The+Credit+Solution

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By Mik e Rober ts

The Credit Solut ionCopyrigh t 2012 by Mik e Roberts


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Copyrigh t Inform ation:

Copyright 2011, 2012 by Mike Roberts

All rights reserved. No part of this book may be reproduced, distributed,

transmitted, stored in a retrieval system or used in any form or by any means,whether electronic, mechanical or digital, except as may be expressly permittedby applicable copyright laws or as expressly allowed by the publisher or theauthor in writing.

Publisher Information:

Published by Smart Consumer Solutions, LLC, 601 Van Ness Ave, STE E869San Francisco, CA 94102.

Disclaimer:

All of the information contained in this publication is true and accurateaccording to the best information available to me at the time of publication.Please understand, however, that laws and credit industry practices andprocedures are constantly evolving; so you should independently update laws,practices and facts before you take action. I do not accept any responsibility forerrors or mistakes of any kind, or for any damages or losses that might result

from the use of any information provided.

Also, I am not a lender, a collection agent or a credit reporting agency. I am notan accountant or an attorney, and nothing in these materials is intended asprofessional advice. It is personal opinion only. I am providing it to you withoutany warranties or guarantees whatsoever. To obtain advice as to the tax or legalconsequences of any action covered in these materials, or any action that youmight consider based on these materials, you should consult an attorney, anaccountant, or both. What I have tried to do here is simply offer solid, usefulinformation that I have obtained through my own personal and businessexperience. Any action you choose to take based on any information that I

provide, including forms and other attachments, is entirely your responsibility.


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Table of Cont ent s

How to Use the Credit Solution Program ....................................................... 4

Section I: Understanding Your Credit ............................................................... 6

Chapter 1: The REALCost of Bad Credit .................................................. 7

The Story of Jack and Jim .............................................................. 8

The Story of Bob and Sally .......................................................... 14

The Story of Matty ...................................................................... 16

Is This the End of the Bad News? Not Quite. ................................ 18

Chapter 2: How Does Your Credit Actually Work? ............................... 21

The Players ................................................................................. 21

You (the Borrower) ............................................................ 21

Your Lenders (Original Creditors, or OCs) .......................... 22

Collection Agencies (CAs) .................................................. 23

Credit Reporting Agencies (CRAs) ...................................... 25

The Federal Government ................................................... 31

The Players Competing Incentives .............................................. 32

Section II: Credit Reports & Credit Scoresthe Two Parts to the Puzzle .......... 35

Chapter 3: How to Get Your Credit Records .......................................... 36

Chapter 4: Exactly Whats In Your Credit Report? .................................. 38

Your Identity, or Personal Information ......................................... 39

Your Credit Accounts .................................................................. 39

Your Public Information .............................................................. 41

Consumer Statement (Personal Statement) .................................. 41

The Summary ............................................................................. 42

Inquiries ..................................................................................... 42

Chapter 5: Understanding Your Credit Score ......................................... 51

Some Questions and Answers ..................................................... 51

The Five Credit Factors ............................................................. 57

Section III: What You Can Do to Improve Your Credit, Starting Now ................. 63

Chapter 6: Steps to Raise Your Score .................................................... 64

Step 1Manage Your Payment History ........................................ 64

Step 2Control Your Use of Available Credit ............................... 66

Step 3Age Your Accounts ......................................................... 68


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Step 4Mix Your Credit Types .................................................... 69

Step 5Minimize New Credit ...................................................... 71

Chapter 7: How to Remove Negative Items from Your Report ................ 72

Identifying Your Negative Items .................................................. 74

Removing Items Marked 30- 60 Days Late ................................... 75

Removing Items Marked 90- 150 Days Late ................................. 77

Removing Collections Items That Remain Unpaid ...................... 80

A CA Reported the Collections Item. .................................. 83

The OC Reported the Collections Item. .............................. 87

Removing Collections Items That Are Paid ................................ 87

Removing Errors from Your Report .............................................. 88

Keeping Negative Items Off Your Report ..................................... 92

Final Thoughts ........................................................................... 93

Appendix: Forms and Samples ....................................................................... 95

Sample Goodwill Letter 1 ...................................................................... 96



Sample FCBA Evidence Request ............................................................ 99

Sample Validation Request 1 .............................................................. 100

Wollman FTC Opinion Letter ............................................................... 101

Cass FTC Opinion Letter ..................................................................... 102

Sample Investigation Request ............................................................. 104

Sample Validation Request 2 .............................................................. 105


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How to Use the Credit Solut ionProgram

Congratulations on starting down the road to improving your personal credit.As you probably know, I hear from thousands of people with poor credit on avery regular basis, and I interact with them through emails, chats and commentforums. If theres one thing Ive learned for sure, its that most people withcredit trouble know very well that their lives would be happier if somehow theycould make their credit better. Still, many dont take action. They see theproblem, but they dont try to solve it.

Youre different. Not only do you know its important for you to get your creditinto better shape; but youre doing something about itright now. Youvetaken the initiative to buy this book, and now youre about to start down the

path to a better financial future. Youve already set yourself apart, and if youfollow the steps that I outline for you, youre going to succeed in improvingyour credit. The keys to your success (the tools you need) are right here in thisbook.

Its divided into three parts:

1. Part I Underst anding Your Credi t . This is a detailed review of thereasons why good credit is important to you. It also covers thecompanies, institutions and players in the financial credit industry andhow the things they do, or dont do, affect your credit standing.

2. Part II Credi t Repor t s & Credit Scorest he Tw o Part s of th e Puzzle.This is where I teach you how to understand your credit reports and yourcredit scores. I take you through all the components of both reports andscores, and show you in detail how they relate to each other. I introduceyou to the laws that are on your side, take you through certain stepsdesigned to improve you credit, and show you the behaviors you have toavoid if you want to keep it healthy.

3. Part III What You Can Do t o Impr ove Your Credi t , Star ti ng Now.HereI show you the mechanics of mending your credithow to use the

weapons that the law makes available to you. I show you changes you canmake in your personal financial life that will help your credit goingforward. Finally, your credit record almost certainly contains negativeitems that are causing you serious financial harm. There are ways to getthem removed, and this is where I show you how to do it.

I strongly recommend that you read the book all the way through once and thatyou then go back and make sure you understand Sections I and II before you


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start using the tools and taking the action steps described in Section III. Hereswhy: Its vitally important that you UNDERSTAND all the ways that poor creditcan cheat you out of a happy, fulfilling life (this will keep you motivated andinspired); and its absolutely crucial that you find out

Who youre dealing with out there in the credit world (the various lenders,the collection agencies, and the credit reporting agencies), and

What motivates them to do the things they do.

Once you know who the important players are, and how they relate to oneanother in the complex financial credit system theyve created, youlldramatically increase your chances for success.

Also, remember that a better life is waiting for you at the other end of thisprogram. Once you improve your personal credit, youll probably be applying

for loans, using credit cards, and generally dealing with lenders for a long timeto come. It only makes sense to take advantage of this opportunity to gain anunderstanding of how the consumer credit system works.

Finally, as you read and work your way through this program, please rememberthat I created it for you, and I want it to be as accurate and helpful as possible.So . . . if you have any corrections, changes, or suggestions, I really would liketo hear from you!

PS. Just on e more thi ng b efore we get int o the materi al: You wouldntbelieve how many hundreds of hours it takes to write, edit, and publish material

like thisand so, as a favor to me, I am going to ask that you NOT copy thesefiles or documents for others. If you know someone who would benefit fromthis book and its supplementary materials, just give them my email or websiteaddress and Ill be happy to take their order. Thanks!


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Sect ion I: Und erstand ing Your Credit


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Chapter 1 : The REALCost of Bad Credit

Before we get into the details of exactly what credit is, and how you canimprove yours, I want to cover the reasons why having good credit is so vitallyimportant. To some extent this is going to involve talking about some prettyscary stuff, and at first it might sound like Im inventing things just to motivateyou. I promise you that the truth is terrifying enough; theres no need to makeup anything.

The fact is that bad credit can creep into your life and cause you all kinds ofharm, sometimes in ways that you would never suspect. It can damage aspectsof your life that most people would never imagine.

So what is bad credit exactly? Well, as you probably know, each of us hassomething called a credit score. If its high enough (say, above 720), then wehave good credit; and if its low enough (below 620), our credit is bad.

At this early stage, I want to focus on just one thing: All the ways that badcredit can cause terrible harm to good people.

For the moment, Im not going to get into all thedetails of exactly what a credit score is, what itsbased on, how it is calculated, who calculates it,and so on.

These things are all important, and well cover all ofthem later, chapter and verse, I promise.

For now, lets just accept the idea that its good tohave a score of 720 or better, and its not good atall to have one below 620.


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The Stor y of Jack and Jim

Tw o Fri ends on Parallel Tr acks:

Let me introduce you to Jack and Jim. Now Jack and Jim arent real people, buttheir experiences are very real, maybe very familiar. If you bought this book,youre probably not Jack (youll see why in a moment); but you might very wellbe Jim, or you might know someone just like him.

Jack is 23 years old, a college graduate, and a promising young engineer. Hehas a great job with a good company and his future is bright. His buddy Jim isalso 23. He graduated from the same college as Jack, and he works with Jack atthe same company for the same pay. His future is also bright.

All in all, Jack and Jim are almost identical almost! Unfortunately for Jim, theirpasts are very different in one crucial detail.

What Jack s Dad Taug ht Him :When Jack was 16, he and his dad had along talk about the birds and the bees; and Jacks dad added somethingto the conversation that most dads dont cover. He figured since he hadJacks attention anyway, he would use it to talk to Jack about how creditworks. Jack didnt tell dad that the birds and bees conversation was a bitlate, but he did listen carefully to the discussion about credit. He listened,he learned, and he didnt forget.

What Jim s Dad Didn t Teach Him:Jims dad, on the other hand, justgave Jim a book on the facts of life and asked Jim to let him know if hehad any questions. The book didnt cover credit, and Jims dad nevermentioned it. Now this doesnt mean that Jims dad isnt a good guy. Hesa good person and a good father; but like many of us, he just didntunderstand the importance of teaching his son about credit. Jim and hisdad always had a great relationship, and they often went hunting andfishing together; but to this day, Jim is clueless about how credit worksand why good credit is important.

Their Fir st New Cars:

Fast forward to the present day. Both Jack and Jim have started to enjoy theirwell- earned success. Theyve decided that the time has come for each to buyhis first new car. Because they both come from the same town, went to thesame schools, and work at similar jobs at the same company, they have similartastes in cars. Theyve both picked out the same model. Its going for $22,750,everything included, and they both have $2,750 for a down payment.Unfortunately, their parallel tracks end right here. They are NOT going to havethe same buying experience.


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Jack is going to enjoy buying his first new car; Jim isnt.

Jack has carefully managed his credit, just as his father advised. As aresult, the sales manager at the dealership has just told Jack that his

credit score is an enviable 750.

Jim, on the other hand, has not found his fathers lessons about huntingand fishing useful in matters of finance, and he has done nothing tomaintain his credit score over his early adult life. Even so, he has tried topay his bills on time and as a result his personal credit score comes in at650, only 100 points lower than Jacks. Not awful; but not good either.Heres the difference this 100 points is going to make.

Both Jack and Jim are going to be financing $20,000 of the purchase price overa period of five years, and this is where the rubber meets the road (pun

intended). Jacks 750 credit score qualifies him for a nice low interest rate of 5%and a monthly payment of $377. Jims not- so- good score of 650, however,forces him into an interest rate of 8%and a monthly payment of $406.

OUCH! Assuming they both make payments on timeand pay off their cars in five years, Jim will end uppaying $384 more for his car in the first year thanJack pays for his, and $1,740 more over five years.

If nothing changes (that is if interest rates stay thesame, if there is no inflation, and if Jack doesnt sitJim down and teach him something about howpersonal credit really works), then the two buddieswill probably repeat this performance ten timesover the rest of their driving lives. If they do, thenumbers become even more unpleasant (from Jimspoint of view, of course).


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Heres a grid that illustrates Jims financial pain:

Loan Details Jack Jim

Credit Score 750 650

Interest Rate 5.0% 8.0%

Loan Amount $20,000 $20,000Monthly Payment (based on 5- yr loan) $377 $406

5 Years of Payments $22,620 $24,360

Lifetime of Payments on 10 Car Loans $226,200 $243,600

Cost of Bad Credit - - $17,400

The story of Jack and Jim doesnt end here. Theres a lot more financialhardship in store for Jim.

Their Credit Cards

Jack and Jim are both smart and hardworking, and theyre going to succeed atwork. As their incomes increase, each will decide that he could benefit from theconvenience of a credit card. The credit card companies are always trolling fornew customers, and it wont take them long to find out about these two up-and- coming lads. Jack and Jim will be deluged with credit card offers, andtheyll do what most people do (according to national averages)theyll eachstart carrying at least three cards. If one is good, three should be great, right?Well, maybe; it depends on whether youre Jack or Jim.

In Jacks case, his 750 credit score will get him an interest rate of only 9.5%

for each of his cards. Thats pretty good as credit card interest goes. Jim wontqualify for a rate anywhere close to that. Heres where Jims 100 point deficitwill make a huge difference. Hell have to make do with an interest rate of19.5%. Jack wont be worried, because hell tell himself what we all tellourselves in this situationThe rate wont matter because I wont keep muchof a balance on the card.

Unfortunately for Jack, what he tells himselfprobably wont turn out to be true. In fact,throughout their lives both Jack and Jim likely willcarry average balances of $3,000 for each card, andthis is about on par with an average total balanceper person for the US population that carries creditcard debt.


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Lets see how those balances and interest rates are going to work out over thelong term

Loan Details Jack JimCredit Score 750 650

Interest Rate 9.5% 19.5%

Balance Amount per card $3,000 $3,000

Annual Interest per card $285 $585

Annual Interest 3 cards $855 $1,755

Lifetime Interest on 3 cards (50 yrs) $42,750 $87,750


Yes, I know; this is really bad news for Jim. But theres worse yet waiting forhim.

Their Houses:

Jack and Jim are intent on living the American dream, and as we all know, thatinvolves owning a home. If they follow the average path, theyll both buyrelatively small houses to start out, and live in them for about ten years. Thentheyll trade up to bigger, more elaborate places with more amenities. Theyllstay in these upper scale homes, pay them off, and live in them for the rest oftheir lives.

Lets assume some average home price numbers (homes might be going formore or less where you live), and some historically average interest rates, andtake a look at the long- term consequences of Jims credit score.

Fir st House Jack Jim


Mortgage Rate 5.0% 8.0%

Mortgage Amount $250,000 $250,000

Monthly Payment (based on 30- yr mtg) $1,342 $1,83410 Years of Payments $161,040 $220,080



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Second Hou se Jack Jim


Mortgage Rate 5.0% 8.0%

Mortgage Amount $450,000 $450,000

Monthly Payment (based on 30- yr mtg) $2,416 $3,30230 Years of Payments $869,760 $1,188,720


These are absolutely killer numbers. Over 40 years of home ownership, Jim willpay out a breathtaking $378,000more than Jack to live in exactly the same twohomes. In most places, thats enough money to buy a really nice home for cash,and never send a single payment to a mortgage bank.

OK At this point were almost ready to let Jack and Jim get on with their lives,

but first lets review the total cost to Jim.

Itemized CostsJim s Cost of

Bad Credit

Auto Loans 17,400

Credit Cards 45,000

Mortgage First House 55,040

Mortgage Second House 318,960

Total Cost of Bad Credit $436,400

Look $436,400 is a pretty high cost to pay for poor credit, especially whenyou consider that Jims credit isnt awfulits just not as good as Jacks. But thereality of Jims situation is actually even worse.

Consider this: The $436,400 Jim is going to need to pay all this extra interestisnt going to fall out of the sky. No one is going to give it to him. Jim is goingto have to work hard at his company and actually earn all the money hell bepaying out in extra interest over his lifetime. If he had credit as good as Jacks,

he could invest that money as he earned it instead of paying it through thenose to his creditors.


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If Jim invested all the money hes going to spend on extra interest, heres whathe would have down the road, assuming very conservative investment rates:

Jim s Lost Investment Value TotalsValue of Extra Car Loan Interest Invested at 2.75%Over50 Years 38,829

Value of Extra Credit Card Interest Invested at 2.75%Over 50 Years 100,419

Value of Extra Mortgage Interest on First House Investedat 2.75%over 50 Years 226,408

Value of Extra Mortgage Interest on Second House

Invested at 2.75%over 40 Years686,226

Total Value of Lost Investments $1,051,882

$1,051,882?Yes, thats the number, and it is a very great deal of money. Nowgranted, Jim would have to be a real saint to religiously invest every singledollar of the cost of his 650 score over his projected life, but this grid shouldgive you an idea of just how much self- inflicted pain poor credit can cause.

Even if Jim invested only half of the money, he would have enough to live a very

different lifestyle from the one thats in store for him, and he would havesomething left over to retire at a reasonable age in the bargain. In fact, thatsexactly what Jack will do; and because theyre close friends, Jim will have towatch Jack do it.

In the years to come, Jim and Jack will continue working at the same companyat similar jobs, and they will make the same money; but their lives will be very

He probably wouldnt do that with all of it (hedprobably spend some of it on vacations, hobbies,school tuition for the kids, a faster car, a bigger

TVyou know, ratchet up the lifestyle a little); butlets assume for the moment that he would investall the extra interest in a retirement savings accountof some kind.


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different. As time goes by, Jim will be left to ponder a couple of lingeringquestions:

1. Why is Jacks lifestyle so much better than mine? Where does Jack get allthis extra money? Did someone die and leave it to him? Is he stealing it?

2. Why is Jack able to retire early and keep living the high life while I haveto keep slaving away with no prospect of retirement in sight?

This is going to be tough for Jim to take (it would be for anybody). As theirfinancial paths take the two friends farther and farther apart, Jim might nothandle it well. This is the kind of thing that can lead a person to develop anulcer from stress. Maybe their friendship will survive it, and maybe it wont.Well leave them here and wish them the best of luck. Jim is going to need it.

The Stor y of Bob and Sally

Now at this point you might be saying to yourself, Hey, Im no engineer likeJack and Jim. I havent been to college. Im not on the fast track at a greatcompany. Maybe youre thinking that in your case the consequences of poorcredit cant be all that bad. Well, the unfortunate fact is that a lower score canhurt you in ways that we havent covered yet.

A Young Coup le Just Star ti ng Out:

Meet Bob and Sally. Bob is a 26- year- old Afghanistan War veteran withexcellent mechanical training and good skills. Hes been out of the Army now

about six months, and hes working hard to build his life. He survived two toursin one piece, and he was able to persuade Sally to marry him when he got back.About a month ago Sally found out that their first child is on the way, and Bobhas landed a good job.

His immediate problem is that he needs a new place to live so there will beroom for the little one when the time comes. Hes been looking, but thepickings are slim. He needs a rental thats pretty close to his job because heand Sally only have one car, and a new one isnt in the cards. Bob was lucky tofind his job (many vets havent been so fortunate), and he knows a raise ismany months, maybe years away.

Thin gs Migh t Be Looki ng Up.

But something happened this morning that has Bob thinking that today mightbe a turning point. He spotted a great apartment in the morning paper. Its injust the right neighborhood, and he called right away. The price is a little morethan hes paying where he is, but its closer to his job and he thinks he and


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Sally can handle it. The problem is, hes not the only one who wants this place.The landlord has his pick of five good applicants, including Bob.

Guess Again. Thin gs Are Not Lookin g Up At All.

This is where this story takes a dark turn. Bob has not checked into his creditscore, and he doesnt know what it is. The Army taught Bob a lot aboutpersonal discipline and mechanical systems, but nothing about how to managehis finances and his credit. He doesnt even know what a credit score is. Thatsa shame, because the fact is that there are errors in his credit records that havelowered his score to 590.

How is this going to hurt Bob and his family? Well, with five good- lookingapplicants to choose from, the landlord has decided to check their creditscores. This is bad news for Bob and Sally. The landlord was leaning towardsBob (hes an Afghanistan war vet, after all), but three of the other fourapplicants have better scores than Bobs 590, and one of them, a young womannamed Shannon, has a 720 score. Shannon will be moving into a new apartmentsoon; Bob and Sally will be staying right where they are.

Can landlords do this? Yes, they can, and many do. In fact, some landlordsrequire applicants to agree to a credit check as part of the application process.This might not seem fair, but from the landlords point of view it makes sense.If a person has a low credit score (the landlord reasons), its probably becausehe doesnt pay his bills on time; and if he doesnt pay his bills on time, heprobably wont pay his rent on time either.

The tragedy in Bobs case is that his credit score is based on errors. Bob is areally conscientious guy, and hes worked hard to pay his bills on time. Hiscredit score isnt telling the truth about him at all. If Bob had known about his

This kind of thing happens all the time. By someestimates, as many as 80%of all credit recordscontain errors; and many of them are significantenough to dramatically lower the credit score. Bobs590 score isnt even close to reflecting his actualbill paying habits, which are excellent; but thatdoesnt matter for now. It isnt Bobs fault (and heisnt alone), but right now his number is 590 andthats all that counts.


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score (and if he had this book), he could have fixed the problems. But hedoesnt know. All he knows is that someone else got the great apartment.

Things are not going to get better for Bob and Sally on the housing front.

The Story of Matt y

I wish I could tell you that the stories of Jack, Jim, Bob and Sally have shown usall the ways poor credit can seriously hurt good people, but I cant. Were notthere yet.

Meet Matty. She is a 40- year- old single mother of two teenagers. Shes recentlydivorced from Dan, her husband of 20 years. When they were together, Daninsisted on handling the familys finances, but he wasnt very good at it. Heoften paid bills late, even though he had money in the bank, and sometimes hewould let things really slide and he would miss a couple of payments on the

credit cards. Matty wasnt aware of any of this. Dan wasnt much of a talkerabout his shortcomings.

Now Matty and Dan have gone their separate ways, but Dan has left Matty witha problem that she doesnt even know she has. All of their debt was in bothnames, so Dans sloppy credit habits over the years have resulted in a very poorcredit score for Matty510. This little legacy from Dan is going to do bothMatty and her children serious harm, and in more ways than one.

Mattys Problem #1Shes Not Going to Get the Job She Wants.

Matty is smart, and she is good with numbers. Shes also a stickler for detail, soshe is a natural for work in a bank, an accountants office, or somewhere else inthe financial services industry. Shes been looking for such a job since the dayshe got her divorce decree, but that was six months ago and so far no luck. Shedoesnt know it, but this isnt likely to change. The reason: You guessed it- - hercredit score.

More and more employers these days check the credit scores of job applicants.Many feel that a good credit score reflects good character, and that a poorcredit score reflects the opposite. Some also are reluctant to allow people whoare in financial stress to get too close to transactions in which money isinvolved.


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With a credit score of 510, Matty is DOA just about everywhere she is likely toapply for the kind of job she wants.

Matt ys Problem # 2Shes Paying Way Too Much f or Her Insu rance.

Matty ended up with one of the familys two cars after the divorce, and shortlyafter the decree she shopped for insurance. She applied to three differentcompanies, but she got stuck paying almost 50%more than her friend Bettypays for the same policy on a similar car. Why? Two reasons:

1. Car insurance companies make money by investing the dollars receivedin premium payments. When premiums come in on time, the companiesare happy because they can invest the money right away and make moreprofit. When premiums are late, they dont like it because they have towait to invest the money.

So what do they do? They often check credit scores of applicants (likeMatty). If the score is low, the car insurance company figures thatpremiums will probably be late and they know this will cost theminvestment profits. They solve this problem by simply jacking up thepremium in advance. Thats right! If your credit is poor, car insurancecompanies CHARGE YOU EXTRA, IN ADVANCE, to make up for the profitthey expect to lose later when your premiums are late.

2.The probability of late premiums isnt the only reason Matty is payingmore. Car insurance companies consider people with poor credit abigger driving risk. They think that if you are living a life of financial

stress, youre more likely to have an accident and file a claim. Theincreased likelihood of accidents and claims has a very predictableresultmuch higher premiums.

This is especially true of businesses in the financialservices industry (banks, accountants, creditunions, finance companies, and the like), but this isvery likely a concern that runs much deeper amongall kinds of employers than anyone is willing toadmit.


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Is Thi s t he End of the Bad New s? Not Quit e.

Lets review where we are with all the ways bad credit can harm good, well-meaning people. Weve learned quite a bit from the struggles of Jim, Bob andSally, and Matty.

Borrowing:If your credit isnt up to par,

1.Youll pay more for car loans,

2.Youll pay a great deal more for your credit cards, and

3.Youll pay a frightening additional amount in mortgage interestliterally,a fortune.

In fact, borrowing of every conceivable kind will cost you morea lot more.

Lifestyle:The cost of poor credit isnt just in the additional money you have tospend to get byits also in the THINGS YOU DONT GET TO DO.

1. If you dont qualify for the best rates on loans and credit cards, you dontget to invest the extra money spent.

2. If you dont qualify for the best rates on loans and credit cards, you dontget to buy nice things with that moneythings youd like to have foryourself and your family.

And just in case youre thinking that Mattysinsurance problems end with her car policy, thatsnot the case at all.

Shes been turned down for life insurance eventhough shes only 40 and her health is good; andshes paying far more than she should be paying forher renters insurance.

Why? Because the companies she applied tochecked her credit. They didnt like what they saw.Life insurance and renters insurance companieshave the same attitude about likely late paymentsthat car insurance companies do.


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Lost Opportunit ies: If you have poor credit, then many good opportunitiesalmost certainly will pass you byusually very quietly and without anyexplanation.

1. Bad credit can cost you the chance to rent in a nice neighborhood or in anapartment complex thats safe for you and your kids.

2. Bad credit can cost you the job youve been looking formaybe thebreakout job that you desperately need to get your life on track.

3. Bad credit can cost you a favorable rate on any kind of insurance,including car insurance.

Healt h and Happ iness:Theres one more, very important aspect to all this thatwe havent yet discussed, and thats thispoor credit is sneaky. Its effects

creep in slowly over time. The bad things happen little by little, and as themoney dribbles away, you tend not to focus on it. Thats because it doesnt callattention to itself. Its quiet.

Dont forget that you have a right to the Pursuit of Happiness. (Its in TheDeclaration of Independence, after all.) You dont have a right to BE happy; butyou certainly do have a right always to be working on it. Believe me, its almostimpossible to work on being happy if you have poor credit.

Even if somehow youre able to remain focused and you devote all your energyto leading a happy, satisfying life, your chances for success are much lowerwith poor credit. Thats because everything becomes harder than it has to be.Poor credit creates a dark cloud that can simply hang over your life and followyou around. Its an anvil around your neck, a weight that just drags you down.Many experts believe that stress from financial pressure is one of the mostimportant causes of

Its as if your bank account is a bucket with a holein the bottom. Youre trying to fill it from the top,and all the while money is draining out through thehole that you dont see.

Its very hard to fill that bucket when youreconstantly fighting against the drain of a bad creditscore.


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Divorce (its hard not to fight about money when it is really scarce),

Addictive behavior (as in, drowning your sorrows),

Aggressive behavior (some people cant help taking their problems outon others),

Depression (the pressure can build up inside and color how you feelabout everything), and

Certain serious physical illnesses (the stress can literally eat away at youand cause physical harm).

I think those folks are right who point to financial stress as a leading cause ofthese serious social problems.

Youre about to start down a road that is going to require some effort on yourpart. Youre going to need some diligence, some energy, and some tenacity. Ihope youll keep in mind the struggles of the fictitious characters wevecovered, and I hope their stories will inspire you, help you stay focused, andallow you to avoid the consequences of failure.

I want you to improve your personal credit standing for all the reasons Ivecovered in this first chapter. I cant promise you that good credit will bring youhappiness and success, but I absolutely can promise you that it will dramaticallyincrease the chances that youll achieve both.


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Chapt er 2 : How Does Your Credi t ActuallyWork?

Your personal credit picture is part of a huge, complex financial system. In thischapter, Im going to introduce you to this system, simplify it for you, and letyou in on how the component parts work.

The Players

The system is made up of the following players:

1.You (the borrower),

2.Your lenders (aka, your creditorsthe people you borrow from),

3.The Collection Agencies (the people who chase you when you dont pay),

4.The Credit Reporting Agencies (the people who maintain your creditrecords), and

5.The Federal Government (the folks who pass federal laws that regulatethe personal financial services industry).

These five parties, working together (though NOT with the same goals ormotivations), create your personal credit standing. Heres how it works.

You (the Borr ow er)

Lets start with the person you know bestyou. If youre like 99%of thepopulation, youve borrowed money in the past and youll borrow againsometime soon. Most of us, in fact, borrow money early and often, and we do itdozens of times throughout our adult lives.

You borrow every time you sign up for a credit card, take out a student loan,

buy a car on credit, take out a mortgage to purchase a home, or just agree totake advantage of the No Payments til Spring offer at your local furniturestore.

You can borrow from a bank, a credit union, a finance company, a creditcard company, or a retail outlet, and the list doesnt end there.


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You can borrow and put up security (like when you promise to let thefinance company repossess your car if you dont pay the loan), or you cansimply borrow on your signature (like when you sign up for a credit card).

For most of us, borrowing is pretty much a fact of modern life. Its inevitable.

Now whenever you borrow, you sign an agreement in which you promise torepay. Sometimes this agreement is formal and detailed (like a credit cardagreement or a mortgage loan contract), and sometimes it isnt; but its alwaysthere. Theres always a contract between you and the company or institutionthat is providing the money. In this book were going to call these companiesoriginal creditors or OCs for short.

Regardless of whether the contract is simple or complicated, it always boilsdown to these basic elements:

1.Your written promise to repay the money under certain terms andconditions,

2.The lenders right to sue you in court if you dont repay the money aspromised, and

3. If the loan is secured, the lenders right to repossess whatever it is thatyou bought with the moneyyour car, your house, your boat, whatever.

Once you enter into a borrowing agreement with a lender, you either make allthe payments on time, in the amounts that the contract calls for, or you dont.

As time goes on, you build up a personal credit history that the system uses todetermine your credit standingto determine whether you have good creditor bad credit.

Your Lenders (Orig inal Credi to rs, or OCs)

Now, as you make payments to your lenders, your lenders keep track of howyoure doing. In fact, they pay a lot of attention to how youre doing, and theykeep a record of it. This isnt shocking. They want their money, and they want iton time. Theyre in the business of loaning money at interest, and when youdont pay, or when you pay late, it cuts into their profits. They hate that.

So, if you get behind in your payments, you can count on hearing from yourlender. At first, the reminder might be gentle.


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If you pay right away, theyll leave you alone; if you dont, the notices quicklybecome much more urgent in tone. If you get too far behind, youll get a noticethat runs along these lines:

These notices might come from your lender directly (say your bank or yourfinance company) or they might come from what is called a loan servicer.A loan servicer is simply an independent company that sells administrative

resources to lenders. Lenders hire these companies to keep track of payments,send out notices, and generally handle the day- to- day business of dealing withborrowers. Either the lender or its loan servicer normally will make the initialattempts to persuade you to pay if you get behind. The notices you see in theboxes above both came from either the lender or the loan servicer.

But if you dont pay after a certain number of notices, the lender will movethings to a whole new levelit will turn your account over to a collectionagency. This is never a good thing from the borrowers point of view.

Coll ecti on Agencies (CAs)

Think of a collection agency as a hired gun. It isnt a lender or a loan servicer.Its an independent company that exists to do only one thingto collect moneyfrom people who are seriously delinquent on their payments. If a lender (or itsservicer) finds that it isnt able to get a delinquent account back on trackthrough its own efforts, it doesnt just forget about the debt. Instead, it turns toa specialistthe collection agency, or CA.

You are now _________ months past due on youraccount. If the amount due, $___________, is notpaid in full within 10 days of the date of this notice,the account will be turned over to collections.

As in,

Hey _____, Did you forget about us this month? Ifyouve already sent your payment, please disregardthis friendl reminder.


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A lender will get a collection agency involved in a delinquent account in one oftwo ways:

1. It will simply hire the CA to collect the account and pay the CA for itsservices.

a. Often the CAs compensation has two parts: The first is a flat fee,paid up front; the second is a percentage of any amounts thatmight later be collected. This way, the CA gets paid something forits efforts whether it is successful in collecting or not.

b. Sometimes the lender just pays the CA a straight commission, andwith this arrangement, the CA doesnt get paid unless if collectssomething.

With either arrangement, the lender continues to be the owner of the

contract, and the CA is said to be a third party agency. If youre theborrower, you still owe the money to the lender, not the CA, even thoughits the CA that is contacting you about the delinquent payments.

2. Or the lender might simply sell the original contract to the CA. This ismore likely to be the case if the account is many months, maybe evenyears past due. In such situations, the CA buys all of the lenders rights inthe contract for pennies on the dollar. When this happens, the CA is saidto be a first party agency. Later, youll see why it can be important foryou to know if youre dealing with a third party or first party CA.

It isnt uncommon for the sale of a loan contract to happen more thanonce. Sometimes a delinquent account will be sold from CA to CA two orthree times (with each successive CA paying substantially less for thecontract). Once your original lender sells your contract to a CA, you owethe money to the CA that currently owns that contract, not to the originallender.

Wait a minute, you might be thinking, can an OCjust sell my contract to a collection agent withoutmy permission?

The answer is almost always yes. Most loancontracts have a clause in the fine print that allowsthe original creditor to assign (sell) the contract to athird art . Basicall , ou a ree to this in advance.


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Collecting money from people who dont have it, or dont want to pay, is atough business, and collection agencies behave accordingly. They are oftensuccessful in collecting money that banks cant collect because they are willing

to use tactics and practices that lenders (OCs) normally dont employ. In fact,some of these companies have a long history of abusive conduct. In years past,it wasnt uncommon for them to

Call borrowers (debtors) repeatedly, at all hours of the day or night,

Use abusive and harassing language in speaking with debtors,

Call the borrowers employer about the debt, or threaten to call theemployer,

Call the borrowers friends or family about the debt, or threaten to callthem,

Threaten the debtor with a lawsuit when they had no intention of filingone, or

Threaten the debtor with criminal prosecution, arrest or jail (there isntnow, and there has never been, any legal basis for criminal action orarrest based on a debt).

Much of this nonsense is in the past. Because of reforms imposed by federal

laws (which well be covering in detail later), these practices now are illegal; andCAs can incur substantial fines if they lapse into some of their former habits.Even so, its important to remember their history, and to keep in mind that notall CAs are as conscientious as they should be about following the law.

Even though CAs behave better these days than they used to, its safe to saythat they typically take a much more aggressive attitude toward borrowers thando lenders (OCs).

Credi t Repor ti ng Agencies (CRAs)

OK. Now its time to talk about the very important guys in the back room(figuratively speaking, of course). These are the people nobody ever sees- - thenumber crunchers, the bean counters, the folks wearing the green eyeshades.In reality, the green eyeshade image couldnt be further from the truth. Whatwere talking about here are three huge, very sophisticated, billion- dollarcorporations, and they are the keepers of your credit files. They maintain, andcontinually update, your credit records, my credit records, and the creditrecords of just about every person in the western world over the age of 18.


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Where did these companies come from? Well, they arose to fill a need in themarketplace. In a real sense, they exist today because lenders everywhere wantthem to exist.

Lenders have always been interested in finding out as much as possible aboutborrowers in order to predict the likelihood of repayment. From the beginning,they have operated on a single principlepast behavior is the best indicator offuture behavior. Put another way, they believe that if you have paid your debtspromptly in the past, you probably will do so in the future; and if you havent,you probably wont start now.

Early in the days of consumer credit, each lender would do its best to researchthe payment histories of loan applicants, but they didnt have a good system.The process was haphazard, expensive, and unreliable. The reality in those

days was that if you defaulted on a loan in Virginia, for example, you couldmove to Maine and borrow more money. The bank in Maine might not knowthat you recently failed to make your payments in Virginia.

It wasnt that they didnt want to know, of course;they desperately wanted to know. Its just that theyhad no quick, inexpensive way to find out.

There was no place they could go to get solidinformation about your repayment habits for allyour old, out- of- state loans.

This attitude among lenders isnt going to changeany time soon. Its just human nature. If your friendCharlie asks you to spot him $50 until payday,youll probably do it if he has repaid you in thepast. If he stiffed you last time, or didnt pay ontime, youll hold on to your $50.


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You see where this is going, right? This isnt the kind of problem that remainsunsolved indefinitelyespecially when the people with the problem are bigbanks, finance companies, and other institutions with boatloads of money.Before too long the old, weak system gave way to one in which all lenderseverywhere started reporting all payment activity on all their loans to a central

place (actually three central placesinformation clearing houses, if you will).

These clearing houses (these days we call them Credit Reporting Agencies, orCRAs) saw a chance to build enormous, extremely profitable businesses. Theyeach hired thousands of staff, built huge bureaucracies, and installedtechnology that enables them to amass and keep track of an unbelievableamount of detailed information on millions of consumers and their loans.

When the dust settled, there were (and there still are) three major companiesthat now are the custodians of consumer credit information both nationally andworldwide. How does this system work? Lets look in on a fictitious borrower to

find out:

Shar on s Loan

Sharon is an enterprising high school grad who has just turned 18. Until now,she has never borrowed a dime, but now shes out of high school and soonshell be off to a nearby community college. Shes going to live at home andcommute, because she cant afford to live on campus, but she needs a car. Shefinds a pretty sharp, light blue, six- year- old Corolla for $6,000 and shefinances $5,000. Shes psyched (her first carawesome), but she might not beso excited if she knew what she has set in motion behind the scenes. A series

of events now unfolds involving her lender and the CRAs.

Her lender notifies all three CRAs about her loan and provides a lot ofvery detailed information about her and the transaction (her name, heraddress, her social security number, the opening balance on the loan, thedate of the loan, the nature of the loan, etc.). Each CRA opens a credit filewith Sharons name on it.

From time to time, as Sharon makes timely payments, her lender reportsthe excellent status of the loan to the CRAs. They put the informationinto Sharons file as it comes in.

As Sharon falls behind for a couple of payments (she has a long bout withthe flu and cant work very many hours at her part time job), her lenderreports to all three CRAs that the account is 60 days past due. They allput this information in Sharons file as well. Sharon starts feeling betterand gets back on track with her payments.


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Before long, Sharon sees that she isnt going to be able to make endsmeet without a student loan. She applies for one for $6,000 with adifferent lender, and she gets it. This new lender does exactly what thecar loan lender did. It reports this new loan to all the CRAs, and just likethe other lender, provides all kinds of detailed information about Sharon

and the loan. The CRAs put all this new data in Sharons file.

Until Sharon graduates, she wont have to start repaying this studentloan, but the fact that it exists as a future obligation for Sharon goes tothe CRAs on day one and becomes part of her file. Once she startsmaking payments, the lender will make periodic reports to the CRAs onhow she is doing, and these reports, like all the others, will go into herfile.

And so it will go with Sharon. As she moves along with her life, her lenders willcontinue to send updates to the CRAs about her loans. If she does a great job

of paying everything on time, her records should reflect that; if she doesnt, herrecords should show that too.

The point of this process is obvious. As weve already discussed, Sharonprobably will borrow several times in the years to come. Every time she appliesfor credit, her new lender will simply contact the CRAs and ask, What have yougot on Sharon? The lender will pay an inquiry fee to the CRAthats how theymake their moneyand in return the CRAs will grab the information they haveon file for Sharon and supply it to the lender.

I say should because, as weve already noted withour friend Bob, it is very common for these CRAfiles to contain errors. Some of these errors canhave disastrous consequences (for the consumer, ofcourse, not for the CRA).


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Depending on how good a job Sharon does in repaying her various loans on

time, the information that the CRAs report back on Sharon (her credit reportand her credit score) will show that

Her credit is good (she has an unblemished report and a high score), inwhich case the lender will be happy to loan Sharon more money;

Her credit isnt great, but its not awful (she has a report with somenegative marks, and a mediocre score), in which case the lender willmake the loan but will insist on terms that are much less favorable thanshe might like; or

Her credit is bad (her report is messy and she has a low score), in whichcase the lender probably wont make the loan at all.

So, in the immortal words of Butch Cassidy, Who are those guys? Who arethese mega- companies who now keep tabs on all of us? Who are these peoplewho for a fee hand out information to lenders that can have such enormousconsequences for all of us?

The answer: They are Equifax, Experian and TransUnion (for some reason, theyall have weird names).

Equifax: Founded in 1899 in Atlanta as the Retail Credit Corporation, Experianis the oldest major consumer credit company in the world. Historically, it hasgathered, managed, and sold credit information to anyone with money. In fact,its corporate practices are often cited as a major factor in the passage of thefederal Fair Credit Reporting Act in 1970. This law regulates the collection,distribution, and use of consumer credit information and is considered thefoundation of financial consumer protection in the U.S.

The information that the CRAs supply to Sharonslenders will take two forms:

1. A detailed credit report that lists all of herloans and describes her payment history oneach one, and

2. A credit score, which is a three- digitnumber that is calculated based on theinformation in the credit report.


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Experian: Experian was founded in 1980 and is headquartered in Dublin,Ireland. Originally named CCN Systems, the company has grown by acquiringlocal and regional credit organizations. The acquisition of TRW InformationServices provided much of its current credit reporting structure.

TransUnion: TransUnion was founded in 1968 in Chicago. The company grewrapidly by acquiring city- based credit agencies. Today it is the third largestcredit firm internationally and has offices worldwide.

All three of these companies are private, FOR PROFIT businesses. They operatefor the purpose of making money, period. Depending on whom you ask, youmight be told that these CRAs were created by Congress, that they are federalagencies, or that they are required by law to compile credit records and makethem available to lenders.

The business model of the credit bureaus is really kind of strange when youthink about it. Lenders voluntarily supply the credit bureaus with informationabout consumers late payments, etc. Then they later pay the CRAs to get thissame information back in the form of reports.

Why does it work this way? For two very good business reasons:

1. Lenders use the CRAs as leverage to get you to pay on time. They arewilling to give information to the bureaus because they know that the

threat of a bad credit rating makes it more likely that you will pay themback as agreed. Its essentially a legal form of blackmail.

2.The CRAs provide a very useful service to the lenders in collecting,synthesizing, and quickly making available all this detailed informationupon request. The lenders would much rather have the CRAs do all thisbureaucratic work and just pay for the information when they need it.

None of that is true. Congress did not create theCRAs, they are not federal agencies, and they arenot part of any government. There is no legalrequirement that they keep information about you.

In fact, the only laws in effect that relate to theseCRAs are the laws Congress passed to protectconsumers from their abusive ractices.


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Its important to understand that the credit bureaus dont work together. Theyarent partnered in any way- - in fact, they are competitors. Each tries toconvince lenders to report to them and to purchase their data on consumers.Most lenders have a favorite one or two, and most of the big lenders use allthree.

Thats enough about the CRAs for the time being. Well have a lot more to sayabout them, and their operations, in later chapters. Now were going to movealong to the fifth, and final playerthe US Government.

The Federal Govern ment

Im listing the United States Federal Government as a player here not because ittakes a day- to- day, active role in determining your credit standing (it doesnt),but because the United States Congress has passed some extremely importantlaws that directly influence how the other players (the lenders, the CAs and the

CRAs) behave.

There are three of these laws. They are all federal laws (not state) so they applyeverywhere in the US. All of them are on the books for your benefit.

The Fair Cred it Bil li ng Act (FCBA):

This law is aimed at the lenders (OCs). It is part of a larger federal law (theTruth in Lending Act), and its purpose is to make sure that lenders bill theircustomers fairly, accurately and completely. It spells out certain consumerrights, including the right to dispute bills, and Ill show you how to use theserights to your advantage later in this program.

The Fair Debt Col lect ion Pract ices Act (FDCPA):

In fact, these laws provide you, the borrower, withpowerful weapons that you can use to protectyourself from abuse from the OCs, the CAs and theCRAs).

Much of the remainder of this book will involve

showing you exactly how to use these weapons.


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This law regulates the collection agencies (CAs). It dictates exactly what debtcollectors can and cant do, and it prohibits many of the abuses that used to becommon before this law came into effect. Because of this law, CAs are now heldto certain behavioral standards, and if they dont meet those standards, theyare subject to fines and penalties.

Later Im going to show you how to use this law against the CAs with a powerfultactic called Debt Validation, which involves your right to request certainspecific information from the CA regarding an alleged debt.

The Fair Cred it Repor t in g Act (FCRA):

This law zeros in on the credit reporting agencies (CRAs). It tells them whatthey can and cant do, and it ensures that consumers can get access to theircredit reports and scores. It regulates who is allowed to acquire a consumersreport and for what reasons, and it places limits on how long information can

remain on a credit report.

Finally, it recognizes that a consumer might want to dispute the informationcontained in his report (yes, that sounds like something we might want to do),and it prescribes exactly what a CRA must do when it receives notice that areport is being disputed. Again, Ill soon show you exactly how to use this lastpart to your advantage.

The Players Com pet ing Incenti ves

Lets review what weve covered so far. There are five players in the consumer

credit gameyou, your lenders, collection agencies, credit reporting agencies,and the government. Your goals and motives are very different from those ofthe other players.

You:You are probably going to borrow money in your lifetime. Your goal is tobe able to borrow money when you need it.

Your incentive is always to make sure, if you can,

that your credit report casts you in the bestpossible light, and that your credit score is as highas possible. That way, youll always be able toborrow on the best possible terms, and at thelowest rates.


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Your Lenders:Your lenders (the OCs) are going to want to loan you money ifthey think youll repay it. They are in the business of lending money, collectinginterest, and making a profit. As long as they think youre going to pay themoney back, they want to loan it to you at the highest interest rate possible.

The Collection Agencies:These folks hire out to the OCs to collect on loanaccounts that are in trouble. Their only concern is to bring in money. Thats it.They have a history of abusive practices, and their incentive is to do whateverthey can (usually within the law, but sometimes in violation of the law) to collectmoney for themselves or their clientsthe OCs.

The Credit Report ing Agencies:Like the CAs, these CRAs work for the lenders(the OCs). They accumulate information from lenders, compile it, and sell it

back to the lenders. Again, this is a pretty simple business model. Their mainconcern is to keep their lender clients happy.

Remember that the three CRAs all compete with each other. Their incentive is tocompile negative information on consumers, and to report lower credit scores,because they know that if the information they report is negative, their clientlenders make more money. They look at it this way: The more unfavorable thedata they report to a lender, the more likely that lender will continue to reportto them and to pay them for future inquiries.

The US Government : Without the government, the deck is pretty much stacked

against you. Youre just one person. Youre up against powerful banks, financecompanies, credit card companies, collection agencies, and huge, billion- dollarcredit reporting bureaucracies. You want your credit score to be high; youropposition wants it to be lower. Theyre rich and powerful and youre not. Atfirst glance, this doesnt look like a fair fight.

Fortunately, Congress has passed some federal laws that put some powerfulweapons in your handstools which, if used correctly, can level the playing

The lenders business model is pretty simple- - Thehigher the interest rate on any given loan, the moremoney they make. They can get away with chargingyou a higher rate when your credit report hasproblems and your score is lower. Therefore, theirincentive is to do what they can to keep your creditrating down.


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field. In the remainder of this book, Im going to show you exactly how to usethese weapons, improve your credit standing, and make a better life foryourself.


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Sect ion II: Cred i t Repor t s & Credi tScoresthe Tw o Part s to t he Puzz le


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Chapter 3 : How to Get Your Cred it Records

Now that you know all the good reasons why you need to improve your credit,and now that you know who (and what) youre up against, its time to getcopies of your records. These records consist of

1.Your Credit Report, and

2.Your Credit Score.

Each of the CRAs (Equifax, Experian and TransUnion) publishes its own versionof your credit report, and each one makes its own calculation of your creditscore. You need ALL THREE reports, and ALL THREE scores.

There are several ways that you can obtain this information, and theres one inparticular that I recommend. It offers an opportunity to get all three of yourcredit reports and all three of your scores on a free trial basis (its not the onlyservice with this offer; its just the one I like). Just follow these steps:

Click this link (gofreecredit.com)and go to the main page on their

website. Enter the basic information requested on the main page. Clickthrough the next page and provide any additional information requested.This should complete step 1.

At this stage you will be asked for your credit card information. Youllneed to provide it to activate your free trial period.

Follow the directions to download your reports and scores.

Why all three? you are probably asking. Arentthey all the same?

Theyre not necessarily the same. Lenders are notrequired to report to all three CRAs, and some justreport to one or two. As a result, your three reportsmight be different in certain important details, andthis means that your scores might be different too.This is very common.
https://www.gofreecredit.com/r/517180f7ca/?subid=CSPproducthttps://www.gofreecredit.com/r/517180f7ca/?subid=CSPproducthttps://www.gofreecredit.com/r/517180f7ca/?subid=CSPproducthttps://www.gofreecredit.com/r/517180f7ca/?subid=CSPproduct


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I have a video on my site that walks you through this, step by step, so if youthink that will help you, heres the link:Get Your Records Video.Heres whatyoull see when you get there.

The video starts automatically, so just let it get started, and pause it wherenecessary as you take notes or carry out the instructions in another browserwindow. You can also just click the link below the video at any time if you wantto go directly to the download site.
http://www.thecreditsolutionprogram.com/education/how-to-check-your-scorehttp://www.thecreditsolutionprogram.com/education/how-to-check-your-scorehttp://www.thecreditsolutionprogram.com/education/how-to-check-your-scorehttp://www.thecreditsolutionprogram.com/education/how-to-check-your-score


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Chapter 4 : Exact ly What s In Your Cred itReport?

Learning how to read your credit report (and understand whats in it) will beabsolutely essential to using the weapons well be talking about latertheweapons that will enable you to improve your credit. In this chapter, thatsexactly what youll learn to doread and understand your report.

It would be nice if all three of the CRAs could agree on a single format forpresenting the information in these reports, but of course they cant. They areall in competition with each other, dont forget, and each company thinks it hasthe best method for laying out the data.

In addition to individual reports from the various CRAs, you can get a blendedreport, which is basically a single report that summarizes the informationgathered from all three CRAs. This is what you get from the source that Irecommended in the preceding chapter, and there are other online companiesthat make blended reports available as well.

The good news is that even though the look, feel and organization differs fromone CRA report to the next, and from individual reports to blended reports,they all have basically the same information and the same levels of detail.

So my goal here is to educate you to a point where you can read and

understand any kind of report, regardless of where you got it. Im going tocover the essential ingredients, the common elements that youll find in allreports.

Consequently, a report from Experian is going tolook quite a bit different from a report fromTransUnion or Equifax. I wish this wasnt true, butthere it is.


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Your Ident it y, or Personal Inf orm ation

Every report has detailed, personal information about you- - your name (ornames, if you have changed your name), your date of birth, your current andprevious addresses, your employers, and of course, your Social Security Number(they have the entire SSN on file; but they usually just print out the last fourdigits for security reasons). This information is assembled when the creditreporting company first discovers youwhen your first lender first reportsyour existence to the CRAs.

Its extremely important to review all this information for accuracy, but dont bealarmed if you discover variations in some of this data. Its normal to see yourname with and without your middle initial or your middle name, and itscommon to see past employers and past addresses listed on one report and notanother. Its NOT OK though if you see your name seriously misspelled, or ifyou see bogus addresses or employers listed.

If you see errors of this kind, its likely that there will be serious errors in yourcredit accounts due to sloppy reporting by the lenders, slap dash recording ofthe data by the CRAs, or both. Later well be covering in detail how to correcterrors in your report.

Your Credit Accounts

This is the heart and soul of your report. This is where youll find each andevery one of your debts. With respect to each one, youll see a great deal of

information, including all or most of the following:

The name and address of the creditor,

The account number,

The nature of the debt contract (whether it is a credit card, an installmentloan, a real estate mortgage, or whatever),

The most recent outstanding balance,

The date you opened the account or signed the original contract,

Whether the account is now open or closed,

Whether you now are paying on the account as agreed (whether you arecurrent with your payments),


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Your Publ ic Inf orm ati on

For all the reasons that weve been discussing, lenders, employers and othersare very interested in information directly related to your voluntary debt. Theyget this information when they want it by requesting it from the CRAs. As weveseen, it shows up in the Credit Accounts section of your report. You probablywont be surprised to learn that these same people (the lenders, employers,etc.) also want to know whether certain involuntary events have occurred inyour lifeevents like bankruptcies, court judgments and tax liens.

When you file for bankruptcy, your filing becomes a public record in thebankruptcy court. If you are sued and the court hands down a judgment againstyou, the decree becomes a public record in that court. If the state or the IRSfiles a tax lien against you, that fact is recorded in the registry of deeds in thecounty where you reside. If you are ordered to pay child support, the order iskept on file with at least one state agency, and depending on the state, perhapsin local court or registry records as well.

All of these public records keepersthe courts, the deeds registries, andcertain state and local authoritiesregularly report certain kinds of filings tothe three CRAs. The filings they report include the following:

Bankruptcies,

Court judgments,

Foreclosures,

State and federal tax liens,

Child support payments orders.

If you have any of these events in your relatively recent past (usually within thepast 7- 10 years), this is where it shows up in your report.

Consumer Statement (Personal Statement)

This section might be designated your Consumer Statement or your PersonalStatement, depending on the source of your report. Regardless, if yourereading this book, then this section is almost certainly blank. It has no data in itbecause it is reserved for statements of dispute that you have filed with the CRAat some point in the past. If youre new to credit reports and have no history oftrying to improve your credit, you wont have filed any disputes.


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Under the FCRA, you have the right to file a written dispute about anythingcontained in your report. If you disagree with how a credit account is reportedor if you want to make some other note on your report, you may do so bywriting to the CRAs and asking them to include the statement. A potentialcreditor could read the statement when they pull your report.

The Summary

Depending on where you obtain a copy of your report, you might see aSummary Section. It provides an all- in- one, high level look at all theinformation found in your report. Again, the three CRAs dont all summarizeyour information the same way, but if your report has a Summary Section, itprobably will contain:

The total amount of your debt, with subtotals for all your mortgage debt,all your revolving accounts, all your installment loans, and all your other

debt if you have any,

The total number of open, closed, and delinquent accounts,

Total amounts for open, closed, and delinquent accounts.

The reason for the breakdown into mortgage debt, revolving debt andinstallment debt is this: Creditors like to see a healthy mix of different kindsof debt, and this section lets them assess this issue very quickly.

Your Summary also might contain a list of any negative items in your report. Anegative item is any instance in which you have been at least 30 days late onany credit account.

The purpose of this section is to enable a busy loan officer to just go to theSummary section, see if the loan applicants credit is basically sound, andmake a quick decision about whether it will be necessary to delve into thereport in more detail.

Inquiries

If someone decides to take a look at a current copy of your credit report, theCRAs record the fact. The call it an Inquiry; and every time someone checksyour credit, it can show up on your report.


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In this Inquiries section, you see the identities of those who have requestedcredit information about you.

Youll recognize some of them (like maybe the name of the bank thatrecently gave you a mortgage), because you agreed to let them checkyour credit.

You might not recognize some of the others. The reason is that certaincompanies can request your credit without asking you first. A goodexample is the credit card company that sends you an offer for which youhave been pre- approved. They might have checked your credit beforethey sent you the offer.

Heres the significance of all this. Inquiries can lower your credit score, for thereason highlighted above. Thats the bad news. The good news is that not allinquiries have this effect. Inquiries come in two flavorshard and soft.

Hard Inquir ies:Your future lenders are really only interested in inquiriesby other lenders that you authorize. For example, if you apply for a loanor a credit card, and in the process of applying you authorized the bankor credit card company to check your credit, thats a hard inquiry. Itlikely will have a marginal negative effect on your overall credit score.Well have much more to say later about how your credit score iscalculated.

Soft Inquiries:Your future lenders dont much care about unauthorizedinquiries. A good example of this kind of soft inquiry is one made by acredit card company that you have never heard of and have not appliedto. These inquiries might show up on your report, but they dont haveany effect on your score.

One more very im port ant point , whi l e were on th e subject of inquir ies.When you request your own report and score, the CRA is aware of it of course,

Why would anyone care about who has checked mycredit? you might be asking yourself. Well, thereason your creditors care is simple: If youve gotseveral recent inquiries on your report, this mightmean that youre out trying to borrow more moneythan you will be able to repay. They see this as adanger signal.


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but they record the event as a soft inquiry. This is true whether you make therequest directly to each individual CRA or use a third party online service to getyour all- in- one report and scores (as I recommend). It doesnt hurt your scoreat all if you inquire into your own credit standing. Youre not doing yourself anyharm by pulling your report.

Well, thats it for your credit report for now. Well have more on the subjectlater in the chapters to come, but lets move on to the other major componentof your credityour credit score. In the meantime, the following few pages arean example of a dummy all- in- one report.


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Three- in- OneSamp le Credit Repor t

Registration Information Name: Clark S. Kent Address: 123 Main Street, Metropolis, NY 54321 Social Secur it y Num ber:

001 23 4567

Identi f icati on Inf orm ation Equifax Experian TransUnion

Reported Reported Reported

Name: Clark Kent Clarke Kent Clark S Kent

Social Securit y Num ber: 001234567 001234567 001234567Age or Date of Birt h: 08/ 1966 08/ 1966 08/ 1966

Address Inform ation

Equifax Reported

Experian Reported

TransUnionReported

Address: 123 MAIN ST 123 MAIN ST 123 MAIN ST

METROPOLIS, NY 54321 METROPOLIS, NY 54321 METROPOLIS, NY 54321

Date Reported: 03/ 1999 01/ 2002 10/ 1999

Previous Address: RR 3 RR 3 RR 3

SMALLVILLE, KN 12345 SMALLVILLE, KN 12345 SMALLVILLE, KN 12345

Date Reported: 11/ 1998 12/ 2001 09/ 1999

Address information shows both current and previous reportedmailing addresses

Identification information is used to verify identity based on yoursocial security number. It may reflect name changes or misspellings.

