Score
Nothing could be further from the truth! Having a plan, much like setting goals, is always a
good idea. We should all sit down with our spouses or family members at least once every 6
months and do some projecting and planning for our future finances. Budgetary needs can change
often, and even going over your present budget 6 months from now, and making revisions, can
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make a difference in your future. You may have added a cell phone, and thus another bill, which
isn’t listed in your current budget. Several unplanned expenses like this can add up to as much as
a car payment and begin to overload your budget.
(Remember the old adage, 'You can't have everything . . . where would you put it?')
Planning is especially important if you know that a new home or a refinance is in the near
future for your family. For instance, when you plan to buy a house or make any other major
purchase, such as an automobile or a business, you should avoid opening any new credit cards for
six months prior to the application for the new loan. In fact, when looking to purchase a home,
avoid ANY credit purchases (such as a boat, car, computer, home furnishings, etc.) within the six
month period prior to applying for a home loan, and get your store credit card accounts paid
down to within the 30% guidelines. Don't apply for a mortgage until this is all in place.
As mentioned in the last section, on Inquiries, it's also possible, by planning the timeframe of
your loan shopping, to limit the number of inquiries and prevent possible “dings” on your credit,
which lower your score. So, as you can see, you DO have a great deal of control over where your
credit score goes from here – up or down.
XIV. Discounts for Good Credit
Many people “discount” the idea that their poor credit rating will make a difference in such
things as auto insurance. In fact, the discounts given by insurance companies can be considerable
and save you a lot of money over the years. These discounts are based solely on credit scores.
It may surprise you to know, for instance, that credit scores have proven to be an accurate
indicator of a person’s likelihood of getting a traffic violation. This is unfair to some people, but
there is a correlation between people who pay creditors recklessly also drive their cars recklessly.
_____________________________________________________________________________
A rule of thumb used for issuing discounts is:
25% discount for 725 + score (notice it's a little higher than 720 – we haven't figured out WHY!)
17% discount for 625 – 724 score
10% discount for 525 – 624 score
0 % discount for 524 and below
____________________________________________________________________________
If you have a credit score below 725, you are paying more for your insurance than those with
over 725, and by using a calculator and doing the math based on your own insurance payments,
you can find out just exactly what your low score is costing you. This is just one more reason to
get that score up as soon as possible, and keep it up for life.
XV. Isn’t it Better to Pay a Little More in Interest and Get the Home You Want NOW?
Some people believe that the higher interest charge, resulting in a higher payment, will be
compensated for over the years through the benefits of home ownership. They reason that the
possible inflationary increase in the home’s value will offset what they lose in paying higher
interest rates. While this may, in fact, work to their advantage, especially in times of high inflation
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like we saw recently nationwide, it is not always true. And, of course, the extent to which it may
or may not be true is based upon the difference between their interest rate (due to poor credit) and
what it could have been had their scores been higher.
(Remember the old adage, 'What goes up doesn't always come down,
especially when it's your interest rates.')
For example, in borrowing $175,000 for 30 years, at 6% interest (good credit), you’d pay
$1049/month, whereas a higher rate of 7.5% (mediocre credit) would cost you $1,220/month
(principle and interest). This may not sound like much, as it is only a difference of $175/month, to
have the privilege of home ownership. Over a 5 year period, however, the person with mediocre
credit is paying $10,440 more for that privilege. And that is just in the first 5 years. That $10,000.00
could have gone a long way toward building a retirement fund, or been used to do a lot of the
Lord’s work, for example. It could have made a big dent in a child’s college expenses.
In addition, home buyers may be required to produce less documentation if they have higher
credit scores, vastly simplifying the loan process. This fact alone is another good reason to work
toward a better credit standing. Beginning today to improve your credit standing will mean that,
in years to come, you, too, can benefit from a higher credit score.
XVI. People Don’t Need to Establish Credit Until They are Ready to Purchase a Car or Home
Years ago, it was not necessary to establish “credit” at all, because people dealt directly with
banks in their own localities, and a person’s word was as good as a signed contract.
Unfortunately, many people who grew up in that scenario, have failed to see that their children, or
grandchildren, are living in a vastly different world where not having credit makes life literally
impossible. These days, you will need established credit for almost everything, even for renting an
apartment and obtaining employment. When you apply for your first job, you may be shocked to
find that your credit may be checked. And of course, you’ll also need it for purchasing a car,
getting the best rates on auto insurance, and eventually, for buying a home. Your credit may be
checked to qualify you for overdraft protection as well as to determine your ATM limit, not to
mention being able to even open a savings or checking account.
It's important to begin establishing credit as soon as you are 18 years old, if not sooner. It can
take six months, from the time you first open an account, to obtain a credit score. Begin to use the
principles outlined in this book at a young age, and it will “pay off” for a lifetime. Since we now
live in a credit-driven society, having good credit is essential. Either way, in time you will end up
with a credit score, and if you don’t strive early for a good one, you will have to settle for what you
get.
(Remember the old adage, 'If I had to do it over again,
I'd get up pretty early in the morning and count my chickens.')
Remember, no score can be just as bad as a low score. Not having at least one credit card, and
not using credit, gives you no credit score. Lenders don’t know how to assess the ability or
willingness to repay debts if you don’t have any credit, or never use credit. Consumers without
credit histories, or with only minimal credit histories, are often called “thin files.”
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XVII. What About my Kids’ Credit Reports?
When we were young, no one had a credit report, much less children. Today, however, it is
another world. Believe it or not, children do have credit reports, and it has become necessary for
parents to check these out once in awhile to prevent identity theft. It may have never occurred to
you that identity thieves may prey on children, but what else is new? These days, children’s
identities are the targets of many scams, and parents should carefully guard their child’s identity
from these thieves.
Nowadays, you are not allowed to take a new baby home from the hospital without obtaining
a SSN. If you haven’t had a baby yet, or haven’t had one for many years, you were probably not
aware of that. This newborn has a ‘government tracking number’ almost from the moment it was
born. When we were young, a person didn’t receive a SSN until they obtained their first job.
HOW THINGS HAVE CHANGED! This is all part of that plan for the New World Order – ‘big
brother is watching you!’ That number will follow you all the days of your life, and will be
reported everywhere you go and no matter what you do.
(Remember the old adage,
‘When in Rome . . . big brother is watching you.’)
It’s true that most ‘child identity theft’ occurs among families – can you believe it? The most
common form of child ID theft is an estranged parent ‘stealing’ their own child’s name and social
security number (at almost any age) and using it to establish an alternate identity for themselves.
This is especially easy for those with the same name, such as ‘Sr’s and Jr’s’.
There have been many cases of young adults, checking their credit for the first time (perhaps
because they have just applied for a job, an apartment, etc.,) and finding, to their horror, that their
credit report contains thousands of dollars of unpaid accounts and bad credit. It takes these
victims years to overcome the mess that was caused, usually by a relative.
So, be safe, and don’t take anything for granted in this area. It will cost you a few dollars to
run the three bureaus on each of your children, but in the long run, especially where you may have
a reason to suspect problems, it will be well worth it. We recommend that you pull your children’s
credit as often as you check your own, about every 6 months.
XVIII. I'm More Apt to Get Credit if I Do a Good Job Filling Out the Application
Many people believe that the application they fill out will either make or break their chance of
getting approved. Actually, the most important thing the lender considers is your credit report.
While doing a good and complete job on your application, and being truthful, can help your
chances, most of the time the lenders only use the application to "fill in the holes" with information
not revealed in the credit report, such as current income, employment information or assets, and
other facts that may be outdated on your credit report. This information may then be used to
'update' the credit bureaus with all of your current data. You should be sure that the information
on your application matches that on your credit report (part of 'doing your homework'), so that
they don't think you are intentionally trying to hide something from them. For example, if you
have 5 open credit accounts, be sure to list them all because they will compare your application
info with the credit report. You do not, however, have to list such things as medical or legal bills,
loans from friends or family members, or utility/phone/cable bills, etc. If you carelessly leave off
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important information, such as your SSN, some may ask you for it, but others may just turn you
down thinking that you are trying to get away with something. As in everything you do, make a
copy of all paperwork for your records before turning it in. This will expedite future applications
and help you keep the records straight.
XIX. Are the Stated Finance Charges Really What I'm Paying in Interest for my Credit Cards?
Credit card companies make most of their money on the interest they charge consumers for
using their card (their money), but most people have no idea how this interest is calculated.
Usually, the amount stated on your credit card offer (i.e. 18.5%) is not the amount of interest you
are being charged in reality. It is generally higher – in fact, if you take into account all of the fees
they charge for various reasons, and the methods they use to calculate the interest itself, it can be
much, much higher. In the definitions section of this book, we listed a detailed description of each
of these fees – Annual Fees, Late Fees, Cash Advance Fees, Transaction Fees, Minimum Finance
Charges, and Over-the-Limit Fees – all of which can add dollars to your bill and put dollars into
the pocketbooks of the credit industry giants. (We encourage you to read these definitions for sure,
if you haven't done so already.) To attempt to decipher the many methods used to calculate the
interest on your balances would do no more, at this point, than confuse you (it still confuses us), so
suffice it to say that there are at least a half-dozen different calculating methods used by credit
card companies to enable them to charge you more than you think you're being charged.
So, I guess the bottom line is, don't be surprised if you 'figure' one amount, and they charge
you more. It doesn't really MATTER which method they use, if you know how to manage your
credit cards properly. The main thing to remember is this – the best way to keep all of these fees
'at bay' is to pay down your entire balance every month (prior to the due date) except when you are
trying to establish new credit. Then, and only then, should you allow balances to go from month
to month, accumulating fees and interest (unless you simply enjoy the convenience of using the
card regularly and don't mind the exorbitant payments and the fact that you will be padding their
pockets forever and possibly NEVER get the debt paid off). OK – now you know. Enough said!
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
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SAMPLE – Stop Harrassment/‘Cease and Desist'/Statutes of Limitations Letter
(Date)
(Address to Collection Agency or
Other who is ‘harassing’ you)
Atten: (to the person who contacted you):
RE: (Their file # ________________, Original Creditor ____(Name of creditor)_____________
Your letter dated __(Month)_____________, ___(year)_____
NOTICE TO CEASE AND DESIST
Dear (Whoever)
This letter is to serve as notice to cease and desist with any further communication by your office. This
includes phone calls to my home, work, cell phone and any and all other phone numbers you have on file,
including family, friends, relatives, employers etc. It also includes sending me mail, faxes, emails and any
forms of communication from your office. Also: Please note: Any attempt by your office to re-sell or re-age
this debt evidenced by it being placed on any of my credit reports as showing as being sold to another
collection company, etc will bring legal action against you and/or your law office.
This letter is being sent out certified mail with return receipt.
Sincerely,
(sign and date)
(Note: If they disregard your letter and you get another letter, you now are entitled to damages of $1,000.
per the Fair Debt Collections Act and you now have the proof you need to sue them )
Make sure that you print and file this letter in a safe place and when the return receipt card comes in the
mail, staple it to the letter. This is your proof and you may need to refer to.
DO NOT LET THE POST OFFCE TALK YOU INTO SENDING OUT THE LETTER WITHOUT
THE SIGNED RETURNED RECEIPT, otherwise you have no proof who signed for your letter.
(To determine if the account is past the Statues of Limitations FOR YOUR STATE
(see page 155) Remember each state sets it's own timeframe. Read the information carefully and then look
up your state, by going to the website provided. Look at the "open accounts column" for your state. Then
make sure that the date that the account was 1st charged off or became a collection is past the statues of
limitations period for your state.
ADD the following to your letter if it is; Just so you know, this issue is past the Statues of Limitations,
which is ( # of years) years in the state of (state you live in) The original account is past (# of years) and is
uncollectible by your office or anyone else. I trust that this matter is now closed and it will be the last time
that I hear from you on this matter. THEN SIGN AND DATE YOUR LETTER.
NOTE: remember this does not take the issue off your credit report, but will stop the collection company
from contacting you. You may get future letters from other collection companies, for the same account or
from other accounts, YOU NEED TO RESPOND EACH TIME with this same letter, to protect yourself.
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Chapter 6
How to Run the Maze and Win the Cheese Every Time
I. Your Credit – Your Lifeline
In order to win the credit game, you must understand that your credit score, in today’s world,
is your LIFE-LINE. Without good credit established, and knowing how to manage it, you will
continue to wonder why your credit score is so low, and continue to pay high interest rates on
major purchases and never get ahead in life.
(Remember the old adage, “If you keep on doing the same things
you have been doing, you’ll keep on getting the same results you’ve been getting.”)
These days, employers, insurance companies, phone and utility companies and a whole long
list of others, are pulling your credit freely, to determine your worth for their particular service. To
them you are just a number and if that number is not high enough, it will cost you in many
different ways. It’s sad to think that most of us are being ‘ripped off’ by the banks, credit card
companies, and retailers (the very financial institutions we trust), month after month. It’s not that
they are acting illegally, but they are shrewdly taking advantage of us and our credit reports in
order to make more money for themselves, and they’ve been doing it for years and years. We are
all victims – we’ve been overcharged in interest, denied credit, and victimized by the
computerized approval/denial system that is in place.
Each and every month, on the first day of the month, all 3 credit bureaus adjust your credit
score. If you paid your bills on time the previous month, and had no other unusual activity (like
opening a new account), then your score will generally go up each month. If you didn’t manage it
well, your new score will be lower. You need to know the “rules of the game,” and then learn how
to play it well so that you can beat the banks and stores at their own game.
II. How to Get Your “Financial House” in Order and Keep it That Way
(Remember the old adage, 'People who live in glass houses . . .
should dress in the basement.')
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A. First of all, get organized with your monthly bills. When you receive a bill, put it
somewhere that is visible (such as in a sectioned, upright desk organizer). Take a red pen and
write the due date on the envelope – or even better, the date 7 days before it's due – at the top
where you can see it easily, and also write it on a calendar (7 days ahead). Keep the envelopes
in chronological order by the dates due, always moving the remaining ones toward the front
as you pay those due now.
B. If you mail your bills, allow for mail time. If paid online, also make sure you pay it early.
My wife and I once paid a payment that apparently got lost in the mail and arrived at the
creditors ELEVEN DAYS after we mailed it. Naturally, since we didn’t follow up to see if it
had been posted, we got a late pay. It took lots of time and letters to get it straightened out,
but since they could clearly see the date it was postmarked, we were eventually able to do
that. We were lucky that time. Had we not followed up and had a perfect payment record,
they may not have been looking for it. Fortunately, we had developed a great relationship
with the receptionist there, and she was honest enough to save the envelope with the
postmark on it, and call us to tell us it finally came. Consequently they deleted the late
charges and sent a letter to the credit bureaus for us.
Generally, though, once it’s late, and reported to the bureaus as such, it is much more
difficult to get it removed. The moral of the story is, allow for mail time, and then follow up to
make sure the payment is posted by the due date.
In addition, be aware that most creditors need one day to process your payment, so if you
pay on-line the day it’s due, and it processes the next day, you just received a 30 day late on
your credit. Also, be aware that on-line payments will not post on a Saturday or Sunday, even
though your payment due date falls on the weekend. This will also give you a 30 day late! It
doesn’t seem fair, but they could care less. It is up to YOU to manage your monthly due dates
every single month.
(Remember the old adage, 'Once you get over the hill, you begin to pick up speed.')
C. Set up a file folder for each monthly bill, and when you pay it, file the receipt in order each
month. This will be your record of payment for proof of your reliability if you ever need it.
As mentioned, follow up – don’t ever assume that, just because you paid it, it was
received by the creditor. Your mortgage, car loan and credit card payment are a vital part of
your credit score, so make sure you follow up to know that these bills were paid and posted
on time. If you pay by mail, call them every month and make sure they received it. If on line,
go back on line and check every single month. If this sounds like a lot of work, just think
about how much MORE work it will be to have to take the time to straighten out just ONE late
pay, if it can even be done, and how much it will lower your credit score.
D. Balance your checkbook weekly. Get on-line and look at your bank accounts DAILY – I do
this “religiously,” and so should you. That way, I can see and catch any mistakes that may
occur quickly and, just as important, I can also make sure that my credit card payment, car
loan and mortgage payment have cleared my account. You may think this sounds like a very
time-consuming task, but it is really a time-saving (time-management) task, because doing a
little every day or once a week, instead of taking hours to do the whole checkbook once a
month (or like some people, once a year or only if they have a question about their bank
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statement), actually takes less time in the long run. Even if it takes a tiny bit more time,
catching a mistake right away, as opposed to a month or more later, can end up saving you
LOTS of time and money as opposed to having to mess with and correct a bad situation (or
I.D. theft, for example).
E. Use your credit cards wisely. As you learned in Chapter 5, credit cards are extremely
important to your credit score! You can apply for and receive a credit card in days; and you
can also charge up the balance of that new card in days, as well, and creditors know this and
understand the ramifications this has to them. Credit cards have gotten many people in
trouble. The manner in which you handle your credit cards will either dramatically boost
your credit score, or destroy it. Because credit cards can be mis-managed so quickly and
easily, the credit bureaus have based a major part of your credit score on them.
(Remember the old adage, ‘The best way to decrease your spending. . .
is to cut your credit cards in half’)
F. Use common sense in applying for credit cards through the mail. Many credit card
companies will solicit you for all kinds of offers. Take the time to read the fine print and the
terms and conditions. First of all, don’t assume that because they mailed you an offer for
credit, you are approved. Open it, and if they ask for a social security number and such, and
your credit is not healthy, or you are trying to build or establish credit, SHRED IT! All you
will get for your efforts is an inquiry on your credit (costing you points), and a turn-down
letter from the credit bureau where your credit was pulled.
G. What about joint accounts if you are married? Consider this – if something happens to
disrupt your cash flow or income and all your credit card accounts are joint, that means that
both of your credit scores will suffer. When the chips are down, having a couple of cards
separate, you would then have a fighting chance of saving either spouse’s credit, enabling you
to “keep the apple cart on the track,” so to speak. (That's separate, not secret!)
(Remember the old adage,
‘When the chips are down, the buffalo is empty.’)
H. If your medical bills are paid by insurance, follow up anyway. Don’t assume that your
insurance company paid your doctor, the specialist you saw, or the hospital. Don’t ignore
letters assuming that your insurance is taking care of it. For the most part, the medical
profession is not going to take the time to follow up with you or your insurance company for
the bill. They will simply pass it on to a collection company – even for something as small as
$10.00. Do you think they will bother to contact you about $10.00? Of course not, they'll just
file it on your credit report, and there goes your good score. It makes no difference to them.
I. Get a shredder and use it. This will protect you against possible identity theft. Shred any
offers that come in the mail for credit cards, or anything that is inviting you to apply for
something. If you don’t have a shredder, or can’t afford one (cross cut is best) do the next best
thing – tear right through the middle of your name and address, throw one piece in the
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garbage and the other piece in the recycle can or another wastebasket that won’t go out with
the same garbage right away.
III. Achieving the Perfect 800 Score IS Possible!
How do bankers, lawyers and credit bureau executives get the best credit scores? Simple –
they know a lot of “secrets” that they use personally.
(Remember the old adage, 'If I knew then what I know now,
I'd have an 800 credit score.')
Like the “trade secrets” of any profession, while not deliberately “hidden,” these things are
not generally made available to the public, and as we’ve mentioned before, they aren’t taught in
school (there is no “How to Achieve a High Credit Score 101). This section is jam- packed with tips
for which experts would charge you hundreds, perhaps thousands of dollars, including dozens of
“Do’s and Don’ts.”
A. Getting Your First Credit Card
As you probably know, building good credit starts with having that first major credit card.
Once you have it, making sure you build a history of on-time payments shows a pattern of
consistency that will look good to other lenders, and you will soon start receiving additional
credit card offers. If you are currently caught in that “catch 22” situation where no one is
extending you credit because you don’t have good credit, contact my office (information in the
Appendix) for our current list of companies that we work with regularly in extending secured
and unsecured credit to people in this situation (companies subject to change). This will be
much easier than you think, and once you have the card, your diligence in “paying as agreed”
will prove very beneficial to your credit record.
You can also go to your own bank or credit union and talk to them about opening a
savings and checking account. All young people, just starting out, should do this early on in
order to establish a good relationship with a bank. This is the first step in creating a financial
history, and, if used responsibly, it can lead you down the road to the 720 – 800 score. Be
careful not to write checks that bounce or have overdrafts as these will hurt your credit rating.
Keep careful records of all transactions and learn to balance your account correctly right from
the beginning.
(Remember the old adage, ‘The quickest way to
double your assets with a credit card is also to cut it in half.’)
NOTE: We repeat – no credit is just as bad as bad credit. Either one can play a major role
in lowering or keeping your scores low, just as mismanagement of your good credit can.
B. Building Credit as an Authorized User
Here is another well-kept secret. (Some parents have discovered this technique to help
their young adult children get a great credit history in place at an early age.) If you are
fortunate enough to know someone with excellent credit, and they are willing, it is possible to
have them “place” their good credit history onto YOUR credit reports, wherein it effectively
becomes YOUR credit history, as well. They simply call their bank (or credit card company)
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and request that you be put onto the account as an authorized user. If the creditor says they
don’t need their social security number to send out a card, then they are not going to report it
and it won’t help your credit at all. Creditors will send out authorized user cards in a
heartbeat, because they love to have more people charging up the card, but without it being
reported to the bureaus, it’s fruitless.
Thus, the first thing the cardholder needs to do is ask their financial institution whether or
not the authorized user will be reported to the credit bureaus. If so, continue the process. If
the financial institution does not report authorized users to the bureaus, then there is no
reason to continue the process, as there is probably no way to get them to do this. It’s been the
experience of my clients that most institutions will set this up to report to the bureaus when
requested, and it has been a tremendous help to the person who needs to improve their credit
rating.
Emphasize to your friend/relative to have the bank mail the card to THEIR own address,
and then keep the card in their possession. The whole idea is to have your friend/relative’s
excellent credit history, from the time they opened the card to the present, (which in many
cases could be YEARS of excellent history,) added to your three credit reports, and continue to
report it on your credit each month thereafter. It is NOT advisable for them to put the credit
card into your hands to use, as this could get both of you in trouble. Remember that by
putting you on only as an authorized user, and then keeping the card themselves, there is no
possible way you can hurt their credit, since you do not have access to the card in any way,
shape or form.
This procedure will give your credit score a major boost. If the creditor says they have to
pull your credit to add you to the account, that means they want to put you on as a joint card
holder, and this is NOT what you want. Don’t consider doing that unless you are married to
the card holder and your credit score is around 680 or higher. If less, you will likely not be
approved, and you’ll just get another “inquiry” on your credit, which will lower your score
even more.
NOTE: When using this method to improve your credit, there is one “caution” of which you must be
aware. If the cardholder were to change their habits, for some reason, and misuse the card at any time in
the future, the new “late pays,” or whatever else results, would also be reflected on YOUR 3 credit
bureaus. If they fail to make a payment on time, or worse, if the card goes to collection or charge-off, any
and all negative history will also reflect on your credit as well. Thus, there is no risk to the card holder,
but YOU, in fact, could be the one at risk since you have no control over their future use of the card.
(Remember the old adage,
‘Never underestimate the power of . . . using someone else's good credit’.)
One way to protect yourself against this happening, is to choose only someone who has a
long and reliable “excellent” rating, and then, once the credit is placed on yours, let it report
for just a few months, and then have them remove it. The “trade line” will remain showing on
your credit reports for years, as an account “paid as agreed,” even though it has now been
removed. You need to make absolutely sure that the card holder’s account is in good
standing, with no late pays, and that the balance on the card is either paid off every month,
before the 20th (See Section H in this chapter) or the balance is no more than 30% of the card
limit. Putting yourself on a maxed out card or over the 30% limit will also be detrimental to
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your credit score. Make sure you understand that if any one of these conditions is present, this
procedure will lower your score instead of increasing it.
Here’s an example from real life of how misunderstanding the utilization of the
authorized user program, as mentioned above, can have the reverse effect on your credit score.
Upon reviewing the credit file of one of my new clients, I discovered that she was an
authorized user on a Chase credit card, which she thought was helping her score. The card
had a credit limit of $21,500.00. The balance owing on the card was $21,000 (basically a
maxed-out card). However, this card had been open since 1999 and there were no late
payments whatsoever. Most people would think, as she did, that this would be an excellent
account to have on their credit file. But, I showed her, that because it was almost maxed out, it
was, in fact, hurting her score. By removing her from this account, we were able to bring her 3
bureaus’ scores up respectively, as follows: Experian, 38 points, TransUnion 24 points, and
Exquifax 44 points. Her midscore went up to a 725, which easily qualified her for the best
interest rate available on the loan she wanted. Each good credit card that you are put on is
worth at least 30 points in increased score. You can see that two or three cards can give your
score a major boost.
Attention Parents: If you want to help your children get started, use this method instead of cosigning for them. Or better yet, teach them to build their own good credit score starting at about age 16
or so.
