Monday, February 06, 2006

"Put yourself in someone else's shoes..."

"Put yourself in someone else's shoes, why don't you."

It is an odd and somewhat dated expression, one my mother used whenever I failed to grasp a basic concept.

That concept lay dormant in my brain for a number of years until, one day, I was asked to find out what it was like to be a wheelchair user trying to gain access to the local shops. It was a humbling experience.

Not long after, I was again "in someone else's shoes", in a workshop for the blind in Cardiff - my first "assignment" as a trainee journalist.

I watched as an array of items were assembled with precision and attention to detail, ready for packaging.

Then, as a trainee reporter, I was fascinated and full of praise for the talking newspaper for the blind service in the town I worked in. Bringing the news myself and my colleagues wrote to an audience who I met on occasion. One elderly gentlman had a fantastic grasp on the importance of radio and audio recordings for bringing the world into your home, enthusing about the benefits as many must have at the dawn of radio broadcasts.

Now, zoom forward 16 years and I am back to that start point of my inspiration as a young man; back to that institute for the blind, trying to bring to bear my life's experiences to find ways of using technology to support blind and visually impaired people.

To start with, I am hoping to do that wheelchair exercise once again, this time trying to use a computer as a blind or visually impaired person would, day to day, to discover what issues are involved.

I have this germ of an idea about a possible project to set up a podcasting studio in the blind institute, creating a stimulating, shared resource that people everywhere can use.

If at all possible, I would like to draw on the experiences of blind and visually impaired people who have read this blog to offer their thoughts and experiences of using new technology, particularly the idea of a shared podcast resource.

Stevie Disco

55 Comments:

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Blogger Omkar Nisal said...

hello steve,

pleasantly happy to raed your blog...

i got a chance to put myself in blind people's shoes... for some time.. in my dreams!!! and that was it! it was the turning point in my life.

Thats when I came up with this project
I am working on..

A very important project for the blind/visually impaired people...called as THE AUXEL PROJECT.

AUXEL stands for AUdio piXEL. A sound that creates image in our (blind people's) brains, pixel by pixel!!!

since you are also working on similar lines... I would like to bring this project to your attention.

I am very sure that you will surely post in your comments, critism , ideas and suggestions.

http://auxel.blogspot.com/

Thanks and all the best for your brilliant and fantastic future!

Regards and love,

Omkar Nisal (Omee)

PS: Good luck for your pod casting and using technology to make life better for blind! I am proud of you! I also thank you on behalf of all the people who will benefit from your work (also those around these people!)

:)

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Debt1consolidation.com entails taking out one loan to pay off many others. This is often done to secure a lower interest rate secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house (in this case a mortgage is secured against the house.) The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

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Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

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Student loan rates can fluctuate from the current low of 4.70% to a maximum of 8.25% for federal Stafford loans 9% for PLUS loans. The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.

Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.

Student loan consolidation can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus; SLM Corporation (formerly Sallie Mae) does not report to Experian or Transunion which means that students will have differing credit scores at Equifax Transunion, and Experian.

Credit as a financial term, used in such terms as credit card refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

A similar usage is in commercial trade where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager

Credit is denominated by a unit of account Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply

Credit is also traded in the market The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).

Credit Education is the practice of providing consumers with information analyzing their credit behavior. Credit education is usually practiced by trained professionals knowledgeable in the analytics of the credit score and how consumer credit behavior effects both positive and negative credit eligibility. Credit education is usually assisted by sophisticated credit scoring models that mathematically assists the consumer, or counselor, in determining a credit improvement outcome.

Credit Education has become an increasingly practiced discipline due to sweeping increases in the use of the credit score and its affect on the prices consumers pay for loans, insurance, housing and utilities. It is also the major factor in loan eligibility.

Not to be confused with credit counseling credit education does not focus on debt counseling, nor involves the practice of collecting debt from consumers. Credit counseling and credit repair have consistently received negative publicity for its fee and management practices.

The largest suppliers for credit education data are Fair Isaac Corporation, CreditXpert and the three credit bureaus ( Experian, TransUnion and Equifax who deliver credit reports and credit scores. Among the largest providers of credit education services is Community Empower who, through the use of its own scoring models and national network of credit education counselors, provides consumers hands-on guidance using highly-trained local professionals.

