How to Get Started Improving Your Credit: The Inside Information You Need to Avoid Costly Mistakes and Do Things Right the First Time

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. —From A Declaration of Principles Jointly Adopted by a Committee of the American Bar Association and a Committee of Publishers

Smashwords Edition: ISBN 9781301717590

Copyright © 2013 by Daniel K. Berman

All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means—including photocopying, recording or other electronic or mechanical methods—without the prior written permission of the author, except in case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law.

For permission requests, please email the author at Info@USCreditSecrets.org.

Berman, Daniel K. How to Get Started Improving Your Credit: The Inside Information You Need to Avoid Costly Mistakes and Do Things Right the First Time

Subject categories: Business & Economics, Personal Finance, Budgeting, Money Management, Consumer Credit, Credit Reports, Credit Repair, Reference, Self-Help

To you, the consumer

It’s no exaggeration to say your credit score can change your life. This single number can determine whether you get a job or own a home. It affects how much you pay for insurance. It influences how much you pay when you borrow, which determines how long it will take to become debt-free.

—Stacy Johnson (MoneyTalksNews.com)

Table of Contents

Introduction

Chapter 1 How the Credit System Works

Top 10 Credit Myths Debunked

Influence of Credit on Traditional Borrowing

Influence of Credit Beyond Borrowing

Current Trends Relating to Consumer Credit

Credit Reports

Insider Scores and Affiliate Sharing

Credit Bureaus

FICOs versus FAKOs

Key Laws Relating to U.S. Consumer Credit

Answering Arguments Against the Use of Credit

Chapter 1 in a Nutshell

Chapter 2 How to Obtain and Understand Your Credit Reports and Credit Scores

How to Obtain Your Genuine FICO Scores

Investigative Consumer Reports

The Effect of Credit Scores on Insurance

Specialty Consumer Reporting Agencies

Chapter 2 in a Nutshell

Chapter 3 Ten Areas You May Want to Know More About

1. Bankruptcy

2. Credit and Marriage

3. Credit and Divorce

4. Credit Counseling

5. Debt Collection

6. Debt Consolidation

7. Debt Settlement Companies

8. Foreclosure

9. Home Loans

10. Identity Theft

Chapter 3 in a Nutshell

Conclusion

About the Author

Consulting Option

Other Titles in the US Credit Secrets Series

Authors’ Resources

Introduction

KNOWLEDGEABLE INDIVIDUALS AGREE, without exception: Your personal credit is critical to your financial success. Yet, if you’re like most people, you don’t have sufficient command of your personal data to effectively take charge of the situation and ensure that the system that hosts your credit profiles and scores is working for you, rather than against you.

Regardless of whether you believe that you have good credit or something less than that, it’s almost a certainty either that there are errors in your records or at the very least, your profiles and scores could be improved upon, for your financial benefit.

The best way to get started improving your credit is a three-step process that involves (1) learning the basics and key points about the U.S. credit system, (2) obtaining copies of your credit reports and scores and (3) making sense of the data, after which you’ll be ready for what comes next.

It is the objective of this book to walk you through this three-step process, in a way that is both easy and entertaining. You learn important inside information that the banks and credit bureaus don’t want you to know, the best way to get your credit reports and scores for free and different options for getting free help, to understand your personal credit information.

The main danger relating to all the misinformation about credit improvement—and there certainly is a heap of misinformation out there on this subject, in case you’re not aware of that already—is not the time you lose by going about it the wrong way, even though that’s certainly a significant downside. The main danger is the long-term damage that can be done by following bad advice.

There is a good way and a bad way of accessing your free annual credit reports, just as there are good ways and bad ways of obtaining your credit scores (either genuine FICO scores or what amount to phony FICO scores, whose promoters are very adept at fooling you well enough to successfully separate you from your money, even though they don’t give you what you think you paid for).

If you end up accessing your reports the wrong way, as will be explained below, that could end up disadvantaging you for years to come. It is the purpose here to provide you with the inside information you need to avoid costly mistakes and do things right the first time. While the first chapter offers you the core knowledge about the U.S. credit system, the second chapter shows you the best ways to access your reports and scores.

A bonus chapter gives you overviews, insights and quick tips on ten areas relating to personal credit that consumers typically have the most questions about: bankruptcy, credit and divorce, credit and marriage, credit counseling, debt collection, debt consolidation, debt settlement companies, foreclosure, home loans and identity theft. Think of these as cheat sheets for getting a running start on whatever topics are of particular interest to you.