C. Paying All Your Bills on Time
Another positive step you can take toward building or rebuilding your credit is to make
sure you pay all of your bills on time, every single month. In fact, due to mail delays and
other unforeseen things, it might be a good policy to start out paying them a little sooner than
they are actually due.
(Remember the old adage,
‘Bills travel through the mail twice as fast as refund checks.’)
This includes utility bills, rent or mortgage payments, phone and internet bills, cable bills,
etc. While utility companies, phone and cable companies, etc. do not generally report your
timely payments to the credit agencies, it is important to keep these accounts current and on
time, since they will report any derogatory information that occurs with your account. It is
unfortunate that your years of monthly payments to utility, phone and cable companies, etc.,
are not reported to the credit bureaus, because they could provide a great record of your
consistency in paying bills. There is a program in the works, through which most people can
become eligible to get these payments reported to all three bureaus, thus creating beneficial
“trade lines” which will go a long ways toward raising your credit score. We keep our clients
'posted' on all such new programs as they become available.
It is now also possible to get even your on-time rent payments reported to all three
bureaus. Your rent can be reported from the time you moved in to the present, and you have
to have been 30 days late for them to report a late to the credit bureaus. This history will stay
on your credit for 7 years, creating a long period of higher credit scoring. This is a great way
to increase your credit score and obtain an added edge in qualifying for a home loan.
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To obtain information about these programs, and find out about your eligibility, use the
contact information in the Appendix of this book.
D. Applying for Other New Credit
If you need additional credit, a secured card may be a good temporary solution. With this
type of card, you deposit money into a “savings” account, and then you are allowed to “use”
that money like credit. As you pay it back each month “as agreed,” it will be reported to the
credit bureaus and over time, this will begin to raise your credit score. Even though it is your
money, there may be a small fee involved, and generally they will charge you “interest,” as
well, for the service they are providing in helping you establish credit.
Your own bank may be willing to work with you on a secured loan since they will make
interest on your money, and have no risk. Credit Unions are a good place to start asking for
credit of this type. See information about savings account loans in Chapter 9, Part 5.
These cards work just like any other card for things like reserving hotel rooms in advance
or making purchases (up to the limit of the card). Once again, my firm can refer you to
companies which our clients are currently using.
E. Don’t get ‘Too Much’ Credit
There are dangers that few people know of in having too much available credit and/or too
many credit cards. Don’t open new credit card accounts if you already have two or three,
which is excellent to build a good credit history (but over 5 could hurt your score). First of all,
multiple credit card inquiries will affect your credit score negatively since lenders realize you
could take out 5 or 6 new cards at once and dramatically increase your debt. This would make
you a much higher risk to them and they may rightfully fear you will soon be overextended.
Secondly, having credit limits too high, even if you can afford the payments, will also have a
negative effect on your score, because this could be considered a heavy debt-load, depending
upon your income. Also, having no credit cards will hurt your score.
The rule of thumb is, 3 – 5 cards per person, which includes credit, gas and retail store
cards. A good way to obtain more credit for your family, if you are married, is for each spouse
to have some separate, different cards. If you share one or two cards, for convenience, then
one of you get a store account and perhaps another Visa that the other doesn’t have, and vice
versa. In our family, I have a Best Buy Card so that I can purchase computers, equipment, etc.
(always keeping the balances between 10-30%), while my wife has a couple of her favorite
retail store cards, that I don’t have. We use them just often enough to keep a little balance as
banks and creditors don’t like to see cards that aren’t being used. To them, that means credit
that isn’t being extended, and likewise no profit is going to them for the interest. So, keep
them happy if you want to get the most out of each card.
F. Watch Out for “Inquiries”
Do not apply for new credit of any kind, unless absolutely necessary. Doing this often
will add “inquiries” to your credit report, and each inquiry will bring your score down.
Having a lot of inquiries within a short period will be like a “red flag” to lenders that you may
have been turned down numerous times for new credit. Be sure to read the section on
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“Inquiries” in the Definitions in Section 3 of Chapter 3, and the section discussing inquiries in
the ‘Do’s and Don’ts part of this chapter.
G. Show Stability
(Remember the old adage,
‘Change is inevitable, except from a vending machine.’)
The longer you have been in your current residence, the lower the risk you present to a
potential lender. If you know you may be moving a lot due to job transfers, or going through
a divorce, it would be advisable to use a family member’s address so that your address isn’t
constantly changing. A post office box will not work for this purpose. The creditors see this as
showing instability since they don’t consider P.O. boxes as real addresses.
The same applies with your employer. Having the same job for a long time presents a
picture of stability to a lender, and you will be viewed much more favorably than a person
who has moved or changed jobs frequently in the previous few years.
In addition to your job status, other factors about your employment record reveal
important information about you. Not only would a long list of employers show instability,
but being self-employed can hurt your chances of getting a loan. If you are self-employed, it is
better to be incorporated (LLC, or INC.) than to be a sole proprietor, but any kind of selfemployment status can hurt your chances with a lender, and require more paperwork to get a
loan.
H. Learn How to Manage Your Credit Cards
Here are the guidelines:
1)
Watch Your Balances:
Keep your credit card balances below 30% of your credit limits at all times. Lenders
will look at your spending habits and the debt-to-credit ratios (amount you owe compared
to the balance) when determining your credit worthiness. Having several credit accounts,
while keeping balances below 30% of each account’s credit limit, is better than using only
one account close to that account’s credit limit.
NOTE: If you must make major purchases with your credit cards, using them over the 30%
limit in any given month, just be sure to pay it down to below the 30% limit by the 19th of the
month, and you’ll be okay again (score-wise) by the first of the next month.
You may have heard that keeping some balance on your credit card each month will
help you increase or maintain your score. It may be true that some credit card companies
will not report every month if there has been no activity on the account, thus it is
recommended that, while building your credit score up, you charge a small amount on
each card every month. The best advice, however, is for you to call each one of your
creditors and find out what day of each month they do report to the credit bureaus,
whether they report monthly or quarterly, or whether they only report if there is activity
that month, and act accordingly. Again, these things may seem time-consuming, and you
may feel you are just too busy, but if you do take the time to follow our counsel, the
rewards will be very great – like earning $100 – 1000/hour for your time, due to the
hundreds of thousands of dollars saved in interest over your lifetime.
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2) Closing Good Accounts:
No matter how upset you were with your credit card company, or how hard you have
struggled to pay off your credit cards, or how strongly you feel that you don’t ever want
another one, you need to listen to this. You worked hard to establish your credit rating
that took 2 years to fully mature. Closing good credit will lower your score, and not
having any open credit will also lower your score. Instead, just zero out the balance and
put away or cut up the card. I have seen horror stories of people losing 50 or more points
for deciding to close their credit cards. This account will continue to keep your score up
and stay on your credit report for 10 years or more.
If closing accounts is necessary (in an unusual circumstance), close those with the
highest interest rates and fees, or those that offer incentives you don’t want or need. Keep
the accounts that give you the most benefit in terms of cost and other opportunities. Also,
realize that having too many accounts doesn’t necessarily mean you should close large
numbers of accounts. “Too many” accounts, in terms of credit scoring, may mean as few
as one or two too many. Start by closing just one or two and allow time for the lender to
report the accounts closed and for your credit history to stabilize before checking your
report to see if the score has changed. Any recent change, such as closing an account, or
opening a new one, can cause a temporary drop in your score.
NOTE: Closing an old trade line can actually lower your score. That’s because the lenders
like to see a credit history of at least 60 months on all active trade lines. By closing an old
trade line, even one that was a negative due to late pays, or whatever, you may lose points
because the longevity of it was more important than its derogatory status. So, keep longstanding (seasoned) accounts open so you get more points for longevity. Then just use them
once in awhile for small purchases (even just $20 will work) to establish that you are
maintaining a minimal balance. Three open credit cards, all with low balances, is the best way
to get the most points for revolving accounts (a very well-kept secret). If you have 4 open
accounts and are keeping the balances below 30% on all of them, it's OK. If you have more
than 5, however, it could start to have the reverse affect.
3) How Many Credit Cards You Should Have:
You should maintain between 3 and 5 credit cards, no more, no less. Too many cards
can damage your score, while having only 1 or 2 cards may not be enough to establish the
score you need (see Section E above).
4) Balance Transfers and Zero Payments, Zero Interest:
Many people like to play the game of transferring balances to get a lower interest rate
or some type of break on a promotion, i.e. no interest for 3-6 months, etc. Be careful on
these as well. Understand that when you apply for one of these, you just applied for new
credit, and that will lower your score, because this new creditor just pulled your credit.
Also, you now have to prove to the credit bureau for about 6 months that you can make
timely payments. As you do, your score will slowly rise back up as each month passes.
What about the creditor from whom you just transferred your balance? Make sure that
your credit report reflects that it was a balance transfer rather than a closed account.
Your credit will also take a hit when you accept an offer with a gimmick like, “no
payments and no interest on major purchases for 2 years or more.” This is revolving
credit and usually shows on your credit report as: HIGH CREDIT LIMIT (whatever
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amount of credit they extended you) and BALANCE (the same amount). You now have a
maxed out credit card and don’t even know it, and your score will suffer (See Section on
'Dangers of Revolving Credit' in Chapter 5). This will affect your debt-to-credit ratio in
applying for other credit, even though it’s deferred for years (it will affect your ratio and
score for years, as well)! Most people forget all about it as the years go by, and are not
prepared to start making the payments. This can be very dangerous. If you miss or can’t
make that first payment, when the time comes, they then have the right to raise your
interest rate sky high (more in the section called 'Read the Fine Print' in Chapter 5), and
have all your other creditors raise your interest rate to them as well. You just laid the
ground work for a soon-to-be-collection. Stay away from these good sounding deals – we
just can't warn you enough about these dangerous deals!
5) Stop Solicitations:
Companies purchase lists of names of people with certain criteria and send out
solicitations. Once you have the right number of cards, and are establishing credit
monthly, you don’t want to be starting new cards, or closing out old ones in favor of
others. Stick to your cards to get them “seasoned,” and AGAIN don’t be bothered by
“great new offers.” Each of these needs to be “shredded” and not just thrown away, as ID
thieves can garner information from these to use in stealing your identity. To keep your
name off credit card solicitation lists, opt out using the automated telephone system at 1888-567-8688. When you do receive pre-approved solicitations, that invite you to apply
for credit or loans, they are recorded as inquiries, which will remain on your credit report,
but they don’t lower your credit score unless or until the invitation is accepted by you.
6) Review Reports Regularly:
At least 85% of Americans have inaccuracies on their credit reports. Review your
credit reports regularly to make sure they are accurate and up to date. Every time you
send in a payment to any creditor, there is an opportunity for an error to be entered onto
your credit report, and no one can afford to have these costly inaccuracies. In this day and
age, reviewing your reports regularly is particularly important as you could be the victim
of identity theft and/or fraud, and early detection could make a big difference.
We suggest, in order to avoid inquiries, and to keep abreast of what’s on your credit
report, that you go online yourself at least every 6 months with each of the bureaus,
purchase the copy of your report for their fee, and go over it carefully. This can be done,
for a smaller fee, as a ‘tri-merge’ (3 in 1 report) that will show the activity and score on all
three bureaus on one report. It is extremely important that you print it and file it for
future reference, where proof may be needed of certain occurrences. You'll hear us say
this many times – it's of VITAL importance – make "Pull, print and save" your motto.
(Remember the old adage, ‘We all have photographic memories,
but some of us just don’t have any film.’)
I. Dozens of Other Do’s and Don’ts To Help you get your Highest Score Ever
DO have credit in your own name. Both spouses need to establish credit in their own names
– not just jointly. Married people do not share a credit score. Make sure you each have
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some individual accounts, so that any negative activity reported on one spouses’ credit
will not be reflected on the others’ credit.
DO try to get good installment accounts reported on each other’s credit (like a car loan in good
standing). But, keep in mind that your spouse may have to qualify to become an account
holder, and also that this can be done with some credit card (revolving) accounts as well,
as long as you don’t go past the 3-5 card rule (each). And remember not to become joint
holders of ALL of your accounts, because you each need the protection of having some
separate accounts, as further explained in Chapter 4, Part V, Marital Status. Also follow
the procedure for “Authorized Users” in Chapter 6, if applicable.
DO keep paid accounts (in good standing) open, until they fall off of your credit report by
themselves. The age of your account is a factor in keeping your score high, and
determining your credit score. Good accounts become valuable to keeping your credit
score high when they have been aged 2 or more years. So, even though you’ve paid off an
account, don’t close it or have it removed from your report, just let it fall off by itself, as it
will in time. Many people, because of frustrations with their credit card company or
temptations to use cards, finally decide to just pay off all of their credit cards and then
make the huge mistake of closing the accounts. This could be very detrimental to your
score, often causing a hit of 100 points or more. In some cases, the creditor may change the
status of the account on your report by reporting it as a closed account. If this takes place,
that account no longer has any value to your score – it will not increase or decrease your
score, and there is no way you can change this. As long as this hasn’t happened (some will
just remain on your report for 10 years or more) just leave it there, for even though it may
not be helping your score, it is having a positive effect in showing longevity. (Just so you
know, a person’s age, along with race, religion, sex, marital status, height, weight, income,
neighborhood or birthplace are factors that are NOT allowed by law to be included in
your score to protect you against discrimination.) Even though these cannot be used to
determine your credit score, some lenders may still use some of these factors, along with
your score, to help them decide on giving you a loan.
DO pay everything on time. Over 1/3 of your credit score is based on your payment history,
and paying your mortgage on time should be your top priority. Always make sure your
payments are posted several days prior to the due date to avoid having them show a ‘late
pay.’ Having any payments made late will severely damage your credit score, causing
grave consequences. Remember that all negative items will remain on your credit score
for seven to ten years. Follow up and make sure the lending institutions did, in fact,
receive your payments. Remember that making up a late payment, even if you paid late
charges, will not remove this negative mark from your credit file. Any collections,
judgments, bankruptcies and late payments will significantly decrease your score. If you
are looking to refinance or purchase a home, your mortgage payment history is the most
important account you have. If you are renting, pay your rent on time. Most lenders will
want verification of your rent payment history in considering you for a home loan. By
creating a great rental history, you will show stability before attempting to purchase a
home. And the great news is, our firm has a program which can even help you get your
rent reported to all of the three credit bureaus (see the section above, in this chapter, on
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‘paying all your payments on time’). This has been unheard of in the past, but it can be
powerful in helping you qualify as it becomes like your mortgage payment history on
your credit report, providing, in fact, an excellent “seasoned” trade line, which increases
your credit score. For more information on this program, see Ch. 9, Obtaining Positive
New Credit, and the Appendix – “Getting Rent Reported,” or the contact information.
DON’T let anyone pull your credit for any type of a major purchase like a boat or car during the
six month period prior to seeking a home loan. A new loan always lowers your credit
score until it becomes “seasoned” (2 years old for maximum score benefit), since the
balance is high and there is no payment history on it yet. It could also hurt your debt-tocredit ratio, as well as your income-to-debt ratio on your home loan application, which
could disqualify you from obtaining the new home loan you desire.
DO be patient while your loan is closing. Hold off on purchasing new appliances, furnishings
or other items until the loan is closed. The temptation is always there, especially if you
want or need new furniture, etc., for the new home, but hold off until after the loan closes.
Loans have often been lost at the last minute when the credit is run for the final time.
Adding these purchases, in the form of revolving charges, can hurt your debt-to-credit
ratio and cost you your loan.
DON’T apply for every new credit card offer that comes along or cards offered by department
stores, just to receive a 10% discount on your purchases or a zero percent interest rate for
several months. Opening several new credit cards can lower your score by up to 50 points
because all new credit opened requires establishing a 6-month payment history before it
helps your credit. Lenders feel that you could, with several new open accounts, greatly
increase your debt, putting you at high risk for late payments or even bankruptcy.
Remember these cards are revolving credit (see 'Dangers of Revolving Credit,' Chapter 5).
(Remember the old adage, 'Revolving credit is like a merry-go-round. . .
it can keep you going round and round and round for life.')
DON’T carry a heavy debt-load, even if you can afford it. Credit scoring does not take into
consideration your income, thus wealthy or not, you will be docked the same points for
the high amount of debt, as people with modest incomes. ANYONE with a high debt
ratio will be penalized regardless of income.
DO pay more than the minimum payment every month to gain points on your score. If your
card is maxed out, even though you are making the payments on time every month, you
are losing valuable scoring points. If you have just one late pay, and your card is maxed
out, this will significantly lower your credit score.
DO pay off credit cards before installment loans – Building with credit cards is a great way to
establish and rebuild your credit, but remember, when considering what to pay first, pay
down credit card balances (revolving credit) before auto or installment loan balances
(such as savings account loans), since this increases your credit score. (See Chapter 5 on
the 'Dangers of Revolving Credit'.) The installment loans are increasing your score every
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month you pay as agreed. The credit cards are usually much higher interest rates and this
will also save you more money in the long run.
DON'T cut up credit cards and then also close the accounts. People will tell you that the best
way to control your credit card debt is to cut up the cards and then close the accounts. As
mentioned elsewhere, you should never (except under extremely rare circumstances) close
down good accounts, as this can actually bring down your score. However, if you are
having difficulty controlling impulse spending, then by all means, cut up the cards, and
just leave the accounts open on your credit report. Don't use them – but leave them alone.
Don't reopen them and begin using them again and have to later repeat the cycle. Instead,
just begin using cash, and if you don't have it, don't spend it.
(Remember the old adage,
'Behind every good man is . . . the cash in his wallet.')
DO understand hard and soft ‘inquiries’ – the difference between them, and what it means to get
a “pre-approved” credit card offer. This means the company pulled your credit to see if
you fit their criteria to be offered a card. This is considered a ‘soft’ inquiry because the
credit pull was not initiated by you, and will not be considered a ‘hard’ inquiry until, or
unless you accept their offer and obtain their product (see definitions of ‘hard and soft’
inquiries in Chapter 10). Only Applications for credit with lenders that are initiated by
you, the consumer, will affect your score. Inquiries into your credit for account review
purposes, as well as pre-approved offers of credit, have no effect on credit scores, and are
considered “soft” credit inquiries, as opposed to “hard” inquiries that count on your score.
There are some exceptions to this. Your existing insurance company, and other companies
you deal with, may periodically pull your credit to see if you are maintaining a
satisfactory credit rating, and may have the right to increase your rates if your credit score
has dropped below an acceptable level. In the fine print of your agreement with them,
you gave them the right to periodically review your credit file which means they can pull
at will, and this will be a 'hard' inquiry. Again, read the fine print on all credit offers, and
if you decline their offer, don’t throw it in the trash, but shred it to protect yourself against
ID theft.
DON’T carry high balances on your credit cards – pay the bill as soon as you get it, but when
building new credit or restoring your bad credit, leave a balance of 10 – 30% to help
establish a payment history. Credit not used can hurt your score, as does credit paid off in
full each month. It’s better to have several accounts with small balances than only 1 or 2
accounts with high balances, as points will be deducted for a high debt-to-credit ratio,
even if all your payments are made on time.
DON’T take out loans with finance companies like Household Finance or Citi Finance when
trying to raise or maintain a high credit score, even if all your payments are made on time.
They are considered “hard money lenders” for those who can’t qualify anywhere else –
get your own bank financing instead, when needed. Check with companies from which
you plan to finance purchases to make sure THEY don’t use finance companies, as this
will show up later on your credit as a finance company loan. Automobile finance
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companies generally do not fall into this category – they do not hurt your credit score.
However, if you go into a ‘buy-here-pay-here’ place, even an auto dealer, if they report at
all, it could fall into the same category as the finance companies mentioned above. The
credit bureau scoring system can easily calculate, by the amount of your opening balance
and your monthly payment, whether this is a high interest rate loan, and score it
accordingly. These types of loans will keep you from reaching the coveted scores of 720 or
above.
DON’T go “credit surfing,” which is using money from one card to pay off others in a
rotating fashion. This hurts your score due to multiple inquiries, high balances and the
short time the accounts are open.
DO keep mortgage payments current. As stated earlier, having a mortgage and making your
payments on time every single month is the most powerful credit account one can have.
(Remember the old adage, 'There's no place like home . . .
except when it's time to clean house.')
You can’t possibly pay down your mortgage to 30%, so the 30% debt-to-credit ratio
doesn’t apply to a mortgage. But miss one payment, and BOOM! Your credit score could
take a 30 or more point hit. The other serious ramification is that many lenders will not
refinance you if they see just one late pay, unless the late pay is over two years old, in
which case they may consider it. As we’ve stated, follow up, follow up and follow up and
make sure that all your bills have been paid on time.
DON’T trust a bill paying service to pay your mortgage or credit card payments every month. I
would much rather pay these crucial, important bills online to each respective website. I
then know at a glance that they received the payment. Or, you could pay the bill right
over the phone. The reason is that monthly due dates eventually fall on the weekends.
Credit card companies are closed and your payment will not post until the following
business day. I.E., if your payment is always due on the 5th of the month, but next month
the 5th is a Saturday, you could receive a 30 day late on your credit report, compliments of
your bill paying service, since they may not adjust their calendar to your due date. We
recently had a client using a bill paying service through her bank, wherein her mortgage
payment was being sent to Texas for monthly processing. When the company moved
their operation to Illinois, and her bank continued sending her payments to Texas, guess
who got a 30 day late ON HER MORTGAGE that destroyed her credit score. Why take
the chance?
In addition, bill paying services can be deceiving – they may try to pose as a debt
consolidation company, but they only pay your bills each month, and charge you a hefty
fee to do so. They don't refinance or pay your loans off for you, and in the end you will
still pay all of your bills and then some. Many of these companies are not government
regulated, and they often leave customers high and dry without their bills being paid, lots
of new late charges, and your money in their pocket (laughing all the way to the bank).
I.E., you send them a check every month for the total of your bills (plus some), and you
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think they are sending it to each of your creditors. It may take several months before you
receive calls from collections companies for the unpaid bills, and by then it's too late!
DON’T let any of your accounts become “charged-off” or go to collection (an account that is very
late – usually 120 days – and is transferred to a collection company). These are extremely
negative items to have on your credit report and can really destroy your score. A chargeoff doesn’t mean you no longer owe the debt – just that it went to collection.
DO check your credit report for extra names and old addresses that may appear and get these
deleted (see letter at end of this chapter). This could have a positive effect on your score;
how much would depend on whether you have other serious negative issues and how
many AKA’s are listed there. One or two won’t hurt, but many could, especially if they
are incorrect spellings of your legal name – i.e. Stephen, vs. Steven. If not for the point
increase, you should clear these up because inconsistencies could indicate some kind of
fraud or have I.D. theft implications. You can have these removed by simply writing a
letter to the 3 bureaus stating your correct name and asking them to delete all other names
from your report. From then on, use only the one form of your name for all credit
accounts. For more information on this, read the definition of AKA in Section 3 of
Chapter 3.
DO consider a monthly monitoring service. The bureaus now have a monthly monitoring
service for a small fee, that allows you free access to your report whenever you wish to
view it, with no inquiries for doing so. Use this to check for accuracy of names, addresses,
and other items that may be in error, since any fraudulent items that could cause you
problems should not be allowed to go unnoticed for a whole year. This could prevent a
problem, like ID theft, from growing into a HUGE problem before you detect it. Some
services will even monitor your account themselves, and contact you if they notice any
unusual activity in your file. There is good reason for this service in light of all that is
happening in the credit industry, and the amount of credit tampering and theft that is
going on, so it may behoove you to check into this. Otherwise, keep a close eye on your
files yourself by pulling at least twice a year, and printing and saving a copy.
(Remember the old adage, 'Keep your eye on the ball
and watch it bounce right back and hit you.')
DO work at preventing yourself from becoming a victim of ID theft. Since these thieves steal
mail (such as account statements, new checks and credit offers) from mailboxes, trash, or
even out of your home or office, you should shred all papers with personal information
before throwing them out. Never leave your mail in an unsecured mailbox. ID thieves
take credit card information and personal ID from stolen purses or wallets, so you should
carry as little of this information with you as possible.
Leave social security cards and credit cards at home, and report lost or stolen credit
cards or checks immediately. Scamsters will try to trick their victims into divulging
personal information through phony websites or scam e-mails, often posing as your bank
or credit card company. Realize that your bank and credit card company will NEVER ask
you to divulge account information by e-mail or over the phone. Be careful who you give
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your information to over the phone. NEVER give out your Personal Identification
Number (PIN) or passwords. Never write your Social Security Number or Driver’s
License number on your checks. Get your next book of checks reprinted without your
complete name (use initials, like J. Smith). Put only initials on envelopes in the return
address section, i.e. J.P. Thompkins, or better yet, just J. Thompkins. And leave off the
phone number.