Credit education has also received attention as a new discipline at the Community College level where new courses on the subject are being taught. Usually aligned with Mortgage Finance programs that teach college undergraduates principles of lending and underwriting credit education and credit recovery programs are giving students more extensive backgrounds in credit early in their careers. Among the early college level adoptors of credit education is the Los Angeles Community College District and Los Angeles Trade Technical College.

FICO is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and refers to the best-known credit score model in the United States, which is calculated using mathematical formulae developed by this company. The FICO score is primarily used in the consumer banking and credit industry. Banks and other institutions that use scores as a factor in their lending decisions may deny credit, charge higher interest rates or require more extensive income and asset verification if the applicants credit score is low.

FICO scores are designed to indicate the likelihood of a borrower being delinquent within the next 24 months. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.

The three major credit reporting agencies (also often, but inaccurately referred to as credit bureaus) in the United States, Equifax, Experianand TransUnion calculate their own credit scores, which go by different trademark names as well as many different versions of the score (often differing because of what they are meant to predict and when they were written): Beacon, Beacon 96, and Pinnacle are all available only from Equifax; Empirica, Empirica Auto 95, Precision Score, and Precision 03 at TransUnion; and Fair Isaac Risk Score at Experian. These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

The scores use a multiple scorecard design. Each version uses 10 or more individual scorecards, and an individual is typically compared with similar others. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) An individual is then graded according to what variables seem to indicate a repayment risk in that group. This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies.

Nearly all large banks also build and use their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores.

The statistical models that generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring model from considering any prohibited basis such as race, color, religion, national origin, sex, or marital status. Regulation B also stipulates that credit scoring models must be empirically derived and statistically sound. Furthermore, if an adverse action is taken as a result of the credit score ( e.g. an individual's application for credit is denied) then specific reasons for the denial must be provided to the individual. A statement that the individual "failed to score high enough" is insufficient; the reasons must be specific.

There exist several generally accepted algorithms for extracting the primary contributing factors to a low credit score. One or more of these algorithms is typically used to supply a list of reasons when a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat disingenuous, as the only determining factor for credit denials is a numeric score — the "reasons" are summed up only for the consumer.

Each of the credit reporting agencies has developed its own version of the credit score intended to compete with Fair Isaac's score. Although not as widely used, these scores (for example Trans Union's "TransRisk" score or Experian's "ScoreX" and "PLUS" scores) are less expensive than the FICO score. These scores are often derisively referred to by consumers and lenders as "FAKO" scores, for they do not use official Fair Isaac methodologies. The cost savings of a non-FICO score are tempting to some banks and credit card companies, who need an accurate risk assessment on millions of accounts every year. For ease of use, these scores tend to be mathematically scaled so that they fall in the same general range as the FICO score. Fair Isaac offers scoring models for the U.S ., Canada, and South Africa. It also offers a "Global FICO" for many other countries.

Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulae for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

35% punctuality of payment in the past (only includes payments later than 30 days past due)
30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% length of credit history
10% types of credit used (installment revolving consumer finance
10% recent search for credit and/or amount of credit obtained recently
The above percentages provide very limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors - two being the oldest account open and the average length of time an account has been open. Although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the simplistic pie chart provided by Fair Isaac.

Further, Fair Isaac does not use the same "scorecard" for everyone. The scorecards are segmented so that there are over 100 different actual scoring models that are applied to different individuals based on different ranges of input values (some scorecard segmentations include: age, depth of credit history, etc.) The implications of this segmentation are that while the approximate weighted contribution above may be an average across all scorecards, individuals will receive different scores or weightings based on the scorecard segmentation that they fall into. Some consumers have noticed their scores decreasing by small amounts for no apparent reason.

Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no other sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.

There are other special factors which can weigh on the FICO score.

Any monies owed because of a court judgment, tax lien, or similar carry an additional negative penalty, especially when recent.
Having above a certain number of consumer finance company credit accounts also carries a negative weight (critics say that this causes a vicious cycle, locking people into continuing to use consumer finance companies).
The number of recent credit checks also can weigh down the score, although the credit agencies claim to allow for credit checks made within a certain window of time to not aggregate, so as to allow the consumer to shop around for rates.

A FICO score generally ranges from 300 to 850. It exhibits a left-skewed distribution with a US median around 725. 660 is generally regarded as potentially subprime and represents an important break point for credit worthiness. The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies hold their own, independent databases. These databases are independent of each other and may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

A new Vantage score has been offered by all three credit bureaus to creditors since spring 2006. It will soon be available to debtors. Its range is from 501 to 990. It is graded A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600). It remains to be seen whether the Vantage Score will replace the FICO score or even be accepted by many creditors.

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Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

In the United States, federal student loans are consolidated somewhat differently, as federal student loans are guaranteed by the U.S. government. In a federal student loan consolidation, existing loans are purchased and closed by a loan consolidation company or by the Department of Education (depending on what type of federal student loan the borrower holds). Interest rates for the consolidation are based on that year's student loan rate, which is in turn based on the 91-day Treasury bill rate at the last auction in May of each calendar year.

Student loan rates can fluctuate from the current low of 4.70% to a maximum of 8.25% for federal Stafford loans 9% for PLUS loans. The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.

Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.

Student loan consolidation can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus; SLM Corporation (formerly Sallie Mae) does not report to Experian or Transunion which means that students will have differing credit scores at Equifax Transunion, and Experian.

Credit as a financial term, used in such terms as credit card refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

A similar usage is in commercial trade where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager

Credit is denominated by a unit of account Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply

Credit is also traded in the market The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).

Credit Education is the practice of providing consumers with information analyzing their credit behavior. Credit education is usually practiced by trained professionals knowledgeable in the analytics of the credit score and how consumer credit behavior effects both positive and negative credit eligibility. Credit education is usually assisted by sophisticated credit scoring models that mathematically assists the consumer, or counselor, in determining a credit improvement outcome.

Credit Education has become an increasingly practiced discipline due to sweeping increases in the use of the credit score and its affect on the prices consumers pay for loans, insurance, housing and utilities. It is also the major factor in loan eligibility.

Not to be confused with credit counseling credit education does not focus on debt counseling, nor involves the practice of collecting debt from consumers. Credit counseling and credit repair have consistently received negative publicity for its fee and management practices.

The largest suppliers for credit education data are Fair Isaac Corporation, CreditXpert and the three credit bureaus ( Experian, TransUnion and Equifax who deliver credit reports and credit scores. Among the largest providers of credit education services is Community Empower who, through the use of its own scoring models and national network of credit education counselors, provides consumers hands-on guidance using highly-trained local professionals.

Credit education has also received attention as a new discipline at the Community College level where new courses on the subject are being taught. Usually aligned with Mortgage Finance programs that teach college undergraduates principles of lending and underwriting credit education and credit recovery programs are giving students more extensive backgrounds in credit early in their careers. Among the early college level adoptors of credit education is the Los Angeles Community College District and Los Angeles Trade Technical College.

FICO is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and refers to the best-known credit score model in the United States, which is calculated using mathematical formulae developed by this company. The FICO score is primarily used in the consumer banking and credit industry. Banks and other institutions that use scores as a factor in their lending decisions may deny credit, charge higher interest rates or require more extensive income and asset verification if the applicants credit score is low.

FICO scores are designed to indicate the likelihood of a borrower being delinquent within the next 24 months. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.

The three major credit reporting agencies (also often, but inaccurately referred to as credit bureaus) in the United States, Equifax, Experianand TransUnion calculate their own credit scores, which go by different trademark names as well as many different versions of the score (often differing because of what they are meant to predict and when they were written): Beacon, Beacon 96, and Pinnacle are all available only from Equifax; Empirica, Empirica Auto 95, Precision Score, and Precision 03 at TransUnion; and Fair Isaac Risk Score at Experian. These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

The scores use a multiple scorecard design. Each version uses 10 or more individual scorecards, and an individual is typically compared with similar others. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) An individual is then graded according to what variables seem to indicate a repayment risk in that group. This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies.

Nearly all large banks also build and use their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores.

The statistical models that generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring model from considering any prohibited basis such as race, color, religion, national origin, sex, or marital status. Regulation B also stipulates that credit scoring models must be empirically derived and statistically sound. Furthermore, if an adverse action is taken as a result of the credit score ( e.g. an individual's application for credit is denied) then specific reasons for the denial must be provided to the individual. A statement that the individual "failed to score high enough" is insufficient; the reasons must be specific.