A word to the wise: Though you can certainly skip over the background information in chapter one, you will be better equipped for success if you take the time to acquire the foundational knowledge in this area. It’s important to know the basics about credit bureaus and credit reports, for example, as well as how to distinguish between genuine FICO scores and their imposter counterparts (sometimes called FAKOs).

This book is based on the fundamental premise that there is a positive correlation between good established credit and a better quality of life, financially. Credit improvement, which begins with accessing your data the right way, is a process designed to get you into this better place, to live a more enjoyable, fulfilling life.

Let’s list some of the advantages of good credit, by way of overview:

Credit offers both safety and convenience, as you don’t have to carry around cash or a checkbook.

Credit offers security because you are limited to responsibility for the first $50 of fraudulent charges in the event your card is lost or stolen (and typically, in my experience, the bank will not hold you responsible for even that first $50).

Credit also offers security in terms of substandard service or merchandise, which can be returned and easily charged back, unlike the situation you encounter when you pay with cash (and also offers leverage with regard to money-back satisfaction guarantees, which merchants are sometimes prone to disregard).

The judicious use of credit helps build a good credit history, which in turn gives the consumer access to financing at better rates (most people are not in a position to pay cash for their homes), resulting in savings of tens of thousands of dollars during the course of a lifetime.

Credit, when used intelligently, can be leveraged to generate substantial cash savings and rewards.

With all these benefits at stake, there can be only one valid reason to pass up on all of them: Those who are not capable of handling credit responsibly are indeed better off refraining from its use. For such individuals, the benefits of using credit are certainly outweighed by the potential dangers. For others, for everyone else, this is not the case.

Only someone capable of living off the land as a hermit in a remote area, never paying for rent, utilities or phone service—someone who will never need a car, insurance or health care—could truly opt out of the credit system, as some have advocated. For everyone else, opting out is not really an option. It is for this vast majority that the books in the US Credit Secrets series, including this one, have been written.

As long as you’re willing to take the relatively minimal amount of time required to understand and implement the methodologies described here, you will be successful. The rewards of success are both tangible and intangible, psychological as well as monetary. It’s hard to put a price on the intangible and psychological but the monetary rewards of good credit easily translate into thousands of dollars during an average consumer’s lifetime.

As a simple and dramatic example, consider the fact that the difference between a credit score of 579 as opposed to 760 in the context of a 30-year fixed loan for 80 percent of the value of a property that sold for $300,000 could translate into some $300,000 in additional interest over the life of the loan. Repeat: a cumulative savings in interest of $300,000!

That’s only one item, albeit a large one, of many—and some readers will have home mortgages in much larger amounts, with correspondingly higher potential savings in interest.

With that in mind, congratulations on your decision to make one of the best investments of your life: the relatively minimal time that you devote toward learning the material in this book and taking the suggested actions, which can potentially save you many thousands of dollars in the years ahead, as you enjoy a better quality of life.

Chapter 1

How the Credit System Works

If you or I as individuals had done what the major banks have done—in terms of fraud, misrepresentation and other illegal activities—we would be in handcuffs. The financial institutions are at the most faced with relatively minor fines, which they look upon as simply the cost of doing business.

—Former New York Attorney General Eliot Spitzer¹

What New York’s former attorney general and governor said about the banks applies just as well to the credit bureaus. According to SmartMoney.com, Consumer advocates estimate that bureaus pay just $25 million a year in court fines, a minor expense for the $7 billion industry. ²

When the U.S. Government Accountability Office (GAO) conducted a secret shopper survey of banks in 2008, it found that 22 percent of all financial institutions failed to provide prospective customers access to detailed bank fee disclosures, in clear violation of the Truth and Savings Act.³

A subsequent secret shopper survey by the U.S. PIRG (Public Interest Research Group) in 2011 found that the percentage of financial institutions that failed to comply with the Truth and Savings Act, by refusing to provide fee disclosures upon request, was actually 62 percent on the first request and 45 percent on the second request.⁴

To a large extent, the U.S. Congress has been bought by the financial services industry, with more than a million dollars spent annually for each and every member of Congress, the equivalent of nearly $1.5 million each day, in political contributions to lobby in favor of banking interests, at the expense of consumers, to defeat Wall Street reform.⁵ In the words of Illinois Senator Dick Durbin, The banks … frankly own the place.⁶

Whenever there’s a hearing relating to Congressional oversight of the credit or financial services industry, the room is packed with attorneys, lