Demystifying Credit Demystifying Credit RepairRepair

Demystifying Credit Demystifying Credit RepairRepair

Ten Greatest Myths About Your Credit

Ten Greatest Myths About Your Credit

Let’s go WAY back to… Let’s go WAY back to…

19981998-How were home insurance premiums -How were home insurance premiums

calculated?calculated?-How were auto insurance premiums -How were auto insurance premiums

calculated?calculated?-How were job applicants screened and -How were job applicants screened and

qualified?qualified?-What’s next? Health Care? Utility rates? -What’s next? Health Care? Utility rates?

A WORLD OF CHANGEA WORLD OF CHANGE

Who is FICO?Who is FICO?

Who are Experian, Equifax and Trans Union?Who are Experian, Equifax and Trans Union?

Who are their customers? (what do they say?)Who are their customers? (what do they say?)

The Big 3The Big 3

• Equifax – Beacon, EFX, S&P 500 component, Atlanta, Georgia

• Trans Union – Empirica, Private company, H Group Holdings, Pritzker (ie. Penny Pritzker – Obama appointee) family of Chicago, IL Global Hyatt, Royal Carib.

• Experian – Fair Isaac, EXPN, London Stock Exchange, Dublin, Ireland

FICO, A Brief ChronologyFICO, A Brief Chronology

• 1956 – Engineer Bill Fair and mathematician Earl Isaac found FICO on the principle that statistical data can improve business decisions

• 1963 – Montgomery Ward begins using the credit scoring system• 1970 – Delivery of first credit card scoring system to Connecticut

Bank & Trust• 1987 – FICO goes public, moved listing to NYSE as “FIC” in 1996• 1991 – FICO made available to Equifax, Trans Union and Experian• 1993 – First insurance bureau score introduced• 1995 – Fannie Mae and Freddie Mac recommend use of FICO• 1997 – American Bankers Assoc. honors Bill Fair and Earl Isaac• 2000 – 2003 Multiple mergers and world-wide implementations• 2004 – Launch of Global FICO• 2007 – 100 Billionth FICO score sold• Current headquarters in Minneapolis, MN

Latest Statistics

• WSJ reported in July of 2010 that 43 Million Americans have a FICO score of 599 or lower (25.5% of adults)

• Feeder population of the unbanked will find it tougher to obtain a FICO

• The train wreck is still happening

Why Credit Scoring?Why Credit Scoring?

• Credit scoring is a “lazy man’s” method to evaluate your risk of defaulting - nondiscriminatory

• Credit scoring has become a thermometer of your financial health

• FICO scores range from 300 to 850• Assets and income not considered

Payment HistoryLate PaysCollectionsCharge-OffsRepossessionsForeclosuresTax LiensBankruptciesJudgmentsShort-Sales

Amounts OwedCredit CardsMortgage LoansAuto LoansHELOC’sInstallment Loans

Length of History

New CreditSoft InquiriesHard Inquiries

Types of Credit UsedA Mortgage LoanAn Auto Loan2-3 Major Credit Cards

• Paying a collection that is more than 2 years old can hurt a score.

• Derogatory accounts do NOT always fall off of a credit report automatically after 7 years. They must be disputed.

• A divorce decree does NOT take precedence over the creditor agreement.

• New debt temporarily decreases a score.• Balances should be kept below 20%(?) of the limit

at all times to maintain a score.• Debt should NOT be consolidated, it should be

distributed evenly over all credit card accounts.• Going over the limit on a credit card, even by $1

can cost as much as 100 points• HELOCs can be considered revolving debt, not

mortgages.• Credit card accounts should NOT be closed except

in special circumstances.• Unused credit card accounts will become unrated

in 3 months.

• Borrowers should hold onto old credit cards, even if the rate is not great.

• Mixture is the best.• The type of credit card DOES

matter.• 2 to 3 revolving credit cards with

established history is optimal.

• Hard vs. soft Inquiries.• Inquires affect a score for one

year.• Inquiries can cost between 2 and

30 points, depending on the current score.

• Pre-approved card offers are NOT really pre-approved.

Average 1st Mortgage Balance Home Equity Line of Credit Credit Cards With High

Balances 2 new “Reason Codes” Could see credit scores drop by

as much as 100 points

Demystifying Credit Demystifying Credit RepairRepair

• Myth #1. • Credit Agencies are empowered

with some kind of governmental authority.

• Credit agencies have no legal authority at all, they are simply billion-dollar corporations who are in the business of gathering and selling YOUR information

Demystifying Credit RepairDemystifying Credit Repair

Myth #2.• The credit agencies are required by

law to keep derogatory items on your credit report for 7 to 10 years.

• There is no law that the credit agencies report anything. Just the opposite is true! Credit Agencies are required by law to automatically remove all derogatory items older than 7 years, or in the case of a bankruptcy, 10 years.

Demystifying Credit RepairDemystifying Credit Repair

Myth #3.• It is impossible to remove an

item of public record.• Bankruptcies, tax liens, etc. come off

just like any other item that is incorrectly reported, obsolete, erroneous, misleading, incomplete, or that cannot be verified. Remember, the nature of the item has nothing to do with its removal under the Fair Credit Reporting Act.

Demystifying Credit RepairDemystifying Credit Repair

Myth # 4.• The burden of proof rests with

the consumer to validate information contained on your credit report.

• The opposite is true under the Fair Credit Reporting Act; both federal and various state laws REQUIRE that the credit agencies bear the burden.

Privacy vs. PiracyPrivacy vs. Piracy

Myth #5.• It is illegal or immoral to have

the information on your credit report altered or removed.

• Not only is it not illegal or immoral, but it is what the Fair Credit Reporting Act is all about. It was enacted by congress for the very purpose of protecting consumers from the intrusion of the credit agencies into our lives.

Demystifying Credit RepairDemystifying Credit Repair

Myth #6.• Paying a past due debt removes

it from your credit report.• Just because you pay an old debt

does not change or erase the fact that at one time you were not paying on it as you agreed. Can this record be changed? Absolutely!

Demystifying Credit RepairDemystifying Credit Repair

Myth #7.• Credit reporting and credit scoring

were developed to educate and inform consumers. (visit their websites)

• False. The big 3 and FICO serve the banking and insurance industries who need a 3rd party to “rate” their services.

• Evidence: Blockbuster and Hollywood video article

Demystifying Credit RepairDemystifying Credit Repair

Myth #8.• If you get a derogatory item

removed, it will just come back.• Not if it is removed legally. When it is

removed with cause under the Fair Credit reporting Act it cannot legally be placed back on your credit report. Consumer must receive a reinsertion letter 5 days prior.

Demystifying Credit RepairDemystifying Credit Repair

Myth #9.• The past equals the future.• This is the biggest myth of all. The

concept that once bad, always bad, or at least for 7 years is totally false. The scoring model, like Google’s search engine parameters, has been in constant change. The simple truth is, no credit report or scoring model can predict the future

First the FactsFirst the Facts

The Fair Credit Reporting Act: 1971 • Congress passed the Fair Credit Reporting Act (FCRA).

The FCRA was passed by congress with the intention to regulate credit-reporting agencies. The Act spelled out all the rules and regulations that the credit-reporting agencies had to follow before they put anything on someone’s credit report. All information reported must be 1) Verifiable, 2) Complete and 3) Accurate. For the past three decades, those agencies have ignored most of the law. If “reasonable procedures” have not been correctly followed, then any verified inaccuracies, etc. must be removed from your credit reports as defined in the FCRA. The three credit reporting agencies (CRA) ARE Experian (formerly TRW), Equifax and Transunion. There are various agencies that purchase information from these three major agencies, but they get their information from the “Big-3”, so if you can repair your credit with the Big-3, you basically repair it with everyone. www.yale.edu report

Fair Credit Reporting Act

How to read your resultsDeleted - This item was removed from your credit reportRemains - This item has been verified as accurate Updated – A change was made to this item; review this report to view the change. If ownership ofthe item was disputed, then it was verified as belonging to you.Reviewed - This item was either updated or deleted; review this report to learn its outcomeItems We investigatedWe completed investigating the items you disputed with the sources of the information. Here are the

results: Credit items outcomeCAP ONE RemainsZALES/CBSD UpdatedSTATE OF ALABAMA HR Deleted CBSI DeletedCBSI DeletedSECURITY CHECK LLC DeletedHSBC BANK DeletedCAVALRY PORTFOLIO SERV DeletedLISTER-HILL CREDIT UN Remains Visit experian.com/status to check the status of your pending disputes at any time