There exist several generally accepted algorithms for extracting the primary contributing factors to a low credit score. One or more of these algorithms is typically used to supply a list of reasons when a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat disingenuous, as the only determining factor for credit denials is a numeric score — the "reasons" are summed up only for the consumer.

Each of the credit reporting agencies has developed its own version of the credit score intended to compete with Fair Isaac's score. Although not as widely used, these scores (for example Trans Union's "TransRisk" score or Experian's "ScoreX" and "PLUS" scores) are less expensive than the FICO score. These scores are often derisively referred to by consumers and lenders as "FAKO" scores, for they do not use official Fair Isaac methodologies. The cost savings of a non-FICO score are tempting to some banks and credit card companies, who need an accurate risk assessment on millions of accounts every year. For ease of use, these scores tend to be mathematically scaled so that they fall in the same general range as the FICO score. Fair Isaac offers scoring models for the U.S ., Canada, and South Africa. It also offers a "Global FICO" for many other countries.

Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulae for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

35% punctuality of payment in the past (only includes payments later than 30 days past due)
30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% length of credit history
10% types of credit used (installment revolving consumer finance
10% recent search for credit and/or amount of credit obtained recently
The above percentages provide very limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors - two being the oldest account open and the average length of time an account has been open. Although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the simplistic pie chart provided by Fair Isaac.

Further, Fair Isaac does not use the same "scorecard" for everyone. The scorecards are segmented so that there are over 100 different actual scoring models that are applied to different individuals based on different ranges of input values (some scorecard segmentations include: age, depth of credit history, etc.) The implications of this segmentation are that while the approximate weighted contribution above may be an average across all scorecards, individuals will receive different scores or weightings based on the scorecard segmentation that they fall into. Some consumers have noticed their scores decreasing by small amounts for no apparent reason.

Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no other sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.

There are other special factors which can weigh on the FICO score.

Any monies owed because of a court judgment, tax lien, or similar carry an additional negative penalty, especially when recent.
Having above a certain number of consumer finance company credit accounts also carries a negative weight (critics say that this causes a vicious cycle, locking people into continuing to use consumer finance companies).
The number of recent credit checks also can weigh down the score, although the credit agencies claim to allow for credit checks made within a certain window of time to not aggregate, so as to allow the consumer to shop around for rates.

A FICO score generally ranges from 300 to 850. It exhibits a left-skewed distribution with a US median around 725. 660 is generally regarded as potentially subprime and represents an important break point for credit worthiness. The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies hold their own, independent databases. These databases are independent of each other and may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

A new Vantage score has been offered by all three credit bureaus to creditors since spring 2006. It will soon be available to debtors. Its range is from 501 to 990. It is graded A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600). It remains to be seen whether the Vantage Score will replace the FICO score or even be accepted by many creditors.

Debt1consolidation.com entails taking out one loan to pay off many others. This is often done to secure a lower interest rate secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house (in this case a mortgage is secured against the house.) The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

In the United States, federal student loans are consolidated somewhat differently, as federal student loans are guaranteed by the U.S. government. In a federal student loan consolidation, existing loans are purchased and closed by a loan consolidation company or by the Department of Education (depending on what type of federal student loan the borrower holds). Interest rates for the consolidation are based on that year's student loan rate, which is in turn based on the 91-day Treasury bill rate at the last auction in May of each calendar year.

Student loan rates can fluctuate from the current low of 4.70% to a maximum of 8.25% for federal Stafford loans 9% for PLUS loans. The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.

Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.

Student loan consolidation can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus; SLM Corporation (formerly Sallie Mae) does not report to Experian or Transunion which means that students will have differing credit scores at Equifax Transunion, and Experian.

Credit as a financial term, used in such terms as credit card refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

A similar usage is in commercial trade where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager

Credit is denominated by a unit of account Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply

Credit is also traded in the market The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).