Shop online ONLY with proven reputable merchants in secured areas. If you get
phone calls from people who say they are representing your “bank” or your “credit card
company,” but they do not mention the company by name, a red flag should go up
immediately. And, many times, they will mention a company with which you don’t even
have an account – they are hoping you don’t remember that you don’t have an account
with that company. They will ask you to verify account numbers, etc. Red Flag! ! ! And
don’t even trust family members with your personal information unless you KNOW they
have a legitimate reason to need it. One out of 7 cases of ID theft was committed by a
family member or a close family associate. For some people, finding your personal
information sitting around (your checkbook left lying about, for example) is just too much
of a temptation. A number of states now have ‘freeze laws’ that allow you to freeze access
to your credit file to keep ANYONE from reviewing your credit report or opening a loan
in your name. Obviously, while it is ‘frozen,’ even YOU can’t have access to it, so don’t go
this route unless you know you won’t be adding or applying for any new credit in the
near future. When you’re ‘out and about’ be sure no one is looking over your shoulder
while you punch in your pin number, and don’t let your credit card out of your sight with
a waitress or store clerk, even for a few minutes, if at all possible.
Fortunately, there is a great help out there for solving I.D. theft problems before they
even happen. Through one of our clients, we have come across a company that, for a very
reasonable fee, will give you all of the following:
o Full control of all your credit reports – no one can access/pull them without your
permission;
o Entitles you to one free credit report from the bureaus (3 majors and ChexSystems)
when you enroll;
o They make sure you get each of these reports once annually;
o Full control and overseeing of any checking accounts issued in your name;
o They remove you from all pre-approved credit card lists (which are great sources
of I.D. theft);
o Remove your name from all junk mail lists;
o Assistance in applying for new credit if needed;
o One million dollar guarantee – against losses resulting from I.D. theft while you are
a client;
o Enrollment of your children is half-price.
If you are interested in more information about this company, their services and
prices, etc., please use the contact information in the Appendix for HCS.
DON’T assume that what is good for one consumer may be good for another. Credit is unique to
each consumer, and no two consumers have identical credit. That is why, in my
consulting business, I work individually with each client, and their particular credit
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history, to assess what specific actions will make their particular credit score improve. In
fact, I can tell them how many points they will increase their score for EACH action they
take. Those who follow my advice are able to make drastic changes in their credit score in
just a matter of days, and in some cases, even hours, often getting them qualified for the
loan they are seeking (which is why I get so many referrals from loan officers).
DON’T let your vehicle get repossessed. Any repossession, including a voluntary one, is a
major derogatory item on your credit and will do significant damage. If you can’t make
payments, arrange for a trade-in or sell at a loss rather than have it repossessed. (I can
speak with first hand experience on this one. Many years ago, when we were going
through some financial difficulties, and talked to the dealership about taking our new car
back, they were very helpful, and willing to accommodate us. They never mentioned at
the time that they would put it on our credit report as a repossession regardless. It hurt
our credit for years.) The dealer may sell it an auction for less than what you owed (he
doesn’t care) and report the deficiency on your credit report. This alone could prevent you
from getting a home loan. (As I wrote this, I remembered a Bible verse that states the Lord
allows us to suffer through some things so that we will, in turn, be able to help others
down the road. It is obvious to me, as I'm writing this book, that had the Lord not
allowed me to go through some of these experiences, I would not have had the 'expertise'
to help others – for this I am grateful!)
DON’T declare bankruptcy. The laws have changed, so it is not so easy now to declare
bankruptcy and get your debts forgiven. After all the things you’ve learned in this book,
this should not be an option you would even consider since you now have many new
techniques at your disposal to use for improving your credit. With the new laws, you
must meet with a counselor and they will determine, with you, whether you are even
eligible to file. Due to the new laws, bankruptcy filings are down almost 50%, and since a
bankruptcy will remain on your credit report for 10 years, this is really not an option you
should consider. For more information on this subject, see the section in Chapter 4 called
‘Bankruptcy and Other Delinquent Accounts.’
DO change your habits – remember that it’s never to late to change your life, start over, get
more education, begin doing the Lord’s work, get on with your life, and start planning for
retirement. Straightening out your credit can be a major factor to getting you on the right
track. Getting better financing can save you thousands of dollars to put toward God’s
work or to secure for yourself a better retirement and a brighter future.
(Remember the old adage,
‘Another way to double your money is to. . .
fold the bills in half and put them back into your wallet.’)
DON’T postpone taking action – don’t make the mistake 90% of the people who read this
book will make. Even after spending hours reading a book, mot people who obtain new
knowledge will set it aside for “a later date when there’s more time,” or whatever. They
will NEVER take the necessary steps to change things, and 5 years from now they will be
making the same mistakes and wishing they had done something about all of this 5 years
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ago, when they read this book. Pray about this and ask the Lord to guide you as you work
your way out of your present situation and into a place where He would like you and
your family to be. Two of my favorite scriptures are, "Delight yourself in the Lord and He
will give you the desires of your heart," (Psa. 37:4), and "The Lord works all things (my emphasis)
together for good to those who love him," (Romans 8:28). I hope they will also be of help to
you if you are in a time of financial crisis.
DON’T join one of the non-profit debt management services like Debt Free, or Consumer Credit
Counseling (or their new name, Solutions). There are several reasons and this has been a
well-kept secret:
First of all, many of these are actually FUNDED by the credit card companies, and we
all know they don’t do anything without an ulterior motive; therefore, someone is going
to make money on your program, so part of your new payment will be going to fees
instead of lowering your balance owed.
Secondly, getting started with these programs takes at least 30 days for
implementation, and during that time, late pays are accumulating as nothing is being
paid. This will significantly lower your credit score.
Thirdly, some underwriters, who see that you are using this type of service (because
it's reported on your credit file), consider being in a debt management program as a
negative factor, and this could jeopardize any type of loan you may be applying for.
Finally, payment plans outlined by these companies can greatly extend the length of
time it takes you to pay them off, due to the fact that much of the new lower payment is
eaten up by interest and fees, as mentioned above. Many people who start a program like
this regret it later because their balance barely decreases over a long period of time. I have
had clients in these situations, who are discouraged and want to quit, and I recommend
to them that they do so, and work directly with the creditors in paying these debts. I had
one client with perfect credit, who was talked into using a credit counseling service,
because she was told she could lower her monthly payments to a more manageable level.
By the time they set up her account, her good credit rating was totally destroyed because
of the 30 day delay of making her first payment. She was in total shock when I reviewed
her credit report with her and explained the reason it had dropped.
DO choose to have your name removed from agency lists by writing (for permanent removal) or
calling (for removal for 2 years). Creditors and insurers may use your credit file
information as a basis for sending you unwanted mailings. The companies soliciting you
must provide, within their literature, a toll-free number for you to call to have your name
removed, and a return address to which you can write. Request their written form, then
complete and return it to them. Do keep a copy for your records.
DON’T think that paying off collections and charge-offs will result in points from the credit
bureaus. What most people don’t know is that paying off the collection or charge-off
doesn’t remove it from your credit report – it will remain for the full 7 years and
significantly lower your score all that time. In fact, paying it off will only put the word
‘paid’ next to the collection on your credit report and, because of the current credit scoring
system, any activity (such as a payment) on a negative is still a negative, and can actually
lower your score. When a lender tells you that you need to pay off a collection or charge-
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off, many people think that by doing so, their score will go up, and result in a lower
interest rate. But now, you know, from reading above, that isn’t true. The only reason a
lender is asking you to pay off debt is to better secure their position as lender – their
position could be jeopardized if this turned into a judgment down the road. Some lenders
pull your credit again right before the loan closes, and paying these collections prior to
closing could, again, lower your score and jeopardize your getting the loan. On a
refinance, we recommend that you have the debt paid by the title company out of the
proceeds of the loan, with a check made out to each collector, and sent off after the loan
has closed. (For more details, see section on Working with Collection Agencies in Ch. 5)
DON’T let your home go into foreclosure – that’s worse to a lender than a bankruptcy. Protect
your real estate investment. Arranging to voluntarily sign a “deed in lieu of a foreclosure”
is still considered the same as a foreclosure on your credit (see definition in Chapter 3).
DO take courage – your financial burden will ease with time. The more time that passes from
your last late pay, collection, or other negative item, and the more credit you have been
building since then, following the principles in this book, the better your score will be. IT
WILL HAPPEN!
(Remember the old adage, 'Time heals all . . .
late pays, charge-offs and collections.')
Once you've achieved a credit score over 720, which you can do in time (and no matter
what your age or situation, you should begin the process NOW), you'll look back and feel it
was really very simple, but not at all easy (it requires a great deal of self-control and
discipline). Following is a checklist of things you must maintain to EARN the very coveted
800 score and the right to a lower interest rate (and following all of these steps will also get
you to 720 quickly). For young people just starting out, this list is a must. Get these principles
and ideas firmly ingrained in your mind and don’t stop working on them until you're there.
Don't forget that these days, a credit score of 720, is considered pretty awesome (since there
are relatively so few), so you may want to make this your first goal, and when there, you'll
find that you can get the best interest rates on everything! Then, following these principles,
over time your score will just keep on climbing until eventually you reach the 800 mark.
J. Synopsis of Rules to Obtain The Awesome 800 Credit Score (or even the Awesome
720 score)
1) No bankruptcies, tax liens or foreclosures within the past 10 years. If you have a
bankruptcy, tax lien or foreclosure on your credit currently, you may have to wait out the
balance of the 10 year period. During that time, however, the bankruptcy will age, and as
it gets older, it is less and less damaging to your credit score. Thus, if you are following
the other guidelines in this book to bring your score up, you can overshadow the
bankruptcy and still achieve a higher score in spite of the bankruptcy on your record.
2) No late payments within the past 7 years.
3) No judgments, collection accounts or liens within the past 7 years.
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4) All mortgage payments must be “paid as agreed” (on time) every month. These late
pays stay on your credit report for 7 years and really hurt your score. Chances of getting
another mortgage, with a late mortgage payment history, are about “nil.”
5) A maximum of 3 to 5 open credit cards. Three is best, and they need to show a three
year history. Too many cards leaves room for the user to charge up huge balances
quickly, which is a possibility that “scares” the prospective lender.
6) All credit card balances must be kept below 30% of the credit limit. You can do this
by requesting to have your limits raised, but then don’t raise your balances. This is one
SIMPLE way to get your credit cards all falling within the '30% Rule,' at which lenders and
creditors will be looking. See the section called 'The 30% Rule' in Chapter 5.
7) All installment loans must be “paid as agreed” (i.e., car loans) and they must be
maintained well below the opening balance. So, if you purchases a new car every few
years, you would need to put a good sized down-payment on the loan to maintain the 800
score. The same principle would apply to refinancing your home.
8) No loans with any finance companies – EVER! Having these types of loans tells
prospective lenders that you have had to resort to that because you couldn’t get a
conventional loan. It spells problems and t–r-o-u-b-l-e to them. They charge very high
interest rates, and credit bureaus know that these high rate loans have a very high risk
factor of default.
9) Have only ONE address and one form of your name on file – request that all others be
deleted. See the form at the end of this chapter.
10) Have 'seasoned' accounts – longevity is established for well over 3 years on all open
accounts.
11) Do not share the use of your credit cards with friends or relatives – this will protect
you and your credit, and it will also protect your relationships. If approached in this way,
simply let the person know that you have always made it a policy not to do this with
friends or family because it can easily destroy your relationship, and you value your
relationship with this person more than they know.
12) Do not co-sign for anyone else on a loan – The rule of thumb here is very simple – no
matter what, just don’t do it. This will protect you from default and will preserve your
debt-ratio. Sometimes we really want to help a loved one in this way, but again, use the
reasoning in # 11 and turn them down.
13) Have established emergency funds, savings, and medical insurance as a hedge against
unforseen emergencies or problems in the future. Begin the practice of saving NOW, no
matter what your age – 9 or 90. It is never too late to start following God’s laws and using
this Biblical principle in your life. If you can’t afford health insurance, and many people
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today can’t, see the appendix of this book for low-cost discount/health benefit plans that
may suit your family (especially if you are self-employed and have NO health insurance
whatsoever). Contact information in the Appendix under 'Discount/health benefit plans.'
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
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(Feel free to duplicate this form letter)
REQUEST FOR CORRECTION OF PERSONAL INFORMATION
Name ________________________________________________________
SS# ______ - _______ - ________
Address: _____________________________________
Street
Driver’s License # ____________________
_____________________________________
City
D.O.B. ______________________________
_____________________________________
State
Country
ZIP
Phone: ______________________________
Please correct the personal information on my credit report as indicated:
My only correct name is shown above.
My only correct maiden name is: _______________________________________________
Please delete all other names or spellings of my name from the credit report.
--------------------------------------------------------------------------------------------------------------------My only correct D.O.B. is shown above. Please correct, if necessary.
--------------------------------------------------------------------------------------------------------------------My only correct addresses for the past 5 years are:
Current: (shown above)
Past: _____________________________________________________________________
Past: _____________________________________________________________________
Please delete any other obsolete or incorrect addresses from my record.
-------------------------------------------------------------------------------------------------------------------My only correct social security number is shown above.
Please correct and/or delete any other social security numbers.
------------------------------------------------------------------------------------------------------------------Comments:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Signature: ___________________________________
Steve Mertes and Jeri Koppleman
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PART THREE
WHAT IF YOU'RE ALREADY CAUGHT IN THE TRAP?
(You've Got the Cheese, but the Trap's Got You)
Chapter 7
We Have Been In The Same Trap
I. Our Stories are Just Like Yours
Much of what is disclosed in this book was learned, not through Steve’s many functions as a
bank employee and financial counselor, or Jeri’s college education, but rather through both of our
first hand experiences, which combined, represent over 70 years. Those experiences began before
the current credit system was even in existence, so we have seen it begin and grow steadily into
the “monster” business it has become today.
Steve was quite successful in his chosen field, and the credit card offers came frequently, as a
result.
He and his wife were like a lot of other young couples, raising their family, and
experiencing all the growth most families go through. Steve relates,
“We loved to travel, and of course, we wanted those new cars and a lot of other things that the
“neighbors had.” It was about 20 years ago, while we were building our own life on credit cards
and possessions, that we learned what a mistake that was.
Little did we know what the Lord had in store for us. In our spare time, my wife and I were in
a number of multi-level marketing companies, making good money. We were able to travel a lot
and we took our daughters along and lived the good life for a number of years. We had a lovely
home, two brand new vehicles (one was the latest thing then, a high-top van complete with TV,
Captains chairs, and all the comforts of home). We had financed that vehicle, with a purchase
price of $26,000 (a lot in 1986), by paying $6000 cash down on it, and had monthly payments over
$600.00.
We thought we were on top of the world. And then, just like many of you, catastrophe hit us
when we least expected it. We know now that it was the Lord trying to get our attention, because
we were traveling down life’s highway going nowhere. We did go to church, but we hadn’t
accepted the Lord as our personal Savior, and we definitely weren’t using any of the abundance he
had given us for his work. We were making thousands of dollars every month and giving only a
few to the Lord at church. We were involved in no ministries of any kind, nor were we supporting
any charities. We were just plain focused on getting ourselves further and further ahead, all for
our own benefit.
Within a two year period, due to several factors beyond our control, including serious health
problems, we lost everything we had – all of our income, our home, and our vehicles. I could say
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that it was mostly because of two circumstances. One was that my bank chain was sold to another
large banking organization, and I was suddenly out of a job. My health problems kept me from
finding another position for some time. Then, the city where we resided (a suburb of Phoenix)
decided to put a freeway in just two houses away from our home. We had put a third mortgage
on our home, to help out a relative in Wisconsin who wanted to purchase a retirement home in
Phoenix, and when the city decided to purchase all the homes in our area, right up to the house
next door to us, that third mortgage was the clincher that caused us to lose our home. Because the
city was purchasing homes along the new freeway route five years ahead of the projected highway
building, and renting them out for a fraction of what our mortgage payment was, we were in a
situation where we could neither rent or sell our home, and it was basically “upside down”
appraisal-wise, so we couldn’t refinance it either. We were forced into foreclosure. All of a
sudden, that $600/month payment on the new van, plus the payment on our other new vehicle,
combined with our credit card debts, were just impossible for us to handle. We lost the house and
both vehicles, and found ourselves deep in debt. But it was really more than that. Let’s face it, we
were just plain overextended due to the generosity of the credit card industry, and they are doing
it to millions of others right now. I see it in my business every single day.”
(Remember the old adage,
‘Experience is the best teacher, but it can also be very expensive.’)
Jeri had similar experiences. After the death of her husband, an alcoholic who suffered from
cirrhosis of the liver, and finally succumbed to cancer, she found herself forced to sell her home at
a loss, with no life insurance benefit, since he had borrowed against the policy without her
knowledge. In fact, when the estate was settled, she found herself owing the IRS $9000.00 due to
past income tax forms that he had improperly filed. They didn’t waste any time stepping in and
attaching a lien to the home, which made it even more difficult to sell.
Through hard work and perseverance, however, and those wonderful credit card offers that
began coming her way, she began purchasing homes and businesses and built up a substantial
income based on book royalties, real estate investments and business earnings. The ride was great
while it lasted, but like many of you, the overuse of credit, and personal unplanned disasters took
their toll. Jeri, too, lost everything – for the second time.
We could say that the economy was to blame – that was in the 80’s when, for the first time in
recent history, property values didn’t appreciate at all during a 7 year cycle, like they had always
done before. Then the government took away the tax write-offs that investors were, up until then,
able to use to their great benefit. Since she and her partners had “gone out on a limb” and
purchased most of the properties with OPM (other people’s money) and zero out of their own
pockets, she and her partners had a lot a balloon payments that came due all at once.
(Remember the old adage, 'God won't give us more than we can handle,
but sometimes we wish He wouldn't trust us quite so much.')
In the cases of both Steve and Jeri, they followed a pattern seen in the lives of so many people
today. They began “credit surfing,” using all of the available credit on one new card to pay off
another. Even though they were in trouble, the new card offers kept coming, and they foolishly
took hold of them and used them to “bale themselves out” on other cards. They were playing and
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losing the credit game. The system was ruining them, and like many others, they didn’t know the
way out.
(Remember the old adage,
‘Learn from the mistakes of others. Trust us – you can’t live long enough
to make them all yourself – we know – we’ve tried!’)
II. God Got Ahold of Us
Steve relates what happened next. “About that time, in the early 1990’s, we began going to a
Bible Church in the new neighborhood where we had settled after losing our home. My wife and I
accepted Jesus Christ as our personal Savior, and gradually, through Bible studies and sermons,
learned the value of building our lives around sound Biblical principles.
The Bible teaches that God owns EVERYTHING – and that we are simply the managers
(stewards) of all that He has chosen to give each one of us in life. When we “lose” something, it is
possible that God allowed it to be taken from us because we weren’t managing it properly, and
because he “disciplines those he loves.” God “owns the cattle on a thousand hills,” and he has
the right to decide, at any point in time, whether to bless his children with more, or take it away
from them (just as a parent has the right to decide similar things in regard to their children). And
we found out, the hard way, that when God wants to get your attention, he can really “bring down
the lightning” from every direction at once. Psalm 119:17 tells us,
“It was good for me to be afflicted so that I might learn your decrees.”
Once we understood all of this, and began living our lives with a new purpose, God began
blessing us with more and more, just like the Bible says He will. What you will find is that once
you apply these principles, God will pour out blessings in all kinds of special ways. The desire for
material possessions becomes a thing of the past, as you begin to care more and more for the needs
of others. You will want to give a larger portion of what you earn back to Him, as He will bless
you with more and more. It’s amazing how He changes us from the inside out, day by day, and
we don’t even realize it. One day, you notice how much more fulfilling your life has become and
how much you are being blessed, in so many different ways – relationships, finances, health, etc.”
Jeri also found the above principles to be true in her life, and she and Steve share a strong
Biblical and moral perspective on their lives at this time.
III. Becoming a Slave to Your Lenders
The following Bible verses, along with many others, have been around for thousands of years,
warning people not to become “slave to the lender,” which is certainly what we were for that
trying period of our lives:
“The rich ruleth over the poor, and the borrower is servant to the lender.” Prov. 22:7
“For Jehovah thy God will bless thee, as he promised thee: and thou shalt lend unto many nations,
but thou shalt not borrow; and thou shalt rule over many nations, but they shall not rule over thee.”
Deut. 15:6
“Pay everyone whatever you owe them … Do not owe anyone anything – except to love one
another. For the one who loves another has fulfilled the law.” Romans 13:7-8
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IV. Saved in More Ways Than One
We have found that God truly DOES bless us when we do our best to follow his guidelines.
Even so, God never promises that we won’t have to pay the consequences for our mistakes, He just
promises to help us get through those consequences.
Because of the extreme amount of the losses we both had, it took us many years to dig
ourselves out of the messes we were in. We never did file for bankruptcy, even though many of
our creditors themselves suggested that we do so. However, just initiating the bankruptcy
procedure, without following through, caused irreparable damage to Steve’s credit, because it
showed up on his credit report and remained there for years, before he learned enough about the
credit system to have it removed.
Not only did we get saved spiritually (we are 100% sure we will be in Heaven, and you can
have that same assurance as well simply by accepting Jesus as your personal savior), but God has
saved us from lives of bondage to debt, as well. Steve is quick to point out that God has seen fit to
restore his financial circumstances and has also blessed him with a wonderful, caring Church
family, several beautiful grandchildren, plenty of time and money to travel (some of which he does
as a short-term missionary), and a beautiful new home, the appreciation on which, in just a few
short years, more than made up for all that he lost (God’s timing is perfect). He has shown Steve
musical talents he didn’t know he had, and for two years, allowed him to sing the lead in
numerous Gospel Concerts to raise funds for a mission.
He is thankful that the only debts he has now are a mortgage and a few credit cards, all with
low balances, which he uses according to the formulas we have outlined in this book (and only so
he can keep his credit scores up for possible future home purchases, and to charge hotels in
advance when traveling). His family owns their two vehicles free and clear, and one of them is
over twice as expensive as the fancy van they lost back in the 1980’s.
Since that time, Steve has made it his business to learn everything he could about the credit
industry so that he can help prevent others from going through a situation similar to his.
If any of you would like to speak to someone about having a personal relationship with Jesus
Christ, feel free to e-mail us at [email protected] and leave your phone number and one of us will
call you back on our “off hours.” Use the words “Relationship with JC” as your subject line so we
will give priority to opening your e-mail. You may also want to consider reading the following
verses regarding the use and love of money (and there are hundreds more in the Bible, as money is
one of the subjects addressed by Jesus more frequently than any other): Matthew 6:24-34,
1 Timothy 6:5-11, and Hebrews 13:5, which says,
“Be ye free from the love of money; content with such things as ye have: for (God) hath said, I will
in no wise fail thee, neither will I in any wise forsake thee.”
He has been faithful in keeping this promise to us through many situations which we don’t
believe we could have survived without Him.
Steve Mertes and Jeri Koppleman
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Chapter 8
How Did I Get Into This Trap
(along with half the country)?
I. It’s Never too Late to Turn Things Around
(Remember the old adage,
'If at first you don't succeed, you weren't meant to be a skydiver’)
In Chapter 2, we discussed “good” debt, turning into “bad” debt, and how a person can
quickly and easily acquire poor spending habits due to the liberality of credit card companies
extending large amounts of credit. It takes a strong, determined person to acquire, and then
properly manage, the credit cards necessary to establish the right amount of credit to achieve a 720
or higher score.
When it becomes problematic, however, and we find ourselves in a deep hole, ‘having an outof-money experience;’ there is no need to despair. In this chapter, we will discuss and discover
many unknown, and extremely important, strategies that can help you to dig your way out, and
stay on top of your credit score for the rest of your life.
This is what young people must understand – to avoid letting the temptation of all that
available credit get the better of them, and to follow the principles outlined in Part II of this book.
It's like buying a half-gallon of ice cream, when home alone, and then having the will power not to
eat the whole thing in one sitting (like my older brother used to do). Herein, we have included
some procedures and strategies that people in trouble should use once they are beginning to dig
their way out of the hole. After using these strategies, and beginning to bring your situation under
control, begin to develop your budget, or personal spending plan, as outlined in the next chapter,
so that you can move on into the future and your ever increasing credit score.
II. Getting Out of the Hole You’ve Dug
(Remember the old adage,
‘ If you find yourself in a hole, the first thing to do is stop digging.’)
Be aware that everything discussed from this point on has one thing in mind – to give you
long term results – good for a lifetime. With the procedures outlined in Chapters 8 and 9, you
can’t expect immediate results, any more than you do when you try to lose weight. Even if you
follow the diet perfectly (and the exercise plan), you will see ups and downs in your weight,
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because our bodies fluctuate on a daily basis – you lose some, and gain some back. But, like
building the perfect credit, if you stick to it for the long haul, you will get results.
(Remember the Old Adage, 'A balanced diet is
having a chocolate chip cookie in each hand.')