Additional related ActsAdditional related Acts

Google Search; consumer rights +

• FCRA• FCBA• FDCPA• FACTA• CROA

Fair & Accurate Credit Transactions Act

ALERTADDRESS DISCREPANCY: THERE IS A SUBSTANTIAL DIFFERENCE BETWEEN THE ADDRESS SUBMITTED IN THE INQUIRY AND

THE ADDRESS(ES) ON FILETRANSUNION ID MISMATCH ALERT: PREVIOUS ADDRESS MISMATCH. INPUT DOES NOT MATCH FILE.ADDRESS DISCREPANCY: THERE IS A SUBSTANTIAL DIFFERENCE BETWEEN THE ADDRESS SUBMITTED IN THE INQUIRY AND

THE ADDRESS(ES) ON FILE

SCORE MODELSEQUIFAX/BEACON 5.0 - SOME PPERSON – XXX-XX-XXXX SCORE: 58800038 - SERIOUS DELINQUENCY, AND DEROGATORY PUBLIC RECORD OR COLLECTION FILED 00018 - NUMBER OF ACCOUNTS WITH DELINQUENCY00020 - LENGTH OF TIME SINCE DEROGATORY PUBLIC RECORD OR COLLECTION IS TOO SHORT 00014 - LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED_________________________________________________________________________________________

TRANSUNION/FICO CLASSIC (04) – SOME PERSON – XXX-XX-XXXX SCORE: N!ASC3 - FILE NOT SCORED BECAUSE SUBJECT DOES NOT HAVE SUFFICIENT CREDIT_________________________________________________________________________________________

EXPERIAN/FAIR, ISAAC (VER- 2) – SOME PERSON – XXX-XX-XXXX SCORE: 52438 - SERIOUS DELINQUENCY AND PUBLIC RECORD OR COLLECTION FILED 13 - TIME SINCE DELINQUENCY IS TOO RECENT OR UNKNOWN 02 - LEVEL OF DELINQUENCY ON ACCOUNTS18 - NUMBER OF ACCOUNTS WITH DELINQUENCY08 - TOO MANY INQUIRIES LAST 12 MONTHS

F.A.C.T.A.

S C O R E M O D E L S5 MAIN BORROWEREQUIFAX/BEACON 5.0 81000011 - AMOUNT OWED ON REVOLVING ACCOUNTS IS TOO HIGH 00032 - LACK OF RECENT INSTALLMENT LOAN INFORMATION_________________________________________________________________________________

3 MAIN BORROWERTRANSUNION/FICO CLASSIC (04) 808004 - LACK OF RECENT INSTALLMENT LOAN INFORMATION014 - LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED012 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED_________________________________________________________________________________

1 MAIN BORROWEREXPERIAN/FAIR, ISAAC (VER. 2) 82212 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED 01 - AMOUNT OWED ON ACCOUNTS IS TOO HIGH

Credit Considered in Credit Scores

NOT Considered in Credit Scores

• Trade lines• Inquiries• Collections• Public Records

• Age• Address• Employment• Income• Sex

Research and Repercussions

• In June of 2004, the Public Interest Research Group found (79% or more) have significant errors in their credit profiles. These errors affected credit scores by 50+ points.

• lyonslawfirm.com/pdfs/creditlawsuits.pdf

• bankruptcydischargesettlement.com• 10th Circuit Appeals Court ruled that

E-Oscar is not a reasonable validation method (2010)

Demystifying Credit RepairDemystifying Credit Repair

Myth # 10.• I cannot restore my credit on my

own.• Yes, you can! You can try to do it

yourself (just like you can represent yourself as an attorney in a court of law).  But you can also allow experienced professionals to educate you and assist you in restoring your credit profile.

CROA & who can charge

Credit Repair Organizations Credit Repair Organizations ActAct2007 Amended to FCRA

1.1. Prohibited practicesProhibited practices2.2. DisclosuresDisclosures3.3. Certain Federal ExemptionsCertain Federal Exemptions

Industry Leader Established in 1997

• Federally-chartered CUSO• “A+” Rating with the BBB• 160,000+ Customers• Fantastic money-back policy

www.United-Credit.org