Credit Education is the practice of providing consumers with information analyzing their credit behavior. Credit education is usually practiced by trained professionals knowledgeable in the analytics of the credit score and how consumer credit behavior effects both positive and negative credit eligibility. Credit education is usually assisted by sophisticated credit scoring models that mathematically assists the consumer, or counselor, in determining a credit improvement outcome.

Credit Education has become an increasingly practiced discipline due to sweeping increases in the use of the credit score and its affect on the prices consumers pay for loans, insurance, housing and utilities. It is also the major factor in loan eligibility.

Not to be confused with credit counseling credit education does not focus on debt counseling, nor involves the practice of collecting debt from consumers. Credit counseling and credit repair have consistently received negative publicity for its fee and management practices.

The largest suppliers for credit education data are Fair Isaac Corporation, CreditXpert and the three credit bureaus ( Experian, TransUnion and Equifax who deliver credit reports and credit scores. Among the largest providers of credit education services is Community Empower who, through the use of its own scoring models and national network of credit education counselors, provides consumers hands-on guidance using highly-trained local professionals.

Credit education has also received attention as a new discipline at the Community College level where new courses on the subject are being taught. Usually aligned with Mortgage Finance programs that teach college undergraduates principles of lending and underwriting credit education and credit recovery programs are giving students more extensive backgrounds in credit early in their careers. Among the early college level adoptors of credit education is the Los Angeles Community College District and Los Angeles Trade Technical College.

FICO is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and refers to the best-known credit score model in the United States, which is calculated using mathematical formulae developed by this company. The FICO score is primarily used in the consumer banking and credit industry. Banks and other institutions that use scores as a factor in their lending decisions may deny credit, charge higher interest rates or require more extensive income and asset verification if the applicants credit score is low.

FICO scores are designed to indicate the likelihood of a borrower being delinquent within the next 24 months. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.

The three major credit reporting agencies (also often, but inaccurately referred to as credit bureaus) in the United States, Equifax, Experianand TransUnion calculate their own credit scores, which go by different trademark names as well as many different versions of the score (often differing because of what they are meant to predict and when they were written): Beacon, Beacon 96, and Pinnacle are all available only from Equifax; Empirica, Empirica Auto 95, Precision Score, and Precision 03 at TransUnion; and Fair Isaac Risk Score at Experian. These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

The scores use a multiple scorecard design. Each version uses 10 or more individual scorecards, and an individual is typically compared with similar others. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) An individual is then graded according to what variables seem to indicate a repayment risk in that group. This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies.

Nearly all large banks also build and use their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores.

The statistical models that generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring model from considering any prohibited basis such as race, color, religion, national origin, sex, or marital status. Regulation B also stipulates that credit scoring models must be empirically derived and statistically sound. Furthermore, if an adverse action is taken as a result of the credit score ( e.g. an individual's application for credit is denied) then specific reasons for the denial must be provided to the individual. A statement that the individual "failed to score high enough" is insufficient; the reasons must be specific.

There exist several generally accepted algorithms for extracting the primary contributing factors to a low credit score. One or more of these algorithms is typically used to supply a list of reasons when a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat disingenuous, as the only determining factor for credit denials is a numeric score — the "reasons" are summed up only for the consumer.

Each of the credit reporting agencies has developed its own version of the credit score intended to compete with Fair Isaac's score. Although not as widely used, these scores (for example Trans Union's "TransRisk" score or Experian's "ScoreX" and "PLUS" scores) are less expensive than the FICO score. These scores are often derisively referred to by consumers and lenders as "FAKO" scores, for they do not use official Fair Isaac methodologies. The cost savings of a non-FICO score are tempting to some banks and credit card companies, who need an accurate risk assessment on millions of accounts every year. For ease of use, these scores tend to be mathematically scaled so that they fall in the same general range as the FICO score. Fair Isaac offers scoring models for the U.S ., Canada, and South Africa. It also offers a "Global FICO" for many other countries.

Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulae for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

35% punctuality of payment in the past (only includes payments later than 30 days past due)
30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% length of credit history
10% types of credit used (installment revolving consumer finance
10% recent search for credit and/or amount of credit obtained recently
The above percentages provide very limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors - two being the oldest account open and the average length of time an account has been open. Although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the simplistic pie chart provided by Fair Isaac.