Contrary to what many people think and preach, there is a lot more to credit rebuilding than
just removing derogatory items from your current credit report. You must work also to add good
new credit, by following the principles in this book. One of the most critical factors for financial
success is knowing how you currently spend your money each month. No matter how much you
may NOT want to find out the answer to this, and no matter how tedious or unnecessary it may
seem, it is only by examining your spending habits that you can ever expect to change and control
them, spend less money and begin to cut down on your debt and save for the future. You will also
learn how to “budget” your money by creating a spending plan so that you can eliminate some of
the mistakes you’ve been making month after month that got you into this problematic debt
situation in the first place.
The remaining chapters of this book are all about helping you get the results you want.
(Remember the old adage,
‘Life is an endless struggle full of problems, challenges and frustrations,
but. . . eventually your favorite team will win a game.’)
A. If Things Are Currently Out of Control
If you are being harassed by creditors with whom you may now or have previously had
debts, there is legal relief available. It is important to know your rights and take the following
action:
First of all, you can stop the phone calls, letters, e-mails, faxes (any form of communication
to you) by simply sending a CEASE AND DESIST LETTER (sometimes called a Stop
Harassment Letter) by certified mail (with return receipt). This letter demands that they stop
any and all communication with you. Once a creditor receives this letter, they can only contact
you again to inform you that they will not be contacting you again. They are prohibited, by
law, to further harass you in any way, shape or form, by use of debt collections letters and/or
phone calls. At the end of Chapter 5, you will find a CEASE AND DESIST letter (designed to
be used as a guide for you only) to send to collection companies that have been harassing you.
Even though you may still owe the debt, no one deserves to be hounded day and night by
collection agencies.
You need to allow at least 2 months for all the calls to stop. If they haven’t by then, let the
answering machine pick up the call, as they will leave a message. That’s your proof to sue
them for harassment and they are at risk for a $10,000.00 fine if you can prove it. Most of these
companies will cease and desist when they receive your letter.
We have had cases where clients have continued to get letters or phone calls, and when
confronted, the collectors claimed they “hadn’t received a Cease and Desist Letter.” (People
will try anything to get that money.) In virtually all cases, the matter was finally dropped
when the client sent them a copy of the letter along with the return receipt showing the date
and signature of someone at their agency. Often it was only necessary to fax them the
Steve Mertes and Jeri Koppleman
161
information, and an apology was usually forthcoming. They were probably shocked to find
that some actually kept records and 'caught' them.
B. Know the Statutes of Limitations and Use Them to Negotiate Debts
Here is a tip that every American should know about. Knowledge is power, and this can
save you a lot of money. Federal law allows each state to set a timeframe as to how long
anybody can attempt to collect on a debt. Statutes of Limitations have, as a result, been set up
by each individual state, and they set a time-table (number of years) that an open account (we
will refer only to collections or charge-offs, for our purposes in this book) is collectable. Read
more about this in the definition of SOL in Chapter 2.
Again we will focus only on collection and charge-off accounts. For example, in the State
of Arizona, the timeframe for SOL is 3 years. What that means is this: from the date an open
account charged-off, or became a collection (the original date the collection/charge off 1st
appeared on your credit report) a creditor or CA has 3 years to take you to court or collect on
the debt. If they don’t do so within that timeframe, the law states that they cannot collect from
you on this debt UNLESS YOU LET THEM. The debt will still remain on your credit report
for 7 years and then should be removed by the credit bureaus. This has nothing to do with
the reporting of the debt, but rather it is about collecting on the debt. For information for your
own state, go to www.cardreport.com and click on laws/statutes of limitations.
Then click on your state to see how many years it is for your state. You'll note, when you
do so, that the number of years may not only vary from state to state, but also from one type of
agreement to another. In AZ, for instance, while the SOL for Open Accounts and Oral
Agreements is 3 years, for Written Contracts and Promissory Notes, it's 6 years. Again, I want
to stress that we are only educating you about how it applies to collections and charge-offs.
NOTE: If you at anytime in the 3 years (remember we are talking about the state of Arizona in this
example) make even one payment on this debt, the 3 year Statutes of Limitations will begin again
from that point. You have just reactivated the account so that now, at any point in time, they can
come after you for a judgment, garnishment, etc. until that period of time has again reached the 3
years (in our Arizona example) So before you use this tool, make sure that you have not paid
anything on this debt, or it could backfire on you.
When a collection or charge-off is past the Statutes of Limitations in your state, and you
are being pursued by a collection company or creditor, you can use the Cease and Desist letter
at the end of Ch. 5 (choosing the statement about Statutes of Limitations within the body of the
letter) to negotiate the debt. (This is not the same thing as sending a form letter to the CRA’s,
which we recommend against doing. This form letter sent to a collection company, or your
version of it, is very powerful to send to a CA or creditor.) Armed with the knowledge that
you are protected by the SOL, you then have the power to negotiate removal of the fees that
were added to the collection or charge-off over the years. This also gives you the option of
paying this debt off when you are able, knowing that the CA can't get a judgment against you
in the meantime.
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ALSO VERY IMPORTANT: CA's try to collect from you for awhile, then give up and sell
the note to another CA, who in turn tries for awhile, etc. Again it is extremely important to
pull, print and file a copy of your credit report, so that you have the proof if this situation
happens to you. It could be way past the SOL period, but they will continue to try and collect,
hoping you don’t know about this. If and when you do get a letter from a CA or a “glorified”
attorney, and it’s past the SOL period, you need to make sure you answer their letter promptly
by certified letter (Return Receipt Requested is best) stating the SOL and demand that they do
not contact you ever again on this matter. If you don’t answer the letter they may go after you
for a judgment (if the amount is large enough to warrant it). If you don’t show up in court,
they will be awarded a judgment and they can then proceed with garnishment as well. If you
show up in court, you can then state your case and the SOL to the judge, and it will be thrown
out of court. Why wait until then, however, and have all the headaches and worry? Take care
of it as soon as you get the letter.
A NOTE ABOUT YOUR RIGHTS: In our society, it is sad that the “little guy” gets taken advantage
of because they don’t know the law. The courts will not protect you if you don’t know the law. So even
with those who show up in court, and don’t know their rights, the judge will award a judgment to the
collection company or the creditor. If later you were to protest, after knowing the law, it would be too
late – CASE CLOSED! (See additional information about working with collection companies in
Chapter 5)
(Remember the old adage,
‘You have the right to remain silent.
Anything you say will be misquoted, and then used against you.’)
C. Other Debt Negotiation
Other means of negotiation can be used effectively in many cases. We know of one
company that is very successful in helping their clients to negotiate debts, and of course, they
charge a fee for this service. It is possible for you to do this on your own, as well. You are in a
good position to negotiate down the amount of your debts since the company you owe is
probably receiving ZERO at this time, and they would rather have some money from you than
nothing. We will be happy to refer a reliable company to you if you contact our office.
Contact your creditors and find out how they will work with you. Have your own goal in
mind prior to calling them (we don’t recommend mailing them as you want to give them as
little information as possible with which to 'update' your file). Let them know what you can
pay in one lump sum (most will not settle at all if you simply wish to make payments, and
smaller ones at that), and if they don’t agree to it, or don’t even come close to your figure, then
simply tell them that is all you can pay, so unless they agree to that amount, you will simply
have to continue your non-payment status. We have had clients get the total owed reduced to
about 25 – 35% of the original amount (most of which, by the way, is NOT really the original
debt, but the total of that debt plus many added on finance charges, late charges, and
heightened interest rate charges). In other cases, the company simply won’t deal with you at
all. It certainly does no harm to try to negotiate these debts, and to try to get the amount down
around the actual, original debt owed, is ethical. Remember, in the Bible God instituted the
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whole practice of debts being ‘forgiven’ (erased) every 7 years to give people a chance to start
over and do things right, and this is a part of our credit system to this day.
(Remember the old adage, ‘Good things come to those who wait –
but they may be the things left over by those who got there first.’)
D. Use Settlements to Help Restore Your Credit
Settlements can be helpful in rebuilding credit. If you make no payments on a debt that is
listed on your credit report, it will “fall off” your credit in 7 years, as we have explained
previously. Paying off a debt can actually cause it to be re-aged, which means extended for an
additional 7 year period on your credit report. This is another reason why it’s very important
to regularly monitor your own credit report and save a copy.
As the account nears 7 years in age, you may want to try contacting the company to
negotiate a settlement amount, particularly if your lender requires that this loan be paid off
prior to funding the loan. Paying it will not automatically remove it, nor will it help your
credit score, because the bureaus won’t award you points for paying off a debt that they feel
should have never gone to collection in the first place. But, at least you will know that you
did the right thing in paying off a debt you truly owed, and by settling with the creditor, you
may save some money by paying less than the total debt owed. The closer you are to the end
of the 7 years, the more apt the CA is to settle for a small amount.
And don’t forget to always get the agreed-upon settlement amount in writing from the
creditor. That way, if there is a problem later, you have the letter they sent to use as back-up
evidence that they agreed to settle for the lesser amount.
(Remember the old adage,
‘Even if you are on the right track,
you’ll still get run over if you just stand there.’)
E. Joining an Organization
This may be a great way to get a new credit card with little or no qualifying. As was
mentioned in the discussion of demographics, in Chapter 4 (‘Other Factors’), if you have a ‘bent’
toward a certain hobby or interest, you may want to find out what clubs or magazines are
designed with this clientele in mine. Before joining, do some research, or talk to a current
member, and find out if this club offers a credit card to their members. As we said in Ch. 4, just
being a member may be qualification enough to get you their card. You may want to dig up
information about a number of clubs, until you find one that offers a credit card to everyone
who joins, and make that one your choice to join. These cards, often called 'Affinity Cards,' are
traditionally linked to charities or specialty associations (one of the most famous is the Sierra
Club) and they will have their club logo on the card along with their name. People often use
these cards as a show of prestige – that they belong to this or that 'elite' group of people – i.e.,
their alumni association, or the medical profession, etc. In checking out these credit cards, read
the fine print and be sure you aren't paying exorbitant fees – although a high fee may be worth
it temporarily if you can't get any other credit card.
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F. Increasing Credit Limits
A great way to increase your credit score is to lower your debt-to-credit ratio (what your
credit card limits are compared to the balances you owe). You can do this by requesting an
increase in your credit limit. Many creditors will do this if you have been making your
payments on time for 6 months or more. To see exactly how this works, this is addressed more
in depth in the section called ‘The 30% Rule’ in Chapter 5.
G. You May Qualify for a Free or Discounted Credit Report
(Remember the old adage,
‘Anything free is well worth what you paid for it.’)
If you meet certain conditions, you can qualify for a free or discounted credit report from
time to time, and if you are having a lot of credit problems currently, several of these conditions
may apply to you. Very few people take advantage of the opportunity to receive a free credit
report when they have the chance, so check out these situations:
o If you have been denied credit, insurance, employment or rental housing based on
information received from a CRA, and you contact them within 60 days of the denial, they
are required to provide you with a free or discounted report;
o If an adverse action was taken against you based on information in your credit report (i.e.
you had to accept a higher interest rate or your credit limit was decreased, etc.);
o If you certify in writing that you are unemployed and seeking employment, or if you
receive public welfare assistance;
o Or, if you have reason to believe you have been the victim of ID theft or fraud;
o Also, some state laws require CRA’s to provide their residents a free or discounted report
each year, even if they aren’t denied credit (the states that Massachusetts, New Jersey and
Vermont – other states offer discounts; check with your state).
H. Learn How to Read and Interpret a Credit Report with Real Life Examples
Prior to applying for any new credit card, loan or extension of credit, you should check
your own credit report. Don’t wait until the potential creditor checks it and tells you there are
problems.
(Remember the old adage,
‘I always wanted to be a procrastinator, but I never got around to it.’)
Checking it yourself, several weeks ahead of applying will help you get on top of your
personal situation. First, you will need to get copies of all three of your credit reports, for
which you will pay a small fee. Find the contact information for the 3 major credit bureaus in
the Appendix. At this time, we will not be concerned with the information found in any of the
other CRA’s, as they are not the ones that need to be dealt with. When you order a report, it
will be good for 30 days before you would have to pay again for a new report. That means
you can go back online anytime over the next 30 days and view it (and print it) again. Any
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Steve Mertes and Jeri Koppleman
changes that have occurred during that time will be not be reflected, however, until after the
first of the following month, so you will have to pay again to see the altered report (and score),
unless you wait 'til mid-month to order it in the first place.
When you first look at the credit reports, they will seem overwhelming with all of the
terms, abbreviations, etc. The reports from the 3 bureaus are all different, but have similarities
which we will address. The information is coded in such a way that the average consumer
will not be able to read or absorb it. It all makes sense, however, once you are familiar with
the terms, and it will all come together for you. (See summaries and explanations following.)
The credit report itself will have a “key”, like a map, that interprets the codes and
indicators on the report. Study it for a time so that you understand each of the terms (there
may be some variance from one report to another, especially between the major 3 CRA’s, and
the other data bureaus). The terms you need to know to read your credit report are listed here
without being defined, as that would be repetitious (they are all defined in the definition
section of this book in Chapter 3). You may remember that, in addition to the simple
definition, in our definition section, we have often included other information that may help
you to not only understand the meaning of each term, but also it’s ramifications on your score.
Date Reported
Date Opened
Balance Owing
Account Type (Acct. Type)
INST (Installment Account)
OPEN (Open Account)
Historical Status
Last Past Due
Public Records
Consumer Statements
Creditor List (or Name)
DLA (Date of Last Activity)
High Credit
Terms
REV (Revolving Account)
MOR (Mortgage Account)
Current Status
Past Due
Collections
Segment
Inquiry Information
The section below contains scans from actual credit reports (with account numbers changed),
showing the headings of the columns and the information under each column listing all of the
detailed account information. See explanation following each excerpt.
THE FOLLOWING ARE REAL LIFE EXAMPLES OF CREDIT REPORTS w/EXPLANATION:
__________________________________________________________________________________
CREDITOR
ACCT NUMBER
DATE
HIGH
BALANCE
PAYMENT STATUS
HISTORICAL STATUS
OPENED
LIMIT
TERM
30 60 90 DAYS
LAST ACITVE
__________________________________________________________________________________________________
B
CHEVRON
727XXXXX
XP,TU,EF
DATE
REPORTED
05/06
04/00
05/06
$960
$100
$18
REV
AS AGREED
0
0
0
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(B) means borrower (individual). It’s a Chevron account that was last reported to the credit bureau on 05/06. It was opened 04/00. The current credit
limit is $960.00 and the balance is $100.00 (under the 30% rule) 727xxxxx is the account number assigned by Chevron. Note: the (x’s) were put in
by us, covering up the client’s account number. This is a REV account (meaning revolving /credit card.) It’s being reported to all 3 credit bureaus
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(XP-Experian, TU-Trans Union, EF-Equifax. This is an excellent account with no late pays.
--------------------------------------------------------------------------------------------------J
COUNTRYWIDE
07/05
280XXXXXXX
XP,TU,EF
Late date 06/02 30
03/94
$62000
0
MTG
PAID
1
0
0
360
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(J) is for Joint Account / means that there is 1 other person who is on the loan. This is a mortgage (MTG) It was opened in 03/94. It was
Reported to all 3 credit bureaus (XP,TU,EF) was paid off on 07/05. This account is showing 1 30 DAY LATE PAY-see historical status box above.
Note: Under where it shows which bureaus the account is reporting to, you see late date. That means that the account was paid late on 06/02 and the
30 means that it was 30 days late.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------A
HSBC
425XXXXXX
EX,TU
05/06
09/99
05/06
$6000
$1000
0
REV
AS AGREED
0
0
0
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
The (A) is for Authorized User. That means that the card holder called HSBC and added this person to the account. Every month the account is reported by
the creditor (HSBC), (EX,TU) to the credit bureau, the activity is mirrored on to the (A) credit reports. (See authorized user section.) This account is being
managed perfectly by the account holder and is greatly helping the (A) with scoring points each month.
The credit limit is $6,000.00 and the balance is $1,000.00 (which is under the 30% rule).
A
CHASE BANK
54XXXXXXX
XP,TU,EF
05/06
04/95
05/06
$21500
$20000
0
REV
AS AGREED
0
0
0
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
This is also an (A) authorized user account. Opened since 04/95. It has always been paid on time with no lates. But look at the credit limit – it’s
$21,500.00. Look at the balance – it’s $20,000.00. This account is hurting the (A) user’s credit badly, because the card holder is managing the account very
poorly, as the balance is way over the 30% rule. Remember the card holder and the (A) user are both losing scoring points on this example. Again
everything that the card holder does, is mirrored onto the (A) users credit report as well. The authorized user was a client of ours. We were able to contact
the card holder, who called Chase Bank and removed the (A) user from the account. The (A) users credit score went up an average of 35 points on each
bureau after they were removed. The card holder, well they have only 1 choice – pay down the card to $6,450.00 (30% of $21,500.00). The chances of this
card holder having the money to pay down $13,550.00 to raise their score, is pretty slim. Another option for the card holder is to decrease her credit to debt
ratio, by using our NO CREDIT CHECK / NO QUALIFYING PROGRAMS (see definition and also see contact information in the appendix) that when
reported to the credit bureaus would off set most of this debt and start raising her scores. This program has helped hundreds of our clients get their debt to
credit ratio decreased under 30% and regain valuable scoring points!
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------J
BANK OF AMER
45XXXXXXXXXXXX
XP,TU,EF
05/06
04/99
05/06
$5000
$5000
120
REV
AS AGREED
0
0
0
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(J) This is a joint account (usually husband and wife). As you can see the account has been open since 04/99. They have never been late on the account in
all that time. THIS IS WHAT WE CALL A MAXED OUT CARD- The limit and the balance are the same, $5,000.00. The 120 is the minimum payment
the bank requires them to pay every month. By paying just the $120.00 every month, it is covering the interest they are charged every month and the balance
may go down about $20.00. At this rate they may never even pay this off in their lifetime! Now here is the danger that exists with most Americans today;
they have a false sense of security thinking that because they pay all their bills on time, they have great credit.
Well, if they have a couple more credit
cards just like this one, their credit scores are suffering because of the 30% rule. And if they have a late pay or 2, it’s even worse. So America says; "Hey,
I will just refinance my home and pay off the credit cards." Their credit is pulled and they are in shock when the bank says your score is too low to approve
you. America says “What do I need to do?" The bank says you need to pay down the balances on your credit cards to get your score up. And you say, “The
reason I want to refinance in the first place is to do exactly that." The bank says they are sorry they can’t help you. So now you are stuck. Your only
choice is to refinance into a 2 or 3 year adjustable rate loan, with a higher payment. The other danger is that many Americans will do just that, pull out some
cash and think everything is great. They will keep their same spending habits and unknowingly keep mismanaging their credit. When the 2 or 3 years come,
they are in no better position score wise to do anything. The bank adjusts their loan rate, their payment goes up and they are in worse shape then they were
before. THIS IS WHAT WE CALL THE CREDIT TRAP!
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Steve Mertes and Jeri Koppleman
COLLECTION OR CHARGE OFF
B
USA COLLECTIONS
45XXXXXXXXXXXX
XP,TU,EF
PAID COLLECTION
Late dates 3/06 120
03/06
07/01
08/00
$930
0
INST
ACCOUNTS
PAID COLLECTION
1
0
14
1/06 120
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(B) The borrower opened this installment (INST) account on 08/00 and then stopped paying on this account. On 07/01 the creditor charged off the account,
meaning he wrote it off his business as a bad debt and then sold the account to USA Collections. USA collections contacted (B) and (B) paid USA the
$930.00 to pay off the account. This was paid on 03/06. Many people think that when a collection is paid it gets deleted or removed from your credit report.
Not so; as you can see they put the word PAID next to it. Many people also believe that when you pay off a collection, your score will increase. Not so
again; it does nothing to increase your score. The current scoring system is not going to reward you for paying off a collection or charge off. What you need
to watch out for is this; when a collection is paid off, the status is changed to reflect paid. The credit bureau's computer system will many times take the
date of the paid collection and start reporting (known as re-aging) the account for another 7 years. Remember from the date this account became a collection
or charge off, that is the start date of the 7 year period that this account will stay on your credit report. In this case it was 07/01. So it was a collection from
07/01 to 03/06. That means that it's been a collection for almost 5 years. The collection should be removed by the credit bureaus on 07/08. If it does not get
removed at that time and you did not pull, print and save the credit report, where's your proof if they re-age the account on you?
YOU NEED TO KEEP GOOD RECORDS TO PROTECT YOURSELF AGAINST THIS.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
B
S P CAP
03/04
12/01
$1532
2714XXX
TU
PROFIT AND LOSS WWRITEOFF / ORIGINAL CREDITOR AVCO
$2715
COLL
CHARGE OFF
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(B) Opened an account with the original creditor AVCO. After he stopped paying the account, AVCO sold the account to the above collection company,
that was charged off by AVCO on 12/01. As of 03/04 (B) still had not paid the account off. So now you have AVCO charging off the loan and you also
have S P Cap who purchased the account from AVCO now trying to collect on the debt. Look at the amount of $1532 and the new balance is now $2715.
They just tacked on $1,200.00, which is written in the fine print of the agreement, allowing SP Cap to be able to legally add the fees. (B) unknowingly
agreed to this, when he took out the loan with AVCO. (B) probably didn’t read the fine print.
S P Cap gives up trying to collect the debt from (B) and sells the account to LVND (See next below) Watch what happens next, it gets worse!
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------B
LVND
03/06
10/04
$1532
$3346
COLLECTION
2714XXX
COLL
TU
PLACED FOR COLLECTION / ORIGINAL CREDITOR LVND ASSIGNEE OF AVCO FIN
OUR SUMMARY AND EXPLANATION OF THIS ACCOUNT:
(B) Borrower gets a phone call from LVND and is told that we are collecting for AVCO and you owe $3,346.00! (see above how the amount went from
$1532 to $2715 to now $3346.00). Now because LVND states that they are collecting for AVCO, they are tacking on more fees. Where is the justice in this
system.?
What the collection companies are counting on is that someday you will want to buy a house or refinance your existing home. Once the lender sees that your
credit report contains some collections, they will tell you, to get the best rates they will need to be paid off. Keep in mind that when people are told that by a
lender, they are only getting half the story. You are thinking okay, if I pay off the collections, my score will go up and I will get a better rate. What the
lender is not telling you is that, they are only requesting you pay off these debts to protect and safeguard their loan. Your score will not increase even 1 point
for paying off a collection or charge off. SUGGESTION: If you are required to pay off bad debt before closing, tell the lender that you will do so through
the Title Company at close of escrow or when your loan is funded. This way you can contact the collection company and do a settlement for much less,
especially in the example above. The original debt was $1532.00 and LVND has the balance at $3346.00! This is absurd and you should not have to pay
over twice the amount. Once you settle on an amount with the collection company, get it in writing and then give that document to your lender. They then
can include it with the loan package to the Title company to cut the check to the collection company. Do this to protect yourself, as many lenders will pull
your credit again right before they close your loan. If you paid off bad debt prior to that, your score could very well decrease and you could actually lose the
loan.
America needs to understand that the creditors and the collection companies are in violation of the Fair Credit Reporting Act; which states that there can
only be 1 creditor or collection company on record collecting a debt. When S P Cap gave up and sold the debt to LVND, S P Cap was required by law to
submit a form to the credit bureau (in this case Trans Union) to let them know that they are no longer collecting the debt and that their record is to be deleted
or removed from (B) credit report. Does this happen? NO WAY! Instead it looks as though these are 2 separate debts showing up on your credit report,
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when in fact, they are related. This type of shoddy carelessness by the creditors and collections companies must stop. Now that you know about it, you need
to look very carefully at your credit reports, before you deal with any collection companies. Also, did you see that LVND states in their account that they
are the assignee of AVCO, the same thing that S P Cap said in their account. AGAIN I STRESS; PULL, PRINT AND SAVE A COPY OF YOUR
CREDIT REPORT EVERY 6 MONTHS. Without this proof, you could end up paying 2 collections, when you really owed just one. Again it goes back to
the original date that the account charged off. What date was it? 12/01. What date did LVND acquire the debt? 10/04. So this (B) should be writing down
the date of 12/08 on his calendar that whether he pays off this debt (ethically he owes it) or not, it is scheduled to get removed from his credit report on
12/08. What about LVND? their account states 10/04 and the credit bureau will put into their computer system that the 7 years would be up on 10/11. Do
you see now the importance of 'PULL, PRINT AND SAVE' your credit reports every 6 months, because this type of activity will go on, until we as
American's change the system and put a stop to it. Pay close attention to dates. I have seen many client's credit reports that have collections "pop on" their
credit reports from 10 to 20 years ago, because some of these that I refer to as "Bottom Feeder Collection Companies" trying to collect on anything they can
get their hands on! Keep in mind that most of these CA's have purchased your account at garage sale prices – for as little as 1 cent on the dollar. They will
literally take anything they can get, but you need proof of when this account originated. In the span of 7 years, your collection could be sold many times,
and this scenario will be repeated over and over, making your score worse and worse every time. Three or more companies could be showing their version
of this debt on your credit report at the same time – follow-up, and 'PULL, PRINT and SAVE.'