Personal Information


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Empl oyment Infor mation

Equifax Experian TransUnion

Reported Reported Not Reported

Employer: Planet Publishing, Inc Planet Publishing, Inc.

Address:

Date Reported: 02/ 1991 02/ 19911

American Express

Equifax Reported

Experian Reported

TransUnionReported

Account Type: REVOLVING REVOLVING REVOLVING

Account Number: 00726 00726 00726

Payment Responsibil i ty: Individual Individual Individual

Date Opened: 03/ 1991 03/ 1991 03/ 1991Balance Dat e: 04/ 2002 04/ 2002 04/ 2002

Balance Amount: $704 $704 $704

Month ly Payment: $21 $21 $21

Credit Limit : $704 $6416 $704

High Balance:

Account Status: AS AGREED CURR ACCT Paid as agreed

Past Due Amoun t: $0 $0 $0

Comments: Charge Charge Charge

Bank o f Ameri ca

Equifax Reported

Experian Reported

TransUnionReported

Account Type: INSTALLMENT INSTALLMENT INSTALLMENT

Account Number: 001330 001330 001330

Payment Responsibil i ty: Joint Joint Joint

Date Opened: 12/ 1999 12/ 1999 12/ 1999

Balance Dat e: 05/ 2002 05/ 2002 05/ 2002

Account Information

Employment information identifies the current employer, as of thedate reported.


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Balance Amount: $351000 $351000 $351000

Month ly Payment: $2972 $2972 $2972

Credit Limit : $450000 $450000 $450000

High Balance:

Account Status: AS AGREED CURR ACCT Paid as agreed

Past Due Amoun t: $0 $0 $0

Comments: Closed Account Closed Account

Equifax

Name of Comp any Date of Inquir y Type of Business

Duke Electric 11/ 17/ 01 Unknown Credit Extension, Review, or Collection

CAPONEBANK 05/ 21/ 00

CITIFINANCE 05/ 21/ 00 Unknown Credit Extension, Review, or Collection

ExperianName of Comp any Date of Inquir y Type of Business

Duke Electric 11/ 17/ 01 Unknown Credit Extension, Review, or Collection

BANK OF AMERICA 02/ 15/ 01 Unknown Credit Extension, Review, or Collection

TransUnion Name of Comp any Date of Inquir y Type of Business

Ford Credit 04/ 17/ 02 Unknown Credit Extension, Review, or Collection

BANK OF AMERICA 02/ 15/ 01 Unknown Credit Extension, Review, or Collection

INGUWAS 02/ 02/ 01

Inquiries Information

Account information reflects information reported by creditors,primarily credit card companies. Information includes:

Type of Account (revolving, installment, etc.)Date OpenedBalanceMonthly payment

Credit LimitHigh balance amountPast due amountAccount status


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Texas GTEEquifax Experian TransUnion


Collector: TEXAS GTE TEXAS GTE TEXAS GTE

Account Number: 75930260 75930260 75930260

Date Opened: 06/ 1995 06/ 1995 06/ 1995

Balance Dat e: 09/ 2000 09/ 2000 09/ 2000

Balance Amount: 0 0 0

Date of Status: 09/ 2000 09/ 2000 09/ 2000

Status: PAID PAID PAID

Sears Cred it Equifax Experian TransUnion


Collector: SEARS CREDIT SEARS CREDIT SEARS CREDIT

Account Number: 12812398912 12812398912 12812398912

Date Opened: 04/ 1994 04/ 1994 04/ 1994

Balance Dat e: 10/ 1999 11/ 1999 11/1999

Balance Amount: 0 0 0

Date of Status: 10/ 1999 10/ 1999 10/ 1999

Status: PAID PAID PAID

Collection Activity includes:

The collecting companyThe account in questionDate openedBalance dateBalance amount (zero if paid)Date of Status (see below)Status

Collections Information

Inquiries provide a list of Companies that have checked theconsumers credit.


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Equifax

Court Plaintiff Docket Filing Balance Account Type

Number Date Amount Status

RICH COUNTY CT OF NY 07/ 1998 $136767 Appealed Tax Lien Federa

HAPSBURG COUNTY CT OF NY 09/ 1999 $240562 Appealed Tax Lien Federa

ExperianCourt Plaintiff Docket Filing Balance Account Type


RICH COUNTY CT OF NY 07/ 1998 $136767 Appealed Tax Lien Federa

TransUnion Court Plaintiff Docket Filing Balance Account Type


No public records on file 07/ 1998 $136767 Appealed Tax Lien Federa

None

Disputes identifies consumer disputes of credit report information.

Personal Information

Public Records reflects information secured by the credit companyfrom the court house, court records, and other public sources. Itoften includes tax liens, foreclosures, evictions, litigation, judgments,

Public Records Information


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You have no Consumer Statement on file.



Consumer Statements reflects information provided by theconsumer regarding credit claims and information.

TransUnion

Experian

Equifax

Consumer Statements


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Chapt er 5: Understand ing Your Credi t Score

Some Questions and Answers

How did credit scores come about? Whose great idea was this, anyway?

To give you some notion of how credit scores came into being, let me ask yousome questions. Lets assume you have a complicated, unpleasant, costly taskthat you dont like doing; but the fact that its a pain, that its slow, and that itcosts a ton of money doesnt mean that you can ignore it- - you still have to doit several times every day.

Would you rather accomplish the task much more quickly?

Would you rather the task was simpler and easier to understand?

Would you like it if the task could be done for far less money?

Easy answers: Yes to all three questions, right? Of course. Now imagine thatyoure a lender who gets twelve loan requests every day. You could just grantall twelve loans, regardless of who the applicants are; but this would be a reallybad idea. Some of them wouldnt pay, and youd lose money. You dont wantthat (you really, really hate it when you lose money).

So- - this means that you have to pull twelve credit reports each day to get someidea of who these applicants are and whether theyre likely to pay you back.You have to decipher all the information in each report (and theres a lot there)before you decide whether you should make each loan.

The reports are complicated, and hard to understand, so you have several creditevaluation specialists on hand who are trained to do this for you. They work foryou (unfortunately), and this means you have to supervise them and pay them.You dont like anything about this. The credit analysts are expensive, and theyseem to take forever. Theyre a bottleneck in your loan approval process.

For years, this is how it was. As weve already seen, a modern credit report canbe confusing, and in the early days of these reports they were much more so.Lenders would have to decipher the information themselves, and they had tohire experts to do it. Not just anyone had the training and experience toevaluate these reports. The process of dealing with them was cumbersome,expensive, and slow. The situation was ripe for a solutionsomething that


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would streamline the process and make it fast, simple, and much lessexpensive.

Enter Bill Fair and Earl Isaac. In 1956 these two gentlemen (an engineer and a

mathematician) got together and formed Fair, Isaac and Company (FICO). Theysoon came up with a scoring system for assessing the creditworthiness of loanapplicants. Eventually they developed a very sophisticated piece of modelingsoftware that was designed to simplify the evaluation of credit reports andreduce the need for expensive credit analysts.

In concept, this credit scoring system (called the FICO System) is simple: A widevariety of information about consumers, like you and me, is fed into the FICOsoftware program. This is the information that is contained in the creditreports. This program performs literally thousands of tests to compare yourcredit report data against that of everyone else. The results of these tests are

converted into a points system to form a three digit credit score. In reality, thesystem is not so simple of course (the mathematical algorithms are incrediblycomplex), and exactly how it works is proprietary (secret).

Simple or complex, and secret or not, it quickly caught on for these excellentreasons:

It is very fast,

It is inexpensive (at least compared to the cost of maintaining an army ofcredit review specialists),

It is pretty reliable (banks and others quickly saw that the three- digitcredit score did a pretty good job of predicting whether people weregoing to pay their debts on time or not.

In fact, the original Fair Isaacs software was so successful and popular that allthree of the major CRAs (Equifax, Experian and TransUnion) decided that they

As so often happens when rich, powerful interestshave a problem that needs solving, someone stepsin to provide the answer and make a pile of moneyin the process.

Does anyone see a pattern developing here?


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had to have it. They all started using it to calculate scores. In turn, most of theCRAs customers (the lenders, retailers, and creditors) soon subscribed to thesoftware and began relying on the credit score to make their c

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