Further, Fair Isaac does not use the same "scorecard" for everyone. The scorecards are segmented so that there are over 100 different actual scoring models that are applied to different individuals based on different ranges of input values (some scorecard segmentations include: age, depth of credit history, etc.) The implications of this segmentation are that while the approximate weighted contribution above may be an average across all scorecards, individuals will receive different scores or weightings based on the scorecard segmentation that they fall into. Some consumers have noticed their scores decreasing by small amounts for no apparent reason.

Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no other sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.

There are other special factors which can weigh on the FICO score.

Any monies owed because of a court judgment, tax lien, or similar carry an additional negative penalty, especially when recent.
Having above a certain number of consumer finance company credit accounts also carries a negative weight (critics say that this causes a vicious cycle, locking people into continuing to use consumer finance companies).
The number of recent credit checks also can weigh down the score, although the credit agencies claim to allow for credit checks made within a certain window of time to not aggregate, so as to allow the consumer to shop around for rates.

A FICO score generally ranges from 300 to 850. It exhibits a left-skewed distribution with a US median around 725. 660 is generally regarded as potentially subprime and represents an important break point for credit worthiness. The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies hold their own, independent databases. These databases are independent of each other and may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

A new Vantage score has been offered by all three credit bureaus to creditors since spring 2006. It will soon be available to debtors. Its range is from 501 to 990. It is graded A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600). It remains to be seen whether the Vantage Score will replace the FICO score or even be accepted by many creditors.

Debt1consolidation.com entails taking out one loan to pay off many others. This is often done to secure a lower interest rate secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house (in this case a mortgage is secured against the house.) The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

In the United States, federal student loans are consolidated somewhat differently, as federal student loans are guaranteed by the U.S. government. In a federal student loan consolidation, existing loans are purchased and closed by a loan consolidation company or by the Department of Education (depending on what type of federal student loan the borrower holds). Interest rates for the consolidation are based on that year's student loan rate, which is in turn based on the 91-day Treasury bill rate at the last auction in May of each calendar year.

Student loan rates can fluctuate from the current low of 4.70% to a maximum of 8.25% for federal Stafford loans 9% for PLUS loans. The current consolidation program allows students to consolidate once with a private lender, and reconsolidate again only with the Department of Education. Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.

Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student loan consolidation does not incur any fees for the borrower; private companies make money on student loan consolidation by reaping subsidies from the federal government.

Student loan consolidation can be beneficial to students' credit rating, but it's important to note that not all federal student loan consolidation companies report their loans to all credit bureaus; SLM Corporation (formerly Sallie Mae) does not report to Experian or Transunion which means that students will have differing credit scores at Equifax Transunion, and Experian.

Credit as a financial term, used in such terms as credit card refers to the granting of a loan and the creation of debt. Any movement of financial capital is normally quite dependent on credit, which in turn is dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds.

A similar usage is in commercial trade where credit is used to refer to the approval for delayed payments for goods purchased. Sometimes if a person has financial instability or difficulty, credit is not granted. Companies frequently offer credit to their customers as part of the terms of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager

Credit is denominated by a unit of account Unlike money (by a strict definition), credit itself cannot act as a unit of account. However, many forms of credit can readily act as a medium of exchange As such, various forms of credit are frequently referred to as money and are included in estimates of the money supply

Credit is also traded in the market The purest form is the "Credit Default Swap" market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counterparties will exchange this risk — the protection "seller" takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point being 1/100 of a percent) of the notional amount to be referenced, while the protection "buyer" pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (i.e., is made whole).

Credit Education is the practice of providing consumers with information analyzing their credit behavior. Credit education is usually practiced by trained professionals knowledgeable in the analytics of the credit score and how consumer credit behavior effects both positive and negative credit eligibility. Credit education is usually assisted by sophisticated credit scoring models that mathematically assists the consumer, or counselor, in determining a credit improvement outcome.

Credit Education has become an increasingly practiced discipline due to sweeping increases in the use of the credit score and its affect on the prices consumers pay for loans, insurance, housing and utilities. It is also the major factor in loan eligibility.

Not to be confused with credit counseling credit education does not focus on debt counseling, nor involves the practice of collecting debt from consumers. Credit counseling and credit repair have consistently received negative publicity for its fee and management practices.