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
When specifically looking for the negative items on your report, if you are not using a trimerge report, remember that each bureau marks them differently (and remember NOT to use
TrueCredit.com). Trans Union lists all the negative items under one section and all the positive
ones in a different section. Experian will have an asterisk next to the negative items on their
report, and Equifax will not indicate any difference at all. With Equifax, you will just have to read
every entry and determine for yourself whether it is negative or positive. One bureau may have
items listed that are not found in the reports from the other two bureaus, etc. There may be more
negatives on one or two of the reports than there are on the third one. They all maintain their own
data bases and do not utilize each other’s information, which accounts for these differences, as well
as the fact that many creditors do not report to all three bureaus – often just one.
Since each bureau has its own format for their reports, we will not go into the specifics of each,
but give a generalized description of what you can expect in looking at your reports. (If you use a
tri-merge, or 3-in-1 report, such as the one shown on the previous page, there will only be one
format to deal with.) The reports will be divided into sections, which are briefly described here:
1) The first section contains your personal identification information. It will include your
name, current and previous addresses, SSN, D.O.B., employment, and other identifying
information reported by creditors. This is where you can lose needless points by having
too many names, addresses, etc. It is easy to have these removed – see the section on
“Do’s and Don’ts” in Chapter 6.
2) The second section contains public record items which are reported by local, state and
federal courts. Included here would be any liens, judgments, bankruptcies, garnishments,
etc. Each item will show the date, amount of money involved, and I.D. number for the
case, and the outcome of the record (released, satisfied, verified, etc.) You’ll want to
scrutinize this section to make sure all of these items are really yours.
3) The next section lists derogatory accounts, those that have been turned over by
creditors to collection companies. They will list account numbers, dates, unpaid balances,
date of last activity on the account, etc. Here again, make sure these are all your accounts,
and that there are no duplicate accounts (as defined and explained in the section on
“Working with Collection Agencies” in Chapter 5).
4) The fourth section has all of your Credit Account Information (credit cards, both open
and closed accounts). In this section there will be columns of information (see the Sample
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Tri-Merge Credit Report and explanation following it, shown on the previous page). This
section contains your “good” credit, the trade lines that are adding to your credit score,
providing you are managing them well. Remember, however, that the number of credit
card accounts here, or the debt-to-credit ratio represented by the high credit and the
balance columns, and other factors, can affect your score either positively or negatively.
(See the section on ‘Credit Scoring’ in Chapter 4, and also ‘The 30% Rule’ in Chapter 5).
5) The last section is a listing of the companies that have requested (or ‘pulled’) your
credit file – also called “inquiries.” Remember that these can affect your credit score
adversely, and that you can and should control them. See the section on ‘Inquiries’ in
Chapter 6, and also the definitions for ‘hard’ and ‘soft’ inquiries in Chapter 2.
Note the
box at the bottom of the report that addresses the types of inquiries that are NOT reported
to businesses (creditors).
The bureaus adjust all scores on the first of each month, and it takes until the 15th of the
month to reflect your scores at your mortgage company, if you are applying for a loan.
Pulling your credit sooner will not give you the updated, accurate scores, and will create
another inquiry which will lower your score.
When you receive the updated report (called a result report – which will contain no
scores) by mail from the bureaus after contesting items, you will find that both Equifax and
TransUnion will provide a cover letter listing the items that have been deleted, and those that
have been verified and will remain on your credit. Experian will not send a cover letter with
their updated report. Here are the terms you should look for, after contesting your credit
report:
Pending . . . this acknowledges that the issue was contested and no decision has been
reached yet.
Deleted . . . the issue has been removed from your credit report and won’t return.
Remains . . . this issue was verified as yours, but if you still question it, you can
challenge it again in 60 – 90 days.
Updated . . . the account will show 'paid as agreed' or the account has been reverified
and will remain. This does not mean the account has been removed or
deleted, as some credit repair agencies will tell you. Updated only means
that the new information is now changed and reflected on your credit
report. Or even that the new 'info' has 'updated' your file and this item
(depending upon what it is) could now remain for another 7 years.
I. Getting a Checking Account After You've Had Problems
(Remember the old adage,
“It’s always darkest before the dawn . . .
so that’s the best time to let your dog run on the neighbor’s lawn.”)
If you find that you can’t get a checking account with a major bank because of problems
you’ve had in the past (and perhaps you’ve even been reported to ChexSystems, and this is
holding you back), you could try opening an account in a smaller bank or a credit union. Call
first and find out if they use ChexSystems to screen new customers. If you’re married, its
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possible ChexSystems may have you reported, but not your spouse. In that case, your spouse
could open an account in their name only, and eventually you may be able to get it converted
to a joint account, and finally to a personal account for yourself. If you can’t get a checking
account opened at all, then start with a savings account, or see if you can get a family member
to open an account in your name and theirs. (For more information on ChexSystems, see the
Definitions in Chapter 10.) You could also consider opening a bank account at a Canadian or
foreign bank that has branches in the US. Some of these would be Bank of Montreal, Royal
Bank of Canada, Toronto dominion, or Scotia Bank. You will need your driver’s license, and
either a state-issued I.D. card or a passport.
You may also be able to open a new checking account through a money market fund or a
brokerage account, as few fund managers or brokers use ChexSystems for screening. Many of
these types of accounts have free checking included (or low-cost checking with a small initial
deposit). Depending upon your situation, it could be helpful for you to open a money market
account just for the additional checking account benefits.
An ETA (Electronic Transfer Account) account could be still another alternative for certain
people who are having credit problems. However, these accounts are limited to people who
are receiving Federal Government payments. To find out if you are eligible for one of these,
see the complete definition in Chapter 10, and the contact information in the Appendix.
One of the best programs I've found for getting a checking account under problematic
circumstances, is through Account Now. There is no ChexSystems check, no credit check –
you are guaranteed approval for a checking account with a debit card, and you pay only a low
one-time fee of $19.95. Remember, we don't recommend any program to our clients until we
have used it personally (unless it comes to us recommended by several clients who have
successfully used it for some time and we can personally check it out). Here are the benefits
you'll receive:
1) A loadable debit card on which you can deposit as much as $10,000.00, loaded by wire
transfer ($20) or Money gram - $3.50 fee/deposit.
2) Direct Deposit of your payroll check is available for free.
3) All charges are in your on-line account that you can access and view free anytime.
4) You can pay up to 7 bills with your debit card each month on-line, for free.
5) You can use your debit card for store purchases, over the phone purchases, or paying
your bills over the phone as well.
6) When you use your debit card to pay monthly recurring bills, such as car insurance,
cell phone, utility bills, etc., this company also offers FOR FREE, a "credit builder"
program. This program will track each time you pay a bill and create a history for
each bill paid, and it's accessible for you to view and print anytime.
7) This is another great way to show creditors that you pay your bills on time and this
will be extremely helpful to include with a loan application.
Account Now does charge you .50 cents for every transaction (but it's well worth it). They
will e-mail you your account balance on a daily basis to let you know where you stand. This
deal is definitely worth 'checking' out! Contact information in the Appendix.
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J. Disputing Negative Items on Your Credit Report
This has become an absolute necessity for most of us. There are millions of credit files on
Americans, and millions of mistakes are made in the reporting that goes on among creditors
and the various levels of CRA’s. It is very easy for powerful computers to mix up individuals
with similar names and profiles, reach erroneous conclusions, and put people into the wrong
categories or on the wrong lists. Business Week stated,
“The invasion of privacy is proceeding at an alarming rate, with supercomputers recording and
compiling every transaction in a person’s life. These records of Americans’ income, spending habits,
and preferences are putting a growing amount of power into the hands of a few government bureaucrats
and private marketers.”
These private marketers are the CRA’s. When you combine the privacy issues and the
errors made by computers, it is more likely that we all have mistakes in the information on our
credit files than not.
Each of the bureaus has a website (listed in our Appendix) where you can find the exact
procedures to follow in contesting, or disputing items on your credit report, thus it is
unnecessary for us to go into them here. However, there are a few things that you should
know prior to beginning this procedure.
Any person can dispute their own credit if they are willing to take the time and expend
the effort, and if you have the patience required (and doing so could save you money,
especially when you consider the outrageous prices many attorneys and credit repair services
[CRS’s] will charge you for doing this on your behalf).
There are many companies that claim they can do a better job than you can, and even
claim to have “secret” methods or “uniquely developed systems” that cost thousands of
dollars, designed specifically for this purpose, thus their need to charge you $500 to $1000.00
or more. (You wouldn’t believe some of the ‘horror’ stories I’ve heard from clients who lost a
lot of money with various ‘credit repair’ or ‘credit rebuilding’ services.
When the whole credit phenomena began some years back, attorneys often charged
clients literally thousands of dollars (even $10 – 20,000) to “fix” their credit. Few charge those
kinds of fees today (except possibly large business clients), due to the competitiveness that has
entered into the credit repairing field. (Before considering hiring someone to help you, see
Section ‘L’ on ‘Using a Credit Repair Agency,’ following, in this Chapter, for crucial
guidelines, and so that you will know how to find someone reputable.)
It’s important that you understand that no one has an inside track to the credit bureaus.
All these companies can do is to follow the same procedures that everyone else follows, either
by going on-line, or perhaps using some form letters they have personally developed. You
may have seen some of these letters in various credit-repair manuals.
Using these letters will save you some time in writing and composing, but can often do
more damage than good (truly!) Again, see Section ‘L’- DON’T hire a CRA without reading
this section! While various credit repair companies may argue that they know the laws better,
or can offer you special protection or resources, I can assure you that they all have to stay
within the same guidelines and follow the same procedures.
We could write a whole chapter, or even a whole book on credit disputing procedures,
but there are already numerous books on the market covering this process. As we stated
earlier, the emphasis of our book is to go beyond the current books and focus on adding
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positive credit and eliminating bad habits and practices that you may be doing monthly that
are keeping your scores low. Eliminating an item from your credit, particularly a valid one,
doesn’t remove the fact that you still owe the money, and negotiating for repayment is
between you and the creditor, not the CRA. Therefore, we will only ‘skim the surface’ and
touch briefly on ‘credit repair’ in this chapter. Also in most cases the items that do get deleted
are usually older ( 3 years or more) and really don't increase your score much at all. This is my
major concern with 99.9% of the credit repair agencies out there. They could remove 1, 5 or
even 10 issues, but if your score does not increase hardly at all, what good did it do you?
Many of you who've used these services can relate to this. Credit repair agencies have several
tricks that make their money back guarantee sound so great. I like this one; "We will increase
your credit score 50 points or your money back". Understand that when you are qualifying for
any type of loan, the lender will take your middle score, which can be any of the 3 bureaus.
The 50 point money back guarantee does not say mid-score, it just says we will increase your
credit score 50 points. Also remember that, your 3 credit reports all have different scores.
Your lowest score could be 50 points or more lower than your mid-score or highest score. Do
you see the trap? If they in fact raise your lowest score 50 points, they met their guarantee, but
you are out of luck and the cost of their program, because your mid-score in most cases did
not go up enough to help you, if at all. Or they may say, "If we don't get at least 1 issue
deleted or updated, we met our guarantee with you," and again you just lost your money.
Don't fall for these scams.
If you want to see what issues are on your credit report, you can ask your lender for a
copy, or use the methods for obtaining a free or discounted copy, if you qualify, outlined in
Chapter 8 (Sec. ‘G’). Or you can order copies of them from the credit bureaus, and this can be
done as quickly and easily on line as purchasing something from a shopping service (in some
cases, maybe easier). You will have to pay a nominal fee of around $14-15 for each report to
each of the bureaus (ironically, they take credit cards), and that can all be done quickly and
securely. Without ordering the score, however, it's about $10 per bureau, and you really don't
need a score when your purpose is just to check out the report and find errors, etc. (See
contact information for the bureaus in the Appendix.)
You can dispute items on your credit report by letter, or by going on-line directly to the
credit bureaus and following their directions to fill out the dispute forms. We recommend
doing it with personal letters for the reasons stated below. Should you choose to do it by mail,
follow the guidelines here, and be sure to send along one copy of your credit report with the
items highlighted that you are contesting.
Using Personal Letters
When it's necessary to dispute items on your credit report, we suggest that you write
your own personal letters. Be sure to include all of your personal information at the top of
your letter – your full name, date of birth, current address and SSN. You may want to
send your letter via Certified Mail, with a return receipt requested, to show the credit
bureaus that you are serious (and authentic), and keeping records for future reference, as
you may need them for re-disputing. If you don’t get your desired results, and you plan to
re-dispute in the future, wait 90 days before doing so, unless you actually received NO
response from the bureau at all. In that case, give them at least 30 days for processing
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time, and an additional 2 weeks for mailing time before sending another copy of your
dispute letter.
While many credit repair manuals suggest form letters for contesting your credit, we
disagree. There are a number of reasons why you should NOT use form letters:
 First of all, the bureaus themselves are on the lookout for “form letters” of any
kind, and they will “red flag” your file if they feel it has been submitted by a
credit repair service. We have had clients, who used form letters, receive a ‘form
letter’ back from the credit bureau basically ‘rejecting’ their letter. The wording
from the bureau went something like this – “Dear _____ , we received a recent
request regarding your credit information that does not appear to have been
sent directly by you . . . As a precautionary measure, we are not taking any action
on your alleged request at this time.” It goes on to say that the person will need
to contact them directly to verify that this request was, in fact, from them and not
a credit repair agency. Of course, even if it is from you, it will cause a lengthy
delay in getting your work done by the bureaus. Thus, it is always best to just
use a personal letter and use your own words in your contestment.
 Most form letters may have only a limited number of “reasons” why you are
disputing a particular item. If none of the reasons fit, and there is no place to put
your real reason, then you are forced to use one of those listed, whether it is true
or not. Since these forms are not at all specific, or personal, they are not taken
seriously by the checkers (employees of the credit bureaus who consider your
disputes).
 Also, they will take this as a sign from you that you are just going to keep on
hitting it and hitting it, over and over, until they make the changes you’ve
requested, so they will make notations on your file for other employees to see in
the future, which will decrease your chances of them taking you seriously.
 Most books you will read on credit repair will provide standardized forms or
letters of some kind, and the credit bureau employees have access to all of this
material – they read the books and watch out for the forms/letters to come in via
the readers. Your file will not be taken as seriously when you use these forms.
Either way, you will need a copy of each credit report to start with. Simply order the
copies of the reports and look them over, according to what you learned in Section ‘H’ of
this chapter, and determine which items, if any, need to be disputed.
Disputing Online
This certainly is an option, but most people find it best to use personal letters or work
with a reputable firm that charges only a small fee. Here are some of the reasons:
3) Like anything in life, doing something brand new is scary and the first time will be
difficult. For instance, the pages of the forms may be timed, and if you leave them sit
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open for too long, while you are thinking or if you are interrupted by a phone call or
your children, the page will shut down and you will have to start all over inputting the
information on that page. This can get very frustrating, especially if it happens over
and over again during one online session.
 When you personally go online to dispute questionable negative issues, you
must avoid just using their “pat” responses, such as “not my account” or “never
paid late,” or “paid in full,” unless you believe these things to be true. Rather,
use the space for “other” reasons, and contest them based on the things you have
learned in this book. For example, a collection that has been passed from one
company to the next could be on your report more than once with different
account names and amounts owing. Anyone, after a few years have passed,
would have a difficult time knowing for sure whether these are all the same
account, or what the original amount owed to the original creditor actually was.
You do have a legal right to have all of the additional accounts removed – legally
the bureaus are only supposed to have each debt listed ONCE. Thus, it is
important to you to have studied your credit report and know the details of each
of the collections on your account. When you dispute, ask for evidence that these
items are yours, not duplicates; ask for written proof (which seldom happens).
If this truly is a mistake then write the CA or OC and ask for the proof. By
law, they need to send this information to you in just a few days. Remember,
don't do this (contact the CA) if the item really is yours, because you can make
matters worse, as you will have just furnished them with your current
information that they can use to their benefit. Use your own wording, and make
it personal, because it should be personal.
When disputing online, they don’t allow you much space to put in your own
personal explanations, which is why we always advocate using personal letters.
A Few More Guidelines
Whether you dispute your credit issues online or with letters, there are several things
that will help you in this process.
1) Be sure you are being honest in your disputes – in some states, it is a criminal offense
to lie when disputing your credit report. Remember, it is unnecessary to lie or make
misleading statements, because you have the right to dispute anything on your credit
report that you have reason to believe is in error, that is unverifiable, obsolete or
inaccurate. Some things may be partially accurate (like the account number) but another
part may be inaccurate (like the amount), so rather than state it isn’t yours, ask that it be
investigated because you believe it to be in error. There is a difference between disputing
the existence of the account, and disputing the accuracy of the account. They will
investigate differently if you believe the listing doesn’t belong on your report at all, than
they will if you feel some of the information in the listing is inaccurate. If you state that
you were “not late,” and their investigation cannot verify that it was late, the listing will
be corrected and appear as a positive, instead of a negative. If, however, you state that it
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is “not mine,” and they can’t verify it, the item will be completely removed from your
credit report.
(Remember the old adage, 'Everyone tells lies, but it doesn't matter
since no one believes anyone.')
Even after an item is verified by the bureaus as accurate (their report comes back
“verified,” you have the right to dispute it again and ask how they were able to verify it –
again, contact the creditor to get this information and to ask for proof in writing (copy of a
contract, etc.). You also have the right to challenge them on the timeframes of their
investigation. They are supposed to complete their investigation within 30 days from the
date they received your dispute, and provide you with their investigation results no later
than 5 business days after completing the investigation (as per the FCRA). Be careful how
you approach these ‘technicalities,’ however, as appearing ‘too wise’ may make them
suspect that you are using a credit repair service or that you are just out to get everything
negative on your report deleted, and then they will treat your requests as frivolous.
2) In disputing an item, be sure to include what you want them to do with the listing you
are disputing. You can ask to have the entire listing deleted, or you can ask to have a
portion of it deleted (“remove the late pay notation”). Some derogatory listings, if
changed, could become positives – i.e., an installment loan, or mortgage, that is yours,
showing a late pay. If you believe you were never late, and you dispute that, their failure
to verify the late pay will result in that notation being removed and the account returns to
a positive status, helping doubly to increase your credit score.
However, in the case of other types of accounts, such as a court record, charge-off,
repossession, foreclosure, etc., which are negative listings to begin with, disputing any
portion of the listing will be fruitless. These negative types of listings must be disputed
only with a complete deletion as the goal, or not disputed at all. Thus, if they are yours,
leave them alone. Only dispute these types of things if you truly believe they are not
yours.
3) Don’t dispute more than 3-4 issues in one letter, or one on-line session. There is a good
reason for this, and it also explains why most credit repair agencies get only mediocre
results (perhaps 2-3 items deleted out of 10 or 15 negatives on your report). The bureaus
receive about 10,000 disputes every day, and they have to have a system for getting
through them all as efficiently as possible. Thus, each clerk at the bureau has a time limit
as to how long they can spend on one person’s request. If you request them to address too
many items they will work on a few and just “update” the rest. It is better to dispute a
few this month, and a few more a month or two later, so if you have a lot of issues to
dispute, you will need to send a number of letters, and be prepared for this process to take
some time. The credit repair agencies usually request EVERY negative item on your
report to be deleted, even those that are legitimately yours, which is unethical (and could
also get you into trouble), and as a result they will only get a few deleted anyway. And
for this, they will charge you $500 – 1500 or more.
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4) You need to understand which issues you can dispute without repercussions, and
which ones will have repercussions if you dispute them. Disputing late pays,
repossessions, tax liens, medical bills, can be done safely without any repercussions.
Ethically, it is not wise, as some advise, to dispute any derogatories that truly are
yours. Things you shouldn’t mess with are collections and charge-offs that are still within
the SOL, because this could trigger a creditor investigating and phone calls from creditors,
demanding payment. Remember, when you dispute something, you are now giving the
creditor all of your new or updated information. If they see you now have a new home,
new credit cards, etc., anything they could come after for payment, it could generate them
coming after you for a judgment, then a even wage garnishment, creating more harm than
good. You’ll be saying, “I wish I would have left that one alone.”
(Remember the old adage, 'The real art of conversation is to
say the right thing at the right time, but also to
leave the wrong thing unsaid at the tempting moment.')
5) One thing to know, when you are disputing items on your credit report, is that it
doesn’t do much good to file a 100 word statement of explanation about the particular
circumstances of any negative item. In spite of the fact that the bureaus themselves
encourage you to do this, and the fact that the statement will be in your file for future
prospective lenders to view, the truth is, they are generally ignored. Creditors basically
pay no attention to them, and you probably can’t put enough into the 100 word statement
to really explain the whole situation anyway. Also this notation could stay on your credit
report long after the issue is resolved, which could have negative consequences down the
road. While writing and submitting this statement is probably a waste of time, there is a
procedure that can help you explain a negative situation to a lender. Simply write out a
full explanation of the circumstances of the situation, include any proof (such as a copy of
a lease) and submit it along with your loan package directly to the lender.
We have had clients experience great success with this, and have even seen situations
where the lender was so impressed with the explanation that they commended the
applicant, and they got the loan in spite of what could have been a road-block.
6) Remember that the job of the checker at the bureau is to reject anything they feel is
irrelevant, and to only investigate those issues they feel are authentic. So, be sure, with
each issue, to give them a reason for your contesting it, and use personal wording that will
convince them you are a real victim, a frustrated person who needs help. Be polite, and
explain your situation as realistically as possible, never sounding like a credit repair
service, or an expert (by quoting legal statutes, etc.). If the checker feels you are a real
person with a real problem with this or that issue, that is one thing, but if they feel you are
out to “restore” or “rebuild” your credit, they will consider your dispute irrelevant or
frivolous, and disregard it. Don’t threaten (as in hiring an attorney) or make demands,
unless you have disputed something several times and gotten no results. You do however
have the right to sue a collection company or even the credit bureau. Please seek legal
advice before doing so.
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7) You should know that it takes 30 days from the time the bureau receives your dispute
for them to complete their investigation. Then each bureau will send you a Result Report
(or summary report showing you which issues were deleted, updated or remain) in the
mail in about a week to 10 days beyond this. These reports will not have your new scores
on them. The credit bureaus adjust ALL scores on the first business day of each month,
and can take a few days into the next month to reflect your new score. For this reason we
strongly suggest that you do not allow your credit to be pulled until the 15th of the month,
so as to make sure that you are getting all the scoring points you deserve. Here's an
example to back up what I just said. I did an experiment with a couple who used my
services. I instructed each spouse to pay down on a credit card and to pay off a small
balance left on their car payment. Each spouse did as I instructed. I had 1 spouse pull
their credit on the 6th of the month and the other spouse pulled their credit on the 15th.
The credit report pulled on the 6th did not reflect either entry, but the credit report pulled
on the 15th reflected both entries and a new higher score. My "mentor" who has been in
the collection industry for 30 years, confirmed this as well. Bottom line is this; You can see
by the above example, how people can get cheated out of scoring points, receive higher
interest rates and don't even know it. Now you do know it. Don't rush into getting your
credit pulled and be aware of the 15th of the month to do so.
NOTE: You should also know that HCS (Steve’s service) is often able to get their
clients enough points in just a matter of several days to enable them to qualify for their
loan. If you are in need of immediate help, and don’t want to wait for the lengthy disputing
process above, e-mail HCS (info in the Appendix) to see if your situation can be helped in
this manner also. (see rapid rescore in Ch. 3 – the Definitions, Examples and Applications)
8) If you don’t hear from the credit bureaus after following all the guidelines and waiting
the appropriate times, then you may want to mail a complaint to your State Attorney
General’s office, your congressman, and the FTC. Send them a copy of your dispute
letter(s) and let them know you have been ignored, and you wish to have their office
submit your letters again on your behalf (they will do so). Coming from the Attorney
General’s office, it is unlikely that the bureau(s) in question will continue to ignore your
letters.
If, after several unsuccessful attempts to work with the bureaus, you let them know
you are planning to do this, you may get better results. The FTC regulates and monitors
the Credit Bureaus, and they prefer to limit the number of complaints sent in against
them. Also, the Bureaus work hard to fight off new legislation that would change the Fair
Credit Reporting Act, which is presently outdated and advantageous for them. As more
and more consumers complain, congressmen will be more and more willing to listen and
propose changes in this old statute. Letters are needed to state and federal congressmen,
expressing outrage over the unfairness of the Credit Bureaus, in order for positive changes
to be made in this legislation. We would certainly like to see reform in this industry, and
if you feel you’ve been treated unfairly, we hope you will take the time to write to the FTC
and to your congressmen.
In addition, if you have been unsuccessful working directly with the Credit Bureaus,
you should contact the creditors who reported the issues and contest the negative items
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with them. Often, if they haven’t kept good records, and can’t verify whether or not you
had late pays, or whatever, they will have it removed from your credit report directly.
We advocate that, while you may have some good success if you personally go online or
use personal letters and dispute your credit (honestly), you will experience the most dramatic
changes in your credit score, now and in the future, by working on the positive aspects of
building new credit and changing your own negative habits. We just can’t stress that enough.
Positive new information will always outweigh older negative items in your file. We have had
numerous clients improve their score by over 100 points in one month (way more than you
could hope to get by contesting negative issues), and often even in just a few days, by
following our counsel, and then continuing to improve it steadily for the next 6 months to a
year. And, they will all tell you it was worth the wait to finally achieve what they desired.
K. Using a Credit Repair Service; The Dispute Process & Setting the Record Straight
If you have been thinking about using a credit repair service, you must read this entire
section first, and then you should proceed with caution if you still plan to choose this route.
More often than not, you won’t get the results they claim you will, primarily because there is
much more to a credit rating than deleting bad credit, which is the only focus of most credit
repair services, and also because very few of them actually know what they’re doing (as you
will see shortly). As we have stated several times in this book, there are so many positive
things you can do to increase your credit score, far out-weighing the negatives on your report,
and there are habits you need to develop to keep your score that way.
Unfortunately these one-dimensional companies have no clue how to manage credit, only
focusing on deleting negatives, which in many cases does more harm than good. (We know of
one CRS that charges very high fees, and is operated by a man out of his home, which is
rented, along with his car, because he has such poor credit himself that he can't qualify for
anything. We know of another who makes a lot of money with his CRS – by duping people at
astronomical prices – and pays cash for one expensive car after another, but he, too, owns no
home because he can't qualify for the loan. Neither of them answers their phone when they
know it's a client calling back to find out why their scores didn't go down. These are
obviously people who have no idea how to manage their own credit, much less teach you or
even set a good example for their clients. For the names of these companies, which happen to
be in AZ, contact our office so that you can avoid their fancy ads and websites. Unfortunately,
there are people all over the country like this.)
Far too often, people who are fortunate enough to get their credit ‘repaired’ to some
extent, but receive no education from the repair agency, only end up repeating the same
mistakes, month after month, that got them in trouble in the first place, and find themselves
right back where they started, or even worse off than in the beginning. That's why we are
teaching you the ‘ins and outs’ of this industry so you can avoid these mistakes and begin to
approach credit and your future with the respect it deserves as a major component of your
everyday life –your lifeline.
Thousands upon thousands of credit repair companies have sprung up across America
since credit became such an important part of American life, just like thousands of identity
theft scams have sprung up and thousands of computer hackers have sprung up overnight
taking advantage of people in this modern technical age. There is no licensing required for
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these companies to operate, and the state regulations that do exist are inadequately enforced,
just as the organizations overseeing the CRS’s are really unable to effectually govern them.
With advertising so easy on the “web” these days, all a credit repair service needs to open
their doors is a fancy website that will lure ‘victims’ into their net. Why do you think we all
affectionately call the internet ‘the web'?
Could it be that there is an ever so subtle
comparison here to a spider’s web and the way it cleverly lures victims closer and closer until
the spider is able to attack and suck the lifeblood out of its victim? And these companies prey
on people who are not in the know, taking advantage of them and taking their money, seldom
doing what they say they will do. Unfortunately, to many unsuspecting Americans, the
presence of a website indicates a business of stability and repute. Where on earth did we get
that idea? Anyone, anywhere, for a few dollars, can open up a website. It’s cheaper than
advertising in the Yellow Pages, or any newspaper or billboard. And, the people behind the
website can be completely anonymous, so just because someone has a website, does not make
them a reputable business. Be careful! (HCS has no website because we don't need one – our
clients are all referred to us by mortgage companies.)
Did you know that if you go onto a search engine and put in the words “credit repair” you
will get listings for literally MILLIONS of ‘matches’ for this type of work? (Check this out for
yourself.) Everybody and their brother is jumping on the bandwagon to do credit repair. It’s
easy money. How long have most of them been in business? They can tell you anything.
How many will give you references? They have great reasons why they aren’t able to do this
if you ask. Where did they receive their education for doing this business? There are no
‘Credit Repair Schools’, so most have simply opened up shop with little or no experience and
are more than happy to work for you for a nice chunk of change. If they can’t prove
considerable experience in the field, and don’t have references, be suspicious. Most charge
unreasonably high rates and less than 1% of them really know what they are doing. Most of
these companies not only have no idea what they are doing, but in some cases, they end up
doing more harm than good. I wish you could talk to just a few of the hundreds of people who
have been referred to us after a bad experience with a ‘credit repair’ business that charged
them $400 or much more, and did absolutely no good with ‘repairing their credit,’ and in many
cases, they did almost irreparable harm.
This option may, however, be right for some people in some situations, such as a person
who procrastinates and would never stick to the process until the desired results were
achieved. If you consider this option, however, proceed with caution – and read on . . .
While you may choose to hire a “credit repair” service (CRS), or an attorney, who might
have you think they can do a better job than anyone else, due to some special way of getting
great results, the truth is there are only a few ways to dispute negative items, and that is where
most of them focus. Again, that is only a small corner of the picture.
In addition, other credit repair services will go online for you (they don’t tell you exactly
what they’re doing – they may say they have their own special, exclusive system), and they
will use a list of “standard” or “pat” answers. They simply dispute EVERYTHING negative
on your credit, slinging it ALL against the wall and hoping some of it sticks (and usually some
of it does). But, let’s face it, they are disputing issues that really ARE yours, stating they are
not yours, and issues that really WERE late, stating they were never late, etc. And they may
get some of these things removed, but it is NOT an ethical way to dispute your credit, and
could get you into trouble, and themselves as well.
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As stated previously, our clients come to us as referrals from mortgage companies, banks
and real-estate brokerages, where they have already provided the client with references as to
what we can and will do for them. The referring party already has an established relationship
with us and thus they feel comfortable referring their own client to us as a client. They know
that their client will come back to them with a higher credit score in a short period of time, and
will know how to continue building a better credit future so that the loan being extended will
be done so with less risk to the lender, which is a big plus for them.
People who have worked with disreputable services, however, have found out some of
the following things:
o The credit repair service can easily damage your credit or your credit repair process, by
disputing too many items (especially all at once, which most of them do), by using
standard forms, by using too many “pat” answers, and by disputing things that are
obviously yours and should never have been disputed. If a dispute appears to be from
a credit repair service, the credit bureau employee checking it can legally disregard it
completely and make notations on your file so that you will have difficulty disputing
this item down the road.
If you are a truly unorganized person, and have great difficulty using the computer
or putting your thoughts into words, and believe it or not many people do have these
difficulties, then using a service could help you, but you should never pay more than 2
– 3 hundred dollars, and you should thoroughly check them out. Above all, ASK FOR
REFERENCES! If they won’t provide any, (or tell you that their clients’ names are all
“confidential” and none of them would like having their name passed around – would
you?”) then ask them for the names of the companies that referred the clients to them.
If they have no legitimate mortgage companies, lenders or banks that they work with,
who will provide a reference for them, then don’t use them. That means they are
probably a “fly-by-night” company, getting their unsuspecting clients from ads in the
paper, or signs posted along the highways, and they are sure to be a “rip off.” At the
very least, don’t go with any company that doesn’t come recommended to you by at
least one person who has used them and whose results have stood the test of time (for at
least 3 months).
We hear all kinds of “horror” stories from clients who have used various credit
repair agencies, but there is one that really “takes the cake.” One company, which
charged $695/person, told their clients they had created an original computer program
that cost them over $200,000.00 to design. They said they had a “retired credit bureau
executive,” and a “former IRS” executive that worked with them on this program, and
no one else had anything like it. They averaged about 10 – 20% deletions on their
clients’ credit, and claimed that this was very high. They convinced a lot of people. We
later encountered someone who worked for this company (doing the disputing) who
showed us the “program” they used. It was nothing more than the same online
program that you can use every time you go onto the websites of the three credit
bureaus, to do it yourself.
o This company was also counting ‘updates’ as deletions in reporting their success rate to
their clients. A fallacy spread by many credit repair services is that of the “updated”
account. They will ‘repair’ your credit for you, and then show you all of the ‘updated’
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accounts now present on your report, as a result of their work. Actually, these
‘updated’ accounts do not mean that they have been deleted or removed – only
‘deleted’ means removed. Updated basically means that they have just taken all of
your new information (addresses, employment, etc.) and ‘updated’ your account,
bringing all of that information current, and that this item will remain on your credit
report. We know of one CRS that gets a lot of ‘updated’ accounts on their client’s
reports, (after collecting a large fee for their service) and then contacts the clients and
makes them believe that they have just ‘fixed’ their credit – they don’t run a new score,
but simply say, “Guess what? We’ve removed 6 items from your report – all those that
say ‘updated’ will be gone the next time you run your credit report.” Well, guess
what? The next time it is run, the client is shocked to see that their score has, in fact
gone down (or at least remained the same) and the ‘updated’ accounts are still there.
Try to call the CRS at that point, to get a refund, or find out what’s going on, and often
they are out of business, or they simply let their machine talk to you and refuse to
return your calls. One such company, in the Phoenix, Arizona area, has taken
hundreds of clients ‘to the cleaners’ this way. (For the name of this scam company to
watch out for, contact HCS and we will email you the information.) But, to look at their
web page, you’d think they were the best in the business. So, be very careful and ask
for references (unless you are already referred by a reference you trust, like your
lender, loan officer, or a friend who has used the service and some time has passed
since they did so). We continually get referrals from lenders who have had clients
suffer bad experiences with this company, and they do business all over the country.
o Consider this (and this has been the actual experience of our company numerous times
over the years): A client requests to have his credit “restored” by a credit repair service.
They charge him a substantial fee, and then “repair” his credit. His score goes up by 10
– 30 points, or so. They charge him another fee, or put him on a “one year
membership” wherein they will dispute the credit repeatedly for a whole year, and
they do it again a month or two later. Or even worse, they charge him an even higher
fee and put him on a “lifetime membership,” so that they can handle his credit reports
forever. (Never mind the fact that this company may be out of business in a year or
two.) The customer has been taught NOTHING about building positive credit, has had
NO counseling about the mistakes he keeps making, month after month, that are
keeping his scores down, and even while his credit is being “fixed,” he has had
additional late pays accruing, etc., which ends up defeating the whole purpose, and
possibly even making his credit worse than before. Then, he hears about us, and tells
us his whole sad story. And we start from “ground zero” with the EDUCATION and
COUNSELING FIRST.
(Remember the old adage, 'If it's not broken, we'll fix it 'til it is.')
Every one of our clients comes to us referred by a mortgage company, bank or lender and
we have references from dozens of these companies. That way, THEY can tell you about
clients we have helped, without mentioning names or invading anyone’s privacy. These
references are provided upon request, and we even show people actual ‘before and after’
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results we get from the credit bureaus (real credit reports, with personal information blacked
out), so that there is no doubt. We consult with the clients as to the origin of each item on
their credit report, then we make positive suggestions (tailored to their specific situation and
credit issues) as to “reshaping” existing credit and building new credit. We have them do this
by removing extraneous and obsolete information (names, etc.), re-distributing debt,
increasing some credit limits, paying down certain balances by specific amounts, opening
helpful new accounts, etc., and we can tell them IN ADVANCE, just how many points they
will get for each and every move we suggest. Only as a last resort do we help them with
contesting negative items, if they have errors on their credit report and feel they need our help
in disputing them. (Our firm does help clients with this, for a very low fee, because many
people just don’t want to be bothered, or may feel “lost” and need help. If you have to pay
more than $300.00, however, then, unless you have money to throw away, you are paying
way more than it’s worth.)
And our track record stands for itself. In the forward to this book, you read some of the
feedback from real loan officers and lenders, and we could have filled several chapters with
similar statements. These are real people for whom our company has provided a real service,
helping their real customers get their credit profiles where they really need to be to obtain real
loans for real homes or automobiles. There really ARE legitimate ways to build up your credit
score, and once again, they start with changing your negative habits and beginning to build
more positive trade lines. (And it really upsets us to see people out there who are being taken
advantage of every single day by CRS's who can claim NONE of the above 'credentials.')
This book was written so that more people could be helped by learning how to manage
their own credit FOR LIFE, and that is why learning all you can about this industry is so
important. We cannot provide a precise checklist of what to do or not to do for each person, as
it must be based on your own individual situation. We would first have to look at your
personal credit report to make specific recommendations. This book contains all the
information you need, however, and once you learn the basics of reading your own credit
report (in Chapter 8) and building positive new credit (in this chapter and elsewhere), you can
apply the portions of the book that pertain to you and your situation, and formulate your plan
for success (and we will be happy to discuss it with you if you e-mail HCS).
One of our objectives has been to 'tell it like it is,' so that others can know the truth about
their situation without having to spend the next 10 or 20 years learning it the hard way, by
making their own mistakes. Asking God for help in making important financial decisions, and
listening for his guidance along the way, can truly help us to eliminate many of the mistakes
we have made in the past.
I want to be honest and upfront with you about disputing issues on your credit. One
dimensional “credit repair” companies that only concentrate on your negative issues, claim to
be able to remove all kinds of things from your credit report. Their philosophy is to throw
caution to the wind, dispute everything and hope that something gets deleted to justify their
$400.00 to $1,400.00+ ridiculous fee that these scam artists are charging. Yes, issues can be
deleted, but only those that are truly legitimate and when you have the proof that they were
put on your credit reports in error. Also, you need to pay attention as to what you decide to
dispute. I have seen the results of the work of some of these companies, as well as clients who
challenged issues on their own, that should never have been touched. The results in most
cases, were collections and charge-offs that became judgments and wage garnishments. This
could be very devastating and costly to you. Remember, my full time job is working in the
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credit arena. I have a perfect track record of over 6 years now, never having jeopardized any
of my client's financial well being and because I know this business inside and out, it will
never happen to you (and, once again, I have the references to prove this).
Our goal in working with you is to find ways to increase your credit score. Again,
understand that deleting issues may or may not raise your score. This is where the “scam
artists” are not being honest with you and most say in their fine print, “If we remove
'something' we did our job.” And even WITH a guarantee, they may not be around (or
answering their phones) when you try to enforce it. They don’t care whether or not your score
increased. This is why I strongly recommend building good positive credit to overshadow
the negative. With many clients, the 'disputing' is not even necessary as their scores can be
increased higher and faster with the other programs we have in place. If in the consultation,
however, I decide that we can successfully dispute your negative issues, I will tell you so and
charge you a one time, very low fee, to write dispute letters on your behalf. This is an ongoing service that we will continue to help clients with and in many cases it entails writing
letters to the creditor and/or collection companies as well.
BOTTOM LINE is this; WE WILL CROSS THAT BRIDGE WHEN WE COME TO IT, and
ONLY IF NECESSARY!
NOTE: Since this is the first time much of this material has been printed, we expect to
see a lot of the 1 dimensional credit repair companies, that read this book, attempting to
incorporate many of these principals into the service they offer, in an attempt to legitimize
their businesses. If it helps to upgrade the industry, then that will be good. However, if
they were doing a poor job in the first place, and can't provide references for you, I would
still be very leery of doing business with them.
"If you hold to my teaching, you are really my disciples. Then you will know the truth and the
truth will set you free." (John 8:31) This is one of the most often misquoted passages of
scripture – chances are you've heard it, but probably only the last sentence. It is a popular
saying today – 'the truth will set you free.' When you see it in context, however, and realize
that GOD said it to us, you can see that there is a condition to being set free by the truth –
stated in the first sentence of the passage. God teaches us many of the principles outlined in
this book – not getting into debt, paying your debts if you do, saving a percentage of our
money, giving a percentage back to Him, not coveting what everyone else has, etc. Of course
the Bible holds much more than this, and making a commitment to read a few verses of it
daily (or at least regularly) is one of the most important things you can do. That is the only
way to truly know his teachings and find the truth about life, values, success, etc.
SO, IF YOU HOLD TO HIS TEACHINGS, then, and only then, will you know the truth
and be set free by it. We pray that each and every reader of this book will come to know God's
truth and experience His gift of true freedom.
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Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128
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Chapter 9
Free From the Trap and Ready to Move On
I. Quit Living in the Past and Focus on Building a New Credit Future
Phil 3:13-14 states, “. . .Forgetting what is behind, and straining toward what is ahead, I press on
toward the goal to win the prize for which God has called me heavenward in Christ Jesus.”
Once again, the Bible gives us some great advice. Too many people spend their life regretting
what they’ve done and focusing on how badly they feel because of it, etc., instead of moving on.
As a teacher, whenever there were disagreements between students, and they just kept it going on
and on, I always gave them the same advice – “GET OVER IT!” It worked then, and it still works
now. It’s time to get over the past and press on toward the goals you have set up for your future.
Once you have completed the strategies in the last chapter and throughout the book, and
gotten your debts under control, it is time to begin the “credit rebuilding” phase. This should be
one of your most important financial goals. There is no simple or immediate way to re-establish an
excellent credit rating. It took time to damage your credit, and it will take time to rebuild it.
However, the process is simple if you are willing to follow it. In the Appendix, you will find a
number of worksheets that will help you to rethink and reorganize your spending habits, and to
begin the transition back to a healthy credit profile. We will, in this chapter, be going into the use
of each of these worksheets for your understanding.
It all starts with changing the habits that got you into trouble in the first place, and to do that,
you need a plan. In this chapter, we’ll help you to evaluate your spending habits and see the areas
where you could modify them to improve your financial future.
As we’ve stated many times in this book, our goal with our clients, and also with our readers,
is to help you change your habits from negative (destructive) ones to positive (building) ones so
that, in effect, you can quit focusing on the past and face the future with a plan for success.
A. Take the Test!
(And be honest – no one is listening!) If you have to answer “yes” to most of the questions
listed here, then your debt is definitely out of control.
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o Do I usually run out of money before the end of the month and use credit to tide me
over?
o Have I had to use up all my savings to pay bills?
o Have I had to go to a “finance” company for money to tide me over?
o Do I ever “borrow” from a friend or relative (or even my kids) to get me by?
o Have I refinanced my home to get money to live on?
o Are creditors calling me or sending me threatening letters?
o Am I afraid to open my mail?
o Do I have to split some bills into weekly or bimonthly payments to get by?
o Did my spouse or I have to take an extra job to pay the bills?
o Do I ever take cash from one credit card to pay the bill due on another?
o Do I apply for new loans prior to paying off the loans I have?
o Are there home maintenance projects that are necessary, but that I have to put
off because I can’t afford them?
o Do I fail to balance my checkbook so that I don’t have to face the facts?
o Am I bouncing checks?
o Have I been unable to put money in savings regularly?
o Am I afraid someone at the door might have a subpoena for a lawsuit?
o Have I been turned down on credit applications?
o Do I have “over the limit” spending on some of my credit cards, or “overdrafts”
in my Checking account?
o Do I have trouble making the house payment every month?
o Am I unable to qualify for a major purchase right now, like a car loan?
o Do I use my credit cards for most of my purchases instead of cash?
o Do I just pay the minimum payments on credit cards, month after month?
o Are my credit cards “maxed out?”
o Do I “post date” checks?
o Am I constantly worried about where the money will come from?
o Do my spouse and I argue over finances?
o Am I frequently late paying my bills?
If you were able to answer “no” to most of these, then you may not yet be “out of control,”
but just reading this list should give you an indication of what life can be like when your debts
DO get out of control. If, on the other hand, you answered “yes” to a lot of these, you don’t
have control of your debt, rather you debt is controlling you (and your life). This is not a
pretty picture! It’s time to change your habits. If you have to answer “no” to a couple of other
questions, then you need help:
o Do you have a budget?
o Do you have a plan in place to pay down your debt?
Help is on the way, but you must be willing to spend the time necessary to achieve the
results you want. Just think of this as a part-time job, only one that pays a far greater return
than any other job you could get. By working hard to get your credit score up, so that you can
save thousands of dollars in the future in interest charges, you will actually be earning a
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minimum of $100/hour and up to $1000/hour or more for the time you invest in these
procedures now.
Any employer hiring you for a new job would expect you to make some commitments – to
report on time every day, to put in a full day’s work, to be honest when handling money, etc.
Just so, when starting this “job,” you must
B. Agree to Make a Few Simple Commitments
(Remember the old adage,
'Don't try to have champagne taste on a beer budget')
o First, you must decide not to take on any additional debts throughout this process. That
means no credit card spending or taking out additional loans (put the cards in an envelope
and stash them away in a safe or other 'safe' place).
o Also, you must agree to make all of your monthly payments on time, consistently, each and
every month from this point on.
o Next, you must be willing to take the time to analyze your spending habits and change
them to stay within your budget, or personal spending plan.
o Then, you must decide that you will spend less money than you earn every single month.
The work you do on your budget, or PSP, will help you. If you find this impossible, begin
with areas of your budget that you can easily cut down on, like ‘entertainment.’ There are
dozens of ways to entertain your family for far less than you may be spending now – even
for free. (To name a few: free concerts, free and low cost museums, free video and book
rentals at libraries (along with free programs), picnics in the park, potlucks instead of
restaurants, low cost festivals, free art/craft fairs, start a neighborhood sport group –
volleyball, softball, etc., free swimming, hikes, biking – entering bike marathons, holiday
concerts and plays at churches, etc., or just strolling in the mall and making ‘wish lists,’
doing craft projects, having a family game night (dig out Monopoly or better yet, order our
new family game, THE CREDIT TRAP, and so on. Check your local paper for calendars of
events.) In addition, you can teach your children to make gifts for each other instead of
buying everything, and guess what? In so doing, you'll even end up spending more time
together as a family. I can't imagine any grandparents anywhere who wouldn't prefer
having a 'homemade gift' from their kids and grandkids as opposed to something from a
store. (Ideas – homemade jelly or butter (easy); photos with homemade frames decorated
by the kids, a photo album or scrapbook with pictures of family events during the last year
pasted inside and with the kids writing about each picture; home baked cookies decorated
by the kids; candles made out of old glasses or jars from the thrift store, decorated with
glass paint or tissue paper; Kleenex box covers with your kids pictures glued on; etc., etc.
o Finally, you must commit to begin the process of paying down all of your debts. You can
use the “Personalized Debt Elimination Plan” outlined later in this chapter.
If you really want to change things, none of these things are too much to ask. So,
assuming you do, let’s get started.
(Remember the old adage, 'If you want things to change,
then change the things you want.')
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II. What is Your Debt Ratio?
The first thing you need to do is determine whether you have an acceptable debt ratio (this is
not the same as your debt-to-credit ratio). You may be paying all your bills on time. But, if you
are just making the minimum payments, and you are unprepared for an emergency (like a job loss,
or major health problem) and you are not able to save anything because you are living “paycheck
to paycheck,” then you probably have, like many Americans today, a debt ratio above 20%. You
can figure your debt-ratio quite easily. Just total all of your minimum monthly credit card and
loan payments (not counting your mortgage, but don’t forget student loans and personal loans),
and divide it by your monthly net (after tax) income. If it is over 20%, you need to begin reducing
your debt as soon as possible. If it is over 25%, you may be on the verge of losing your home or
car, or declaring bankruptcy. You must make drastic changes to help with your problematic debt
situation.
Many people think they can solve their credit problems by getting a home equity loan to tide
them over, but they don’t change any of their habits that are causing the problem. This is like
treating cancer with a pill. Statistics show that the majority of people end up even further in debt
because they didn’t change their unhealthy spending habits.
Don’t panic, however, as there is a solution to every problem in life. It took time for you to get
into this situation, and it will take time to get out. Just begin taking the positive steps you need to
take, one step at a time, steadily, and without going back. You can do this, and I believe you WILL
do this. I have seen many, many people pull themselves out of unbelievable debt situations by
following a plan.
III. Budgeting with Your Personal Spending Plan
First, let us assess one of the major factors in problematic debt situations. If you are like most
Americans, you may actually wonder where all of your money goes each month. We all joke
about having “too much month left at the end of the money,” but actually this is no joking matter.
When asked to account for their spending for the past 30 days, few people (especially those deep
in debt) can account for more than about 1/3 to half of their spending. They do not have a
budget, or any kind of spending plan to which they hold, and in retrospect, it is proven that most
of the purchases they made were for unnecessary expenditures, like entertainment and impulse
buying. Most of us can quickly sum up what we spend on the major things each month, like our
mortgage (or rent), car payments, utilities, insurance, credit card payments, and even gas and
grocery money. But all of this amounts to only about 60 – 70% of our income, so we are at a loss to
account for the rest.
The stress and strain of having to make monthly payments on your debt, in addition to paying
for your regular living expenses, can take its toll on you in many ways, not the least of which is the
fact that your debt has become problematic, and you may soon be headed for a financial crash.