The largest suppliers for credit education data are Fair Isaac Corporation, CreditXpert and the three credit bureaus ( Experian, TransUnion and Equifax who deliver credit reports and credit scores. Among the largest providers of credit education services is Community Empower who, through the use of its own scoring models and national network of credit education counselors, provides consumers hands-on guidance using highly-trained local professionals.

Credit education has also received attention as a new discipline at the Community College level where new courses on the subject are being taught. Usually aligned with Mortgage Finance programs that teach college undergraduates principles of lending and underwriting credit education and credit recovery programs are giving students more extensive backgrounds in credit early in their careers. Among the early college level adoptors of credit education is the Los Angeles Community College District and Los Angeles Trade Technical College.

FICO is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and refers to the best-known credit score model in the United States, which is calculated using mathematical formulae developed by this company. The FICO score is primarily used in the consumer banking and credit industry. Banks and other institutions that use scores as a factor in their lending decisions may deny credit, charge higher interest rates or require more extensive income and asset verification if the applicants credit score is low.

FICO scores are designed to indicate the likelihood of a borrower being delinquent within the next 24 months. No public information is available to determine what the scores mean in terms of statistics. A separate score, BNI, is used to indicate likelihood of bankruptcy.

The three major credit reporting agencies (also often, but inaccurately referred to as credit bureaus) in the United States, Equifax, Experianand TransUnion calculate their own credit scores, which go by different trademark names as well as many different versions of the score (often differing because of what they are meant to predict and when they were written): Beacon, Beacon 96, and Pinnacle are all available only from Equifax; Empirica, Empirica Auto 95, Precision Score, and Precision 03 at TransUnion; and Fair Isaac Risk Score at Experian. These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

The scores use a multiple scorecard design. Each version uses 10 or more individual scorecards, and an individual is typically compared with similar others. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) An individual is then graded according to what variables seem to indicate a repayment risk in that group. This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies.

Nearly all large banks also build and use their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores.

The statistical models that generate credit scores are subject to federal regulations. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring model from considering any prohibited basis such as race, color, religion, national origin, sex, or marital status. Regulation B also stipulates that credit scoring models must be empirically derived and statistically sound. Furthermore, if an adverse action is taken as a result of the credit score ( e.g. an individual's application for credit is denied) then specific reasons for the denial must be provided to the individual. A statement that the individual "failed to score high enough" is insufficient; the reasons must be specific.

There exist several generally accepted algorithms for extracting the primary contributing factors to a low credit score. One or more of these algorithms is typically used to supply a list of reasons when a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat disingenuous, as the only determining factor for credit denials is a numeric score — the "reasons" are summed up only for the consumer.

Each of the credit reporting agencies has developed its own version of the credit score intended to compete with Fair Isaac's score. Although not as widely used, these scores (for example Trans Union's "TransRisk" score or Experian's "ScoreX" and "PLUS" scores) are less expensive than the FICO score. These scores are often derisively referred to by consumers and lenders as "FAKO" scores, for they do not use official Fair Isaac methodologies. The cost savings of a non-FICO score are tempting to some banks and credit card companies, who need an accurate risk assessment on millions of accounts every year. For ease of use, these scores tend to be mathematically scaled so that they fall in the same general range as the FICO score. Fair Isaac offers scoring models for the U.S ., Canada, and South Africa. It also offers a "Global FICO" for many other countries.

Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulae for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

35% punctuality of payment in the past (only includes payments later than 30 days past due)
30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% length of credit history
10% types of credit used (installment revolving consumer finance
10% recent search for credit and/or amount of credit obtained recently
The above percentages provide very limited guidance in understanding a credit score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also a murky concept; it consists of multiple factors - two being the oldest account open and the average length of time an account has been open. Although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the simplistic pie chart provided by Fair Isaac.

Further, Fair Isaac does not use the same "scorecard" for everyone. The scorecards are segmented so that there are over 100 different actual scoring models that are applied to different individuals based on different ranges of input values (some scorecard segmentations include: age, depth of credit history, etc.) The implications of this segmentation are that while the approximate weighted contribution above may be an average across all scorecards, individuals will receive different scores or weightings based on the scorecard segmentation that they fall into. Some consumers have noticed their scores decreasing by small amounts for no apparent reason.

Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no other sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.

There are other special factors which can weigh on the FICO score.

Any monies owed because of a court judgment, tax lien, or similar carry an additional negative penalty, especially when recent.
Having above a certain number of consumer finance company credit accounts also carries a negative weight (critics say that this causes a vicious cycle, locking people into continuing to use consumer finance companies).
The number of recent credit checks also can weigh down the score, although the credit agencies claim to allow for credit checks made within a certain window of time to not aggregate, so as to allow the consumer to shop around for rates.

A FICO score generally ranges from 300 to 850. It exhibits a left-skewed distribution with a US median around 725. 660 is generally regarded as potentially subprime and represents an important break point for credit worthiness. The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed.

Each individual actually has three credit scores for any given scoring model because the three credit agencies hold their own, independent databases. These databases are independent of each other and may contain entirely different data. Many lenders will check an applicant's score from each bureau and use the median score to determine the applicant's credit worthiness.

A new Vantage score has been offered by all three credit bureaus to creditors since spring 2006. It will soon be available to debtors. Its range is from 501 to 990. It is graded A (901-990), B (801-900), C (701-800), D (601-700), and F (501-600). It remains to be seen whether the Vantage Score will replace the FICO score or even be accepted by many creditors.

8:57 PM

 
Blogger http://www.debt-consolidation.com said...

Credit Repair: Self Help May Be Best

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:


“Credit problems? No problem!”

“We can erase your bad credit — 100% guaranteed.”

“Create a new credit identity — legally.”

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.
This brochure explains how you can improve your creditworthiness and gives legitimate resources for low or no-cost help.

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.


The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:

companies that want you to pay for credit repair services before they provide any services.

companies that do not tell you your legal rights and what you can do for yourself for free.

companies that recommend that you not contact a credit reporting company directly.

companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.

companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.

Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/credit Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/credit
Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.

You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

STEP ONE
Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one on page 6. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

STEP TWO
Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct – that is, if the information is found to be inaccurate – the information provider may not report it again.

For more information, see How to Dispute Credit Report Errors at ftc.gov/credit

Reporting Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

For more information, see Building a Better Credit Report at ftc.gov/credit

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

make false claims about their services

charge you until they have completed the promised services

perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees

Your contract must specify:
the payment terms for services, including their total cost

a detailed description of the services to be performed

how long it will take to achieve the results

any guarantees they offer

the company’s name and business address

Have You Been Victimized?

Many states have laws regulating credit repair companies. State law enforcement officials may be helpful if you’ve lost money to credit repair scams.

If you’ve had a problem with a credit repair company, don’t be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.


Need Help? Don’t Despair

Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit

Do-It-Yourself Check-Up
Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically


because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.

to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.

to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name


Enclosures: (List what you are enclosing)


The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.


Credit Repair: Self Help May Be Best

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:


“Credit problems? No problem!”

“We can erase your bad credit — 100% guaranteed.”

“Create a new credit identity — legally.”

“We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.
This brochure explains how you can improve your creditworthiness and gives legitimate resources for low or no-cost help.

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.


The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:

companies that want you to pay for credit repair services before they provide any services.

companies that do not tell you your legal rights and what you can do for yourself for free.

companies that recommend that you not contact a credit reporting company directly.

companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.

companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.

Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/credit Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/credit
Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.

You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

STEP ONE
Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one on page 6. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

STEP TWO
Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct – that is, if the information is found to be inaccurate – the information provider may not report it again.

For more information, see How to Dispute Credit Report Errors at ftc.gov/credit

Reporting Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

For more information, see Building a Better Credit Report at ftc.gov/credit

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

make false claims about their services

charge you until they have completed the promised services

perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees

Your contract must specify:
the payment terms for services, including their total cost

a detailed description of the services to be performed

how long it will take to achieve the results

any guarantees they offer

the company’s name and business address

Have You Been Victimized?

Many states have laws regulating credit repair companies. State law enforcement officials may be helpful if you’ve lost money to credit repair scams.

If you’ve had a problem with a credit repair company, don’t be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.


Need Help? Don’t Despair

Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit

Do-It-Yourself Check-Up
Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically


because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.

to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.

to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name


Enclosures: (List what you are enclosing)


The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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