(Remember the old adage, 'Some days you are the bug,
some days you are the windshield')
A personal spending plan, (PSP), is almost synonymous for a “budget.” Having one and readjusting it frequently, is an important part of the process of becoming debt free. It is effective
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because it’s based on goal-setting and budgeting, which we mentioned in Chapter 1 as two of the
strategies necessary for success. We should be setting goals in all areas of our lives, i.e., career
goals, financial goals, educational goals, health goals, spiritual goals, etc. The PSP helps us to
achieve our monthly spending goals, which, in turn, help us achieve our financial goals. When we
spend time working on a goal, we must stop along the way to evaluate whether we are on track, or
whether we need to make changes to our goal. Don’t hesitate to make frequent adjustments, just
as you would if you were aiming at a target (goal) and kept missing. You would keep on adjusting
your aim until you got closer and closer, and finally got a “bulls-eye.”
There is an old saying that came from the world of archery – “If you aim at the target, you’ll
hit the ground, but if you aim at the sky above the target, you’ll hit the target.” Goal setting, and
creating your PSP are very much like archery. You may not hit the target the first try, but keep on
aiming higher and eventually you will.
Use the chart called Your Personal Spending Plan in the Appendix to help you get started.
You will find two copies of this chart, one with blanks for you to copy and re-use, and the other as
a “sample” with some of the items filled out so that you can see how it should look. I suggest you
make a few copies before you start writing on the blank form.
Follow this simple procedure:
1) List your total monthly net income (what’s left after taxes) on the first blank. Be sure to
include sources of income other than your job, such as rental income, interest, side jobs,
social security checks, etc. Do not include such things as garage sales or furniture/autos,
etc. sold by ads in the paper, as these are not considered income. Unless your only income
is from a job with a fixed salary, you should figure it for the past several months, since it
may vary from month to month. Then average the income to get a figure to use for your
budget/PSP.
2) Check over the various categories listed in Column 1 and highlight those which apply to
you, then use the additional blanks in Column 1 to list other expenses that are specific to
YOU, such as bus fare, or student loan payment, etc.
3) Then, and this is very crucial, track your actual expenses in those categories for one whole
month. Keep a small notebook so that, on a daily basis, you can jot down, then later total
up, these amounts. Gather pay stubs, bank or deposit statements, business expense
receipts, etc. Go through your checkbook and any other sources you may have where
expenses have been listed for the past month. You may want to do as you did for the
income, and figure your expenses for the past several months, and then average them to get
a more accurate picture. You may need to spend the next month conscientiously saving
every receipt from every little purchase – lunches, parking, snacks, donations, gifts, etc.
Figure in only those that are regular expenses, however, and not things that you rarely
spend money on. To cover these, you may want to just allot an amount for “miscellaneous”
spending. Don’t forget to include items like baby sitters, vacations, home maintenance,
doctor, dentist and chiropractor visits, prescriptions, magazine subscriptions, tuition, and
“others.” To help you track these items, make a record wherein you list all the categories
here and others you can think of (retrace your steps for a typical week day, weekend day,
etc.,) in a column on lined paper, then after each one, the amount spent.
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4) At the end of each week, write down every penny spent that week in the appropriate
columns numbered 1 – 4 (see the example on the PSP “Sample” sheet, p. 201 in the
Appendix). When you have completed the whole month, total the 4 weeks and put that
amount in the “spent” column on each of those items for that month. If this sounds
impossible, remember that it's absolutely necessary if you are to begin to account for the
money that “goes out the door” each month, and once you get started, it will become
second-nature to you. And, it’s only for one month. Aren’t you just a little bit curious,
especially if you’ve never done this before, what those amounts are?
5) Once you have filled in all of the “spent” column, then consider each item as you fill in the
“planned” column. If a particular expense is fixed, such as parking fees or rent, then just
write that amount into the “planned” column. If, however, it is not fixed, consider whether
you can adjust that amount up or down, in order to fit your “budget.” For example, is your
“entertainment” amount something you can cut down on, can you save money on groceries
by using ads, can you cut down on gas by car pooling, or on fast food by taking your lunch.
Will your electricity bill likely go up in other months, etc. Try to be realistic, but practical in
determining your “planned” amounts.
6) Finally, calculate the totals for each of the last two columns. Compare these totals with
your net income at the top of the page. If either column exceeds your net income, you are
in a negative situation, where you will probably put some of these expenses on credit cards
each month, increasing your debt to a point where it will eventually be unmanageable. You
must, by adjusting these columns, bring the “actual” expense total to a point that is equal or
lower than your net income. The lower you can get it, the more money you’ll have left over
in your budget at the end of the month, which can then be put into savings for those
emergencies that always come, and/or used to begin reducing your debt.
I realize this sounds like a lot of work, and most of you probably will stop right here and
decide to 'forget it.' However, remember, for this effort you will be rewarding yourself with $100 $1000/hour for this work (truly!) in future savings once you have made these changes in your life
style. (If you think you can't possibly find time to do all of this, think of how Jeri had to take time out of her
busy schedule to complete the compilation and writing of this book – 8–10 hours/day, for 3- 4 months. You
just set the goal and then take the time to complete it. Something else had to go on the back burner
temporarily – for some people that might mean less TV, but for something as important as this, you must
just DO IT!) For most of us, this exercise will be all the evidence you need to see that you are
clearly living beyond your means – spending more money each month than you earn. For most of
us, this will not come as a surprise, because we have seen our credit card debts rising steadily for
some time. Tracking even the small items, however, is important, since we tend to disregard
anything under $5 or $10 (such as that pair of shoes that you just got on sale for $3.50), and forget
that we even spent it. These small incidental purchases can, however, add up quickly, and they
may easily account for 20 or 30% of our income, or even more. This “impulse” buying, which is
common to all of us, can be more of a major factor in our debt problem than the major, essential
expenses, like our rent and car payment.
When we buy something on impulse, we subconsciously rationalize it away by thinking, “It
was too good of a deal to pass up, and I can put it on my credit card and pay it off next month.”
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Or, “I have really been wanting/needing one of these, so I may as well get it now.” In fact, people
go out and spend money intentionally for many other (often unhealthy) reasons. If you have had a
fight with your spouse, it may be a way to ease your frustration; if you are feeling down or
discouraged, it may be a “picker-upper;” or it may simply be something you do for fun on a
boring afternoon. Having a credit card handy has certainly changed the way America shops, since
it is so much easier to “pick up and go shopping” than it used to be. And the retail industry
literally THRIVES on our tendencies to purchase on impulse. Salespeople are TRAINED to feed
into your impulsive nature, with great opening lines like “Wouldn’t that look lovely on you?” or
“With just a small down-payment, you can take this home today.” They know that they have
basically just one chance to sell you an item – and that is right now, TODAY! So they make it as
attractive and easy as possible. The truth is that impulsive shopping makes up more than 50% of
the retail purchases today.
You can, however, become an aware, educated shopper, who no longer falls for these things.
It may help to form a habit of asking yourself, every time you are in a situation like this, “Do I
really NEED this item, and what will it end up costing me if I put it on my credit card?” Once you
understand just how much of your income really is going for unnecessary purchases, you should
be able to eliminate much of it and possibly add back hundreds of dollars into your budget from
impulse shopping alone.
With that accomplished, and cutting down on some of your other expenses (like carpooling to
save gas), you should soon be able to start a savings plan, if you haven’t one presently. Your goal
should be to save, as soon as possible, enough money to live on (meet your planned expenses) for
3 months, and then keep at least that much set aside in savings for the long term.
(Remember the old adage,
‘By the time you finally make ends meet, someone moves the ends.’)
Make copies of the blank page of Your Personal Spending Plan and re-do this procedure often
in the beginning to make sure you are on track. Eventually you will only need to redo it once
every 6 months or so, or if circumstances in your family life change. For instance, if you get a
different car and your car payments and insurance payments go up, or if you pay off your car, and
you no longer have a car payment. Or, if you have a large auto repair bill one month, and spend
more than allotted for (or charge it on a credit card, thus creating a higher credit card bill), then the
following months you may want to adjust something else down to make up for the difference. In
other words, adjust your PSP as needed to compensate for large expenditures, and for unforeseen
circumstances. Once you begin to use a budget, or PSP, you will be amazed at how much more
smoothly your financial life will run.
IV. Beginning Your Own Personal ‘Debt Elimination Plan’
Take the time now to gather all your creditor information, and list each creditor, with the
amount of interest, balance owed, etc., on the “Creditor Information Worksheet” in the Appendix.
Once you have listed all of your creditors (not including mortgage, car loans, insurance or utility
payments, but just credit card or other installment or revolving loans you may have), transfer
them, to the sheet called “Debt Elimination Plan,” listing them in order from the largest debt – at
the top – to the smallest debt, so that you can follow the next procedure.
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If you have begun spending less than you earn, you should have a little money left over every
month. Even a little will work, but the more you have, the faster your debts will be eliminated.
This will require patience, but in the end the wait will be worth it. Begin paying off your smallest
debt (eliminating it) by adding as much left over money as you can spare to the minimum monthly
payment. You will now be making more than the minimum payment on this debt every month.
Since you will not be ADDING anything to this debt, continuing to pay a little more each month
will eventually result in the debt being paid off. However long this takes, just hang in there.
Now, as you may have guessed, you can move on to the next smallest debt. The good news is,
you will be able to pay this one off faster, because you can use your left over money, PLUS the
amount that you were previously paying on the smallest debt. Thus, you will be paying even
more above the minimum every month than you were paying on the first debt. As you continue to
pay off one debt after another, and free up more money due to one less monthly payment, keep
adding that amount to the next larger debt, on up the chart. It will actually go faster and faster as
the amount you have to apply to the next debt increases each time you eliminate another one. You
will feel immediate relief in getting just ONE of these debts eliminated, and each time you
eliminate another, you will see the progress you are making and become excited about what you
are doing.
All of your debts can thus be eliminated sooner than you thought possible. But, again, have
patience. This will not happen overnight, but it WILL HAPPEN!
V. Obtaining Positive New Credit (Trade Lines)
Unfortunately, many consumers can not qualify for new credit cards (which by the way are a
key ingredient for higher credit scores) due to their present credit situation. There are ways,
however, even for people in that situation, to begin to obtain some positive new credit lines to
overshadow the negative items on your credit report. These suggestions are especially helpful for
students, new couples, and other young people starting to develop a credit history. There are
several ways to do this:
A. Obtain a Savings Account Loan at a Credit Union – Years ago, both banks and credit
unions did 'savings account loans' as a matter of routine. Today, the best place to find these is
at one of your local credit unions. The procedure is simple and can quickly help you build a
new 'trade line'. Find a CU that does these loans (not all do) and open an account in the
minimum amount they will work with – usually $3-500.00. As soon as you put in the $500,
they will cut you a check for $500 (a loan) and you can use that money as you would have
before you put it in, while also beginning to make payments on the 'loan.' BUT, the best part
is, they will report this 'loan' as an installment account, to all three of the credit bureaus, which
will give you a great new trade line on each bureau. WOW! (TIP: Make your firt payment on
the loan the same day you open it, so it will begin reporting 1 month sooner!) You can even
set aside the $500 to make the monthly payments. (If you can't afford the whole $3-500 up
front, consider asking a close friend or relative to go in on it with you just until you get the
loan, at which time you could pull it out and pay back the person who helped you.) Or, begin
NOW to save as much as you can each month toward that – open the account and just put
money in every payday, and as soon as you have the $500, BORROW IT. (Tip: They will pull
one bureau for identity purposes only, but it counts as an inquiry – everyone is approved.)
Now that’s a good deal!
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Now, it gets even better. You could be developing TWO new trade lines at the same time.
Just follow the procedure above, but when you get the check (loan) for $500, instead of using it
for bill paying, or whatever, go to another CU and open a second Savings Account Loan.
When you get the $500 back this time, use it as you would have (to pay bills, or set aside to
make these loan payments). Now you will have TWO new installment loans reporting to the
CRA's – is that exciting? This can help you build new credit FAST. Now see how this same
procedure can help you with the next idea.
B. Obtaining a new installment loan. Here's another possibility. Let's say you are 'credit
poor,' but you do have some available cash. You could go out and make a purchase (used car
or a small RV – something that will report as an installment loan when financed) with a
substantial down-payment (to help you get the loan). So, for example, you find a used car for
$5000, and put down $3000, financing the rest (probably at a high interest rate). Your payment
may be set up at $100/month for 3 years, but you want to pay it off faster to get a 'paid off'
loan showing on your credit report sooner than 3 years. You should pay on it for at least 8
months in order for it to really help your score – some people advise 1 year. So, pay double
payments every month and pay it off. This will be a great new trade line and will really help
bring up your score.
This can also be 'coupled' with the Credit Union Savings Loan mentioned above. You
could FIRST put the $3000 into a CU Savings Account, borrow the money as outlined, and
then when you receive the check back for $3000, go and purchase the car. Can you see how,
by following this procedure, you could be building two, three or four brand new trade lines at
the same time, all of which will become valuable to your score AS you are paying them, and
even more so when you pay them off.
C. You can begin with a “secured” credit card, if necessary. Note: If you have filed for
bankruptcy within the past 12 months, you will probably NOT be approved for most secured
cards. In addition to the information about this subject provided in “Getting Your First Credit
Card” in Chapter 6, I would like to add the following:
When applying for new credit, whether secured or unsecured, ask the potential creditor
about any fees that may be required (because some of them may be very high), whether a
deposit is required, whether or not you will get interest on any or all of your deposit, and how
much, and the amount of your deposit that will be available for you to use (charge). Be sure to
shop around for the best possible terms. We've seen horror stories, over and over, where
people apply for and obtain a secured card for say, $300, and when they receive their first
statement, they're shocked to find out that about $200 went to fees and they now have only
$100 at their disposal. Many of these people, because they were never told about these fees,
then attempt to cancel the card, without using it, and refuse to pay the high fees. Then, since
no payments are being made, the creditor will begin charging additional fees, placing late pays
on the credit report, etc. I've seen a $300.00 card escalate to over $1000 by the time the creditor
placed it for collection.
INSIDER TIP: If your highest score is TU, and you are looking for a credit card, we have been
told that in the past, Wells Fargo pulled only the TU score. If this is still true, and if your credit
score is in the 600’s, you may qualify for a card there. Don’t hesitate to call and ask each bank
which bureaus they pull in doing your credit check, as they will tell you right out, and if they check
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the one(s) that have your highest scores, use them, and you may be able to qualify for an unsecured
card to start the ball rolling.
Remember, the safest and most sensible way to use a credit card is to pay back the whole
amount you charge every month, to avoid paying interest. Young people should all begin their
credit 'career' by adhering to this policy from 'Day One.' When you do this, you are essentially
using the bank’s money (OPM) for thirty days, interest free. The banks, however, don’t like
this as they make their money on the interest they charge you. Thus, while you are in the
credit building mode, you should leave a partial balance on the card every month. Perhaps
pay off 80 – 90% of it, and leave a 10 – 20% balance to keep the bank happy (remember not to
ever go over 30%). The interest on such a small amount, even at 24%, won’t add up to that
much, and the credit you build will make it worthwhile.
HCS has a number of different credit cards which we make available to our clients, and
readers of this book – often different cards suit different people in different unique situations
(see the contact information in the Appendix of this book entitled, “Products and Services to
Help You Increase Your Score.”) One is an unsecured credit line for $7500.00, with no credit
check, for example, and another is for $12,500, with no credit check, and a 100% guarantee of
acceptance. One reports to TU and the other to EXP. Adding these, and other trade lines, is a
great way to off-set your current credit card balances and limits (debt-to-credit ratio). It is
equivalent to paying down $7500.00 – 12,500 on your credit card debt which will increase your
score with no cash out of your pocket. (Actually paying down your current cards with real
money would increase your credit score as well, but few people can afford to do that).
D. Getting Rent Reported. Adding other types of new trade lines will “grow” your score
immensely, and quickly. In addition to new credit cards, there is another way you can add
trade lines to your credit that is very important for you to know about. The first of these was
designed for our many clients who want to purchase a home and are currently renting.
One factor that helps home-owners get a new mortgage is the history showing how they
have paid their current mortgage. This particular “trade line” is very important to prospective
lenders, due to the seriousness of having a mortgage paid on time every month.
Unfortunately for renters, no matter how well they have paid their rent, or for how many
years, this item is not included in your credit report and thus you are unable to use that great
rental history for influencing a prospective creditor . . . until now.
Our firm utilizes a method by which tenants can now get their rent reported to all three
bureaus every month. It will be reported from the time you moved in to the present, and you
have to have a good rent record. By “good,” we mean, that any late pays you had must have
been over 30 days late. If you were a few days or a week or two late, but you did make the
payment within the 30 days, it will not go on your record as a “30 day late” as other late
payments will. This adds a trade line to your credit, on all three bureaus, and can instantly
bring up your score. There is a small one-time fee for this, payable to the company that does
the reporting, because they will continue reporting it for as long as you continue renting. No
matter how long a period that is, there will never be a monthly fee or any other fees added.
This service is nothing short of spectacular, and to check into it, use the contact information in
the Appendix under “getting rent reported.”
There is also other help for homeowners and renters alike in providing additional new
trade lines that are not currently reporting on people's credit reports. As with the rent
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reporting, there is a program soon to be available where consumers who qualify can get their
utility and phone company payments and other recurring monthly bills reported to the three
bureaus as well. This, like the rent reporting, is dynamite for increasing your credit score
almost instantly, if you have a good history of paying these bills on time (as agreed). This
service also has a small fee and will be reported from the time you had the utilities and/or
phone service set up until the present, and on into the future. Don’t underestimate the power
these “trade lines” could have as a positive force on your credit report. You can get more
information about this program by using the contact information in the Appendix under
“getting utility and phone bills reported,” and we can then update you as it becomes available.
E. Using Cash Reserve Accounts for building business or personal credit can be helpful as
well. In today’s world, lenders are much more comfortable lending you or your business
money if you have cash in the bank. We recommend this procedure for use only in certain
situations. Let’s say that you have assets (like antiques, precious metals, art work, etc), but the
value of those assets is not such as to be readily liquid, and therefore not considered as an
asset by lenders. Borrowing against these assets, placing the cash in an account, and leaving it
for at least 90 days prior to applying for a new home mortgage, would show that you have
liquid assets and would help you get the loan. It could be borrowed from a relative or friend
on the contingency that you will not withdraw or use it, but will leave it in the account for 90
days up to 5 or 6 months while your loan is closing. Depending upon how well you know the
person who is loaning you this money, and how well they trust you, you may want to give
them a promissory note for the valuables you have, or actually let them hold your valuables in
their possession until you return the money in the account. Since you really do have the
equivalent of the cash account in other assets, this is a way for you to be able to show it to a
lender. Once you have secured the loan, you can pay the money back to the person who
loaned it to you. Another way this could be structured would be for you and the friend to
open an account together, with both names listed on the account, but with only the friend’s
name as the one who can remove the money from the account. This way, they are protected,
but the money will show up in a Verification of Deposit as being in an account in your name.
VI. Be Careful About Credit Rebuilding Sales Programs – Deal or No Deal?
You may have heard about companies that will offer you products “on credit” so that you can
pay them back over time and have it reported to the bureaus. Their intent is to help you ‘rebuild’
your credit, or so they say. Unfortunately, these companies are often just as uneducated as the
general public, and they don’t even realize, in many cases, that they are actually hurting your
credit rating more than they are helping you.
Check it out! One company advertises that you can get a brand new Dell or Gateway (or
similar) computer with no qualifying and small weekly payments that you can pay off in 12
months. They offer to report it monthly to the bureaus to help you build your credit. You talk to a
representative of the company and they will gladly take your order for a laptop or desktop
computer – you select exactly what you want or need. Once you decide what you want, they take
the total price and divide it by 52 weeks (or one year). Sounds good, right? Anyone can afford
these small payments and it’s a really great idea (really!). Here’s how it works. You pay $99.00
down with your application, they don’t run your credit, but they do need to know where you
work and live, because remember, they are sending you a brand new computer. Your payment
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may be about $35/week. They then set you up on a weekly debit from your checking account and
once they deduct about 4 – 5 payments, they will ship the computer out to you.. Deal or no deal?
Sounds great, so far, and even I would say, “Deal!”
And what’s more, they will report it to the credit bureaus monthly so it will help you build
your score. That is what they are advertising – “re-build or re-establish your credit” by having us
report this to all 3 bureaus. That’s great as well, or IS IT? Never mind the fact that they are
charging you a ‘little more’ than you could purchase the same set-up for elsewhere – after all, they
are doing you a great favor in carrying this loan for a whole year and helping you re-establish your
credit, aren’t they?
Again, let’s check it out! One of my clients told me he had considered working with 2 of these
companies he’d found. Fortunately he called me and asked for my advice before he made his
decision. It sounded really great to him, and after he explained it to me, I had to agree with him.
Remember, I am always looking for additional ways to help my clients rebuild their credit, and I
was excited that this may be another program I could refer them to for help.
I decided to call each of these companies and speak to a member of high management. I never
refer a client to anything that I haven’t checked out thoroughly, and if it is good, I even try it out
myself just to make sure there are no ‘catches.’ After verifying all of the information my client had
given me, I asked one more question. “How do you report this to the credit bureaus?” I was very
disappointed in their answer – they report it as a line of REVOLVING credit! So, let’s work this
out:
Say the cost of the computer was $2000.00; divide that by 52, which equals $38.46/week that
would be deducted from your checking account. Remembering the 30% rule, and our debt ratio,
we need to take $2000.00 x 30%, which equals $600.00. (With a revolving account, this is all you
should charge to keep your credit scores high). So let’s look at what this account will look like
when reported to the credit bureau:
High Limit
$2000.00
Balance
$1,747.16 (what you still owe)
Let’s see – you paid $99.00 with the application, and they deducted about 4 payments of $38.46
– that comes to a total of $252.84. Subtract that from $2000.00 and you still owe $1747.16.
This sounds good to you because you want to rebuild your credit and get a brand new
computer NOW. The credit bureau scoring system, on the other hand, is saying, “Whoops! – Hey,
you just went out and got a new credit card, and it’s now just about maxed out.” BOOM! What hit
you? Your goal was to increase your score and the bureaus just lowered your score for the reasons
listed above. And because you had no idea of how the system works, you are in shock when I
explain to you what happened!
I explained my position to them, and the detrimental effect their reporting method was having
on their customers, and they were actually shocked to learn that reporting it as ‘revolving’ credit
would harm their credit customers. It was as though they didn’t believe me. I explained the
whole scenario to them, and then I asked these company executives if it wouldn’t be possible for
them to report these as ‘installment’ loans instead, thereby really helping people re-build credit.
They both said they would ‘think about it,’ and that was the last I heard. One company has not
returned my phone calls or e-mails in over 3 months. Can you blame them? They are playing the
same game as everyone else – they want customers to ‘pay the balance down and come back for
more!’ With an installment loan, you see, once the customer has paid it off, the loan is closed –
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paid – a done deal! With revolving, however, you can pay it down and charge it up again, and pay
it down and charge it up again, and pay it down and charge it up again – and the creditors LOVE
it that way. I don’t know of very many businesses that still use installment contracts. America,
until the scoring system changes, you need to always be aware of purchases with revolving
contracts like those I’ve mentioned here. Needless to say, my client chose not to use their
programs, and because of the existing ‘unfair’ scoring system we are subject to, this is a program
that I cannot recommend to people to re-build their credit.
What if you’re already in a deal like this? Is there any way it can ever help your score? Let’s
calculate the point at which this could help your score:
Your balance was $1747.16 and you need to pay it down to under $600 to really help your
score. The sooner you do that, the faster your score will go up. If you keep paying $38.46/week, it
will take you 30 weekly payments, or over 7 months, to get your balance below $600.00 to really
help your score. But, isn’t it interesting – if they would report this as an installment loan, instead
of revolving, I would be highly recommending this program because an installment loan, like a car
loan, will start raising your score in just a couple of months.
There is ANOTHER SOLUTION as well. If they would simply give the client a higher credit
limit (as a reserve they can’t charge up until they pay down what they owe), then it would look
more like this in our example:
High Limit
Balance
$6000.00
$1747.16
Now let’s analyze that. If you take 30% of $6000.00, it is $1800.00. Your balance with them of
$1747.16 is under the 30% rule by $53.00, and you would be rewarded with valuable scoring points
very quickly. This program would make sense, and I would highly recommend it.
But, guess what? I took about an hour and laid all of this out in an e-mail to both companies
and to date, I’ve heard from neither. Don’t forget that they are selling computers at an inflated
price to cover their costs and the risk they are taking with this program, and they just don’t want
to rock their boat. So, knowing what you now know, would you say this is a good deal?
VII. ‘Bookmark’ This Section
So often, we read a book and are completely overwhelmed by the sheer volume of
important information, that we end up setting it aside for ‘further’ use, or even disregarding it
completely, thinking, “What’s the use?” To help you avoid that situation, and speed the
process of your moving ahead in a positive direction, this section has been written as a quick,
easy reference and plan of attack. Not every step listed here will apply to all of you, but most
of these steps will apply to most readers of this book, so use it as a checklist – a ‘Things To Do’
List, or for couples, a sort of ‘Honey Do’ list. Duplicate it, if necessary, and place it on your
wall or mirror, and then begin to systematically take the steps needed in YOUR particular
situation to change your credit – your lifeline – permanently and keep it that way.
1) Pray about your situation (together, if married) and praise God for being in control and
for wanting to help you change your life. Then thank Him for the many blessings He
has given you. Ask His forgiveness for not being a good steward of the things He has
given you, and turn your life and your financial situation completely over to Him.
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Finally, ask God to deliver you from the financial bondage you are in. And if you
haven't accepted Jesus Christ as your personal savior, you may want to do that also.
2) Begin immediately paying ALL of your bills on time (better yet, pay them early). If
there are some you can't afford to pay at this time, begin working with those creditors
as outlined in Chapter 8, but keep all of the OTHER bills paid on time every month.
3) Put in place the steps listed in Chapter 6 to get your 'financial house' in order.
4) Analyze your spending habits (See Chapter 9 and Sheets in Appendix).
5) Make a budget.
6) Set some short term and long term goals.
7) Get some positive new credit going to 'overshadow' the negatives on your credit file
(Chapter 9).
8) Get any errors on your current credit report removed (i.e., extra names, old addresses,
duplicate collections, items that aren't yours (See Chapter 4) - e-mail HCS for a profile
consultation if you'd like a very low cost analysis, etc.)
9) Take positive steps toward long-term profile improvement – get a landline phone, get a
street address, plan to stay on your same job, etc. (See Chapter 4).
10) Work toward getting all of your credit cards within the 30% ratio (See Chapter 5) and
getting the number of cards you have 'in line' with the 3-5 card principle.
11) Begin your debt elimination plan (See Chapter 9).
12) Open a savings account and begin to regularly make deposits from the 'excess' you are
developing by doing the above items.
13) Begin looking to the future and develop a retirement strategy (see the next section).
14) Be sure you have a will (or a living will and trust) to protect your family.
Hopefully, this will help you to 'organize' yourself to begin getting these things done. The
order listed here may or may not be the best order for you to use, but essentially, the things
near the top of the list should be done before those near the bottom. If you can't do many of
them right away, at least begin by doing what you can, and work on the others later.
VIII. Once You’re There
Eventually, you will get through all of the “bad” times, and begin to see your life turning in
another direction. You will have some money left over at the end of the month and want to begin
saving, planning for your retirement, and/or investing for your future. The Bible is very specific
on this subject – we are taught to invest the extra “talents” (a form of money in Biblical times)
wisely so as to not allow it to go to waste, just buried in the ground (as the Bible story of the
Talents goes). In other words, don’t put it under your mattress, and don’t spend it foolishly, but at
the very least, put it into a bank account where it can draw some interest. (You can read the
Parable of the Talents in Matthew 25:15 – 30.)
If you think you can’t afford to do any type of saving or investing, you must understand that
you really can’t afford NOT to do this kind of financial planning for your future. God expects us
to not only be good stewards, but to provide for the future of our families. Having life and health
insurance is important as well, and if you can’t afford the high cost of health insurance these days
(especially if you’re self-employed), contact our office and we will refer you to a plan that applies
all of your premiums (which are very reasonable) to a “savings” plan and you get 100% of the
Steve Mertes and Jeri Koppleman
199
monthly costs back at the end of 10 years. This can be substantial and you owe it to your family to
have something like this in place for their benefit.
This book, however, was not designed to be an investment guide, and space will not allow for
us do that subject justice. Thus, we will simply touch on a few simple guidelines:
1) Once you decide on a strategy, make a commitment to it and use self-control and discipline
to stick to it until you reach your goals – whether it be a simple savings plan, or investments in
IRA’s or stocks & bonds. For some beginning information to help you understand these basic
types of investments better, see the definitions of “money market accounts,” “stocks,”
“bonds,” “Treasury Notes,” “Treasury Bills,” “Corporate Bonds,” and “mutual funds” in the
Important Definitions section of this book in Chapter 3. No one but you can determine what
types of investments are best in your situation – it depends on your age and financial
situation, and to some extent your personality and family situation. See the chart on the next
page, entitled ‘Stock Market Investing.’
(Remember the old adage, 'Don't put all your eggs in one . . . stock')
2) Remember that sticking to something, even a “little” something, can bring about big results
in time. The powers of multiplication and compounded interest will take over and , in time,
even a monthly commitment as small as $25 – 100.00 will grow at an exponential rate. See the
chart at the end of Chapter 2, entitled How Compound Interest Works, which gives a
hypothetical example of how just $50/month can grow over time.
3) Be sure that the money set aside in such a way is kept 'hidden'. In other words, it will be
easy to see that money as “available” when a special deal comes along that you just can’t
resist. This is what got a lot of people into trouble in the first place – every time they had a
little extra, they bought a little extra. Remember that impulse shopping we talked about earlier
in the book. You must learn to look at that money as “untouchable,” and keep it that way.
4) It doesn’t matter what age you are or what your financial condition – just begin setting
aside something for your future – no matter how short the time, or how small the amount.
Something is always better than nothing. And it pays to re-invest the income you generate
from your investments – in other words, leave the income (compound interest) in the account
to keep on compounding and your savings/investment will grow even more rapidly. If you
are thinking about retirement, and are wondering how to determine the amount you’ll need to
live on during your retirement years, there is a chart with some information in the Appendix,
entitled “Projected Monthly Retirement.” Use the information there to help you calculate
how much you need to set aside now to achieve a comfortable retirement goal.
5) God will bless your diligence in this matter and may just have some surprises for you, as
well. In Jeremiah 29:11, God tell us, “I know the plans I have for you – plans to prosper you and
not to harm you, plans to give you hope and a future.”
God said it, we believe it . . . and just knowing it, should bring determination to your soul
and joy to your heart.
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IN Summary;
YOU NOW ARE ARMED WITH THE KNOWLEDGE TO MANAGE YOUR CREDIT.
Managing your credit is an important job, but you can see that it's not a difficult one – just one
that will take some time and organization. As you have read, just a late pay or 2 can create serious
problems with your credit score and as things get worse, so does your score. Armed with the
knowledge you now have, set up a payment system that works for you. Make sure you keep your
check book balanced weekly. Do not neglect your mail. If a bill comes in the mail that should
have been taken care of because a company employee told you not to worry about….worry about
it, call them and get the name of person you talked to, write down the date, have them fax you a
statement stating that the bill was paid. DO NOT TAKE CHANCES WITH YOUR CREDIT,
NOBODY IS GOING TO CARE ABOUT HOW IT WILL AFFECT YOUR CREDIT, EXCEPT YOU.
Pay your bills before the due date, follow up and make sure the checks you wrote cleared your
account. This is going to seem like a chore that you would rather not even start. But we can't
stress enough, that if you do not make a serious commitment to start paying close attention to
every detail of your monthly obligations, your spending habits and your financial future, you have
no one to blame but yourself. As mentioned earlier, don't be one of those who buy the book, read
it and say, "Well this sounds good – maybe I'll apply this knowledge tomorrow, next month or
some day". DO IT NOW!
"I can do all things through Christ who strengthens me." Phil. 4:13
------------------------------------------------------------------------------------------
Stock Market Investing
------------------------------------------------------------------------------------------------------Traditionally, over the past 20 years, the stock market has given it’s investors an
annual average return of 10%. That is a good deal more than you can earn in most bank
accounts. The following table gives examples of what $1000 will earn over 20 years,
invested with a 5, 10 and 15% return.
Years
Invested
Total
Invested
5%
10%
15%
5
$5000
$5802
$6716
$7754
10
$10,000
$13,207
$17,531
$23,349
15
$15,000
$22,657
$35,950
$54,717
20
$20,000
$34,719
$63,002
$117,810
--------------------------------------------------------------------------------------(Remember the old adage,
‘Opportunities always look much better going than they did coming.’
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Steve Mertes and Jeri Koppleman
PART FOUR – APPENDIX
Contact Information, Forms and Worksheets
I. Contact Information for Steve Mertes & Jeri Koppleman
Visit our website for more products at www.HelpingHandCredit.Net
Email us at; [email protected]
Direct in Az. (480)-200-2128
II. Products and Services to Help You Increase Your Score:
Also, order the new “CREDIT TRAP” game (a fun way to educate the whole family)
III. Contact Information for the Three Bureaus:
(These may change from time to time, so you may want to go to their websites for updates)
TransUnion or www.TransUnion.com
(800) 888-4213
P.O. Box 2000, Chester , PA 19022
For fraud alert – (800-680-7289
Experian
P.O. Box 9556
Allen, TX 75013
Equifax
P.O Box 740256
Atlanta, GA 30374
or www.Experian.com (888) 397-3742
for fraud alert - ( 888) 397-3742
or www.Equifax.com
(800) 525-6285
for fraud alert – (888) 766-0008
IV. How to Contact Other CRA's:
ChexSystems – send a letter for their report to:
ChexSystems, 12005 Ford Road, Dallas TX 75234-7253 Or Call 1-800-428-9623
Innovis Data Solutions - To obtain a copy of their report, (for a small fee) Call 1-800-540-2505.
Lexis Nexus – To obtain a free copy of their report, call 1-800-227-4908
or write:
Lexis Nexus, 100 S. Fifth Ave, # 300, Minneapolis, MN 55402
Medical Information Bureau - To obtain a free copy of your report
1-866-692-6901
National Consumer Telecom & Utilities Exchange – Obtain a report for a fee, call 1-888-201-5643
For State laws governing the use of insurance scores, go to www.insure.com or your state’s
insurance commissioner, or to file a complaint, go to www.naic.org
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How to Escape The Credit Trap For Life
V. Other Contact Information:
202-434-2277
AARP – 601 E. St., N.W., Washington, DC 20049
American Collectors Association - www.collector.com 0r 1-952-926-6547
Bankruptcy Assistance – contact the National Bankruptcy Review Commission at: www.nbrc.gov
Better Business Bureaus (Council of), National Headquarters (for a listing of local BBB offices and
consumer education brochures:
www.bbb.org or 1-703-276-0100
ChoiceTrust – To obtain free copies of their reports, call 1-866-312-8076 or 1 – 877-448-5732
Consumer Problems (including how to use credit cards overseas): www.pueblo.gsa.gov for a
free copy of The Consumer Action Handbook (advice on handling consumer complaints)
Credit Union National Association (for information about eligibility) www.cuna.org or write to:
CUNA, Box 431, Madison, WI 53701-0431
Debtor's Anonymous – www.debtorsanonymous.org For one-on-one counseling regarding
financial recovery, you may also want to try www.financialrecovery.com
For other comprehensive Debt Counseling, contact Myvesta (financial crisis and
treatment center) at Myvesta.org or 1-800-680-3328
Discount health/benefit plans - For information about low cost health benefits and insurance,
where premiums are 100% refundable after 10 years (built in “savings” plan), contact
www.iabweb.com/medhelp (Low monthly fee for this plan includes the next plan also)
Discount Legal Assistance Plan – For vastly reduced attorney fees nation-wide – part of the largest
discount/benefits program in America, offering 35 benefits for very low monthly fees.
www.iab.web.com/medhelp
Fair Credit Reporting Act - www.ftc.gov/os/statutes/fcra.htm
Finding laws state by state - wwwfindlaw.com
Free copy of credit report (obtainable one time from one bureau only) www.AnnualCreditReport.com or
877-322-8228
Identity Theft Data Clearinghouse – (To report ID fraud) www.consumer.gov/idtheft or
1-877-IDTHEFT (438-4338)
For information on I.D. Theft: www.consumer.gov/idtheft/index.html
National Fraud Information Center – 1-800-876-7060
Public Interest Research Group - for fact sheets on credit reports, identity theft, etc.
www.pirg.org or 1-202-546-9707
Statutes of Limitations - Info on your state's laws - www.cardreport.com and click on laws/ statutes
of limitations
VI. Financial Help from Christian Perspective:
(Helpful guides, mortgage calculators, and much more)
Crown Ministries - www.Crown.org/
Christian Financial Concepts P.O. Box 2377, Gainesville, GA 30503-2377 (800) 722-1976 or
www.cfcministry.org.
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Steve Mertes and Jeri Koppleman
VII. Non-Profit Investment Groups:
Baptist Foundation – www.sbfdn.org
American Association of Individual Investors - www.aaii.org
National Association of Investors Corp. - www.better-investing.org
American Association of Individual Investors www.aaii.org
National Association of Investors Corporation www.better-investing.org
VIII. Other Investment Groups and Financial Information:
CNNfn www.cnnfn.com/
Berger Associates (800-333-1001)
Mutual Fund Investor’s Center www.mfea.com/
Strong Capitol Management (800-368-3863)
Yahoo! Finance
quote.yahoo.com/
T. Rowe Price (800 – 638-5660)
IX. Additional Helpful Resources:
To register complaints against CRA’s or other creditors or for a copy of the FCRA,or for free booklets
on credit topics, contact:
FTC – Federal Trade Commission
www.ftc.gov
Consumer Response Center – FCRA
1-877-FTC-HELP
1-202-362-2222
Pennsylvania Ave. & 6th St., N.W.
Washington, DC 20580
In addition to the FTC, these other federal agencies govern the enforcement of the FCRA in regard to:
Savings Assoc. & federally chartered savings banks –
Offices of Thrift Supervision, Consumer Programs, Washington, DC 20552
(800) 842 – 6929
National or foreign banks – Office of the Comptroller of the Currency, Compliance Management
Washington, D.C. 20219
(800) 613-6743
Federal Credit Unions - National Credit Union Administration, 1775 Duke St.,
Alexandria, VA 22314
(703) 518-6360
State Chartered Banks - Federal Deposit Insurance Corp.. Div. of Compliance & Consumer Affairs
Washington, DC 20429
(800) 934-FDIC
Federal Reserve System Member Banks –Federal Reserve Board
(202) 452-3693
Div. of Consumer & Community Affairs, Washington, DC 20551
To get all the information on opening an ETA (Electronic Transfer Account) , www.ETA-Find.gov
To contact Credit Card Companies - www.americanexpress.com
www.MasterCard.com
To shop for different Card Programs - creditcardmenu.com
www.discovercard.com
www.usa.visa.com
To check out consumer ratings of various card issuers – www.gomez.com
For Benefits Associated with Debit Cards – (for the latest perks) Cardweb.com or Bankrate.com
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How to Escape The Credit Trap For Life
Resources for prospective homebuyers, www.fanniemae.com or www.mbaa.org (Mtg. Bankers Assoc.)
Money Market Accounts w/no minimum deposits – Western Financial Bank (877) 932-1234
(888) 932-7212 or www.wfb.com
Discount Brokers – Ameritrade, www.ameritrade.com/ or Schwab, www.eschwab.com
or E-Trade, www.etrade.com
For tools to use with kids - www.dltk-kids.com/crafts/miscellaneous/mcheck.html.
To reduce Direct Marketing Mailings, have your name removed from member lists: Direct
Marketing Association, Mail Preference Service, P.O. Box 9008, Farmingdale, NY 11735-9008.
X .Worksheets and Charts:
SETTING YOUR GOALS
A Few Brief Facts about Goal-Setting:
There are entire books and whole courses (which should be taught in elementary and high
schools) on this topic, but in order to help you get started, we will just point out a few of the most
important aspects of goal-setting, taken from one of Jeri’s books.
There are many aspects to one’s life that contribute to our overall well-being. It is good to set
goals in all of these areas, and they are listed on the next page, along with an example for each one.
The areas are not listed in any order of importance, but all are equally important, and you should
not neglect one for another. In order to be well-rounded and have a totally healthy life, put at least
one goal in each of the 8 categories. Remember, the examples are there for guidance only – your
own goals should be things of importance to you – things you really want to accomplish in your
life. All goals set should be realistic, positive, and specific.
You will notice that these goals are all listed in a positive manner (not, “I will stop eating so
many desserts”), and are very specific (not, “I will watch less TV”) – two characteristics of goals
that make them work. They are all very realistic (within reach if you work at it). It would be
difficult for most of us to become debt free in 1 year, for instance, so use a timetable that you feel
comfortable with. Your hard work may well cause the goal to be reached earlier than you
planned. And other times, you may have to amend the goal due to changes in your circumstances,
so be flexible. Make a copy of the next page to use in the future if you find changes are necessary
or new goals would serve you better.
You will also notice that all of the ‘sample’ goals listed support each other. When you limit
your television time, you will have more time for reading or exercising; when you exercise more,
you will begin losing weight; when you read the Bible daily, God will show you many ways you
can have a more enjoyable life; when you learn about your credit, it will help you become debtfree, etc. This was not planned, but when you list goals in all 8 areas, it just happens that they will,
in fact, support each other, since each is contributing to a necessary part of your life.
It is a fact that it takes 21 days to change a bad habit or acquire a positive new habit, while it
takes only 3 – 7 days to completely lose a good habit again, once it’s acquired. You can work for 3
weeks to acquire the “hugging” habit, but go on a vacation for 4 days and don’t do it, and you will
have to start all over again. Take your time in filling out the next page, and give it some serious
Steve Mertes and Jeri Koppleman
205
thought. If you are married, you and your spouse should each fill one out separately, then get
together and compare them. You may be surprised to find out how many goals you have in
common. Have your spouse witness your goal sheet, and vice versa, or get a third party witness.
Having the witness sign and attest to your goals is extremely important.
My Short and Long Term Goals
In order to have a bright financial future, and a more well-rounded and enjoyable life,
I hereby acknowledge that I have adopted the following goals:
1. (A financial goal – i.e., “I will be completely debt free within 5 years.”)
____________________________________________________________________________
____________________________________________________________________________
2. (A personal fulfillment goal – i.e., “I will read and learn all I can about my credit in
the next 2 months.”)__________________________________________________________
____________________________________________________________________________
3. (A Spiritual goal – i.e., “I will read through the entire Bible in one year.”)
____________________________________________________________________________
____________________________________________________________________________
4. (A Physical goal – i.e., “I will weigh 30 lbs. less one year from today.”)
____________________________________________________________________________
____________________________________________________________________________
5. (A health goal – i.e., “I will eat more vegetables and/or exercise daily.”) __________
____________________________________________________________________________
6. (A self-improvement goal – i.e., “I will limit my TV watching to 4 hours/wk.”)
____________________________________________________________________________
____________________________________________________________________________
7. (A mental goal – i.e., “I will think positively about my future and work daily to
look for the good things in my life.”) ___________________________________________
____________________________________________________________________________
8. (A family goal, if you have one – i.e., “I will hug my spouse and children at least 3
times/day.”)________________________________________________________________
____________________________________________________________________________
Signed this _______ day of _________________, 20___
_______________________________ Witnessed by: __________________________
(Signature)
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How to Escape The Credit Trap For Life
Your Personal Spending Plan (SAMPLE)
Month of ______________
Expense
Week
1
Rent/mortgage
Electricity
Water/trash
car payment
car insurance
phone bill
health ins.
gasoline
groceries
contributions
credit card 1
credit card 2
entertainment
restaurants
etc.
$1300
TOTALS
Week
2
Net Income $___3600.00________
Week
3
Week
4
$175
145
57
200
90
$286
55
43
288
55
147
90
69
118
90
95
47
35
45
22
16
55
55
68
130
90
45
110
51
55
Spent
Planned
$1300
$ 175
145
286
220
43
288
249
595
360
45
$1300
175
145
286
220
43
288
225
500
360
45
176
159
120
125
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Steve Mertes and Jeri Koppleman
Your Personal Spending Plan
(Reproducible)
Month of ______________
Expense
Rent/mortgage
Electricity
Water/trash
car payment
car insurance
phone bill
health ins.
gasoline
groceries
contributions
credit card 1
credit card 2
entertainment
restaurants
etc.
TOTALS
Week
1
Week
2
Net Income $________________
Week
3
Week
4
Spent
Planned
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How to Escape The Credit Trap For Life
CREDITOR INFORMATION WORKSHEET (Reproducible)
Date ___________________
Creditor
& Acct. #
Account
Balance
Monthly
Payment
Interest
Rate
Minimum
Mo. Payment
Due
Date
Now, go back to the top & number the accounts from smallest (#1) to largest, then transfer
them –in order, with the largest debt on top – to the Debt Elimination Plan on the following
page. Read the instructions for completing the plan in Chapter 9, Part IV.
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Steve Mertes and Jeri Koppleman
DEBT ELIMINATION PLAN
Date _____________
List each debt, beginning at the top with the largest debt owed. Then utilize this list
from the bottom up, listing your bottom (smallest) debt as # 1 (to pay off), and next
smallest debt as #2, etc., paying each debt according to the procedures outlined in Chapter
9, Part IV.
Creditor &
Account #
Account
Balance
Interest
Rate
New Payment
Minimum + Extra
Due
Date
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How to Escape The Credit Trap For Life
PROJECTED MONTHLY RETIREMENT INCOME
Most experts predict that inflation will increase at the rate of about 3% per year. Thus,
you should take this into account when planning for your retirement years. First you
need to estimate the monthly income you think you will need then – usually about 60% of
what you are living on now, unless you plan to have a lavish retirement.
Place that monthly dollar amount here: __________________(A)
Now, decide how many years you have until you plan to retire: _____________(B)
Find the inflation factor using the chart below. Then, multiply that number x the
amount in line (A) to determine the monthly amount you will need when you retire. For
example, if you have 10 years until retirement, the factor is 1.34%. Take your (A) x 1.34,
and that will give you the amount you need to live on monthly in 10 years, after you
retire.
Years ‘Til Retirement
5
10
15
20
25
30
35
40
Inflation Factor (%)
1.16
1.34
1.56
1.81
2.09
2.43
2.81
3.26
EXAMPLE:
Projected monthy income for retirement
$2100.00
Inflation factor for 10 years
x 1.34
Mo. retirement income adjusted for inflation $2814.00
No one can calculate exactly how long this retirement income will be needed, so
concentrate on having enough coming in monthly from SS, retirement, savings, interest,
etc., (figure in any other income or assets you may have – home paid off, reverse
mortgage, insurance, investments, etc.) to cover the monthly amount you have calculated.
Meeting with a financial advisor can help with your projections (see some suggested
organizations in the contact information above).
"So do not worry, saying, 'What shall we eat?' or 'What shall we drink?' or 'What shall we
wear?' For the pagans run after all these things, and your Heavenly Father knows that you need
them. But seek first his kingdom and his righteousness, and all these things will be given to you as
well. Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has
enough trouble of its own." Matthew 6: 31 – 34
Steve Mertes and Jeri Koppleman
211
A Call to Action for ALL Loan Officers & Real Estate Agents;
Now that you are "armed" with the knowledge of this book, I am pleading with you to
help me get the word out to America. Many people who think that home ownership or
refinancing their existing home is impossible, need to know that this book is a "must" to help
them understand how to manage their credit, to attain the scores they need.
Also, I urge you to go through your files and contact clients that you have sold a home to
or closed a loan on in the past few years. Many of them had to settle for lower priced homes
or higher interest loans, because of their credit scores. Let them know that you have found the
answer to why their scores were low and how they can refinance and get a lower interest rate
or purchase that bigger home that they really wanted. And don't forget about those who
settled for the "dangerous adjustable rate mortgage," that may be in serious trouble if they
can't refinance, and may end up losing their home!
Also, as I converse with loan officers all across America, on a daily basis, I hear over and
over that "things have slowed down" in the housing market. I've also been hearing that many
people who want to buy another house, have to sell their existing home to do so and there just
aren't enough "qualified buyers out there". The loan officers working with me on a regular
basis, now realize the benefits of working the 'sub-prime' market, and together we've helped
their clients become qualified buyers. This can work for you, too.
Don't overlook the renters –the first time home buyers, who don't have to wait for a house
to sell. Many people with the help of this book can and will become home buyers. Did you
know that title companies all across America have some great tools and programs that are
FREE to you, such as names and addresses of all the apartment complexes in a certain zip
code, AND THEY WILL EVEN PRINT UP THE MAILING LABELS FOR YOU FOR FREE?
With your help, we can not only help people fulfill their real estate needs, but also help
them to be able to also get lower interest rates on car purchases and anything that requires
their credit to be pulled for approval. In short, this book can change the economy of America
of which you can play a key roll in and greatly benefit from.
I also want to thank the hundreds of loan officers across America who've put their trust in
me and my program. Over the past few years we've helped many achieve higher credit scores
and achieve their real estate goals. I know that your clients are also very grateful to you, as
opposed to those of you, who had no idea that HCS even exists and simply have to tell your
client "Sorry I can't help you, your scores just aren't high enough".
So now you know that we do exist, we are for real and that we are here to help your
clients. We look forward to hearing from you in the very near future. May God richly bless all
of you who truly want to help others get what they want out of life.
Most sincerely, Steve Mertes
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How to Escape The Credit Trap For Life
Contact Information
Helping Hand Credit Services
Steve Mertes & Jeri Koppleman
www.HelpingHandCredit.Net
[email protected]
Direct in Arizona (480) 200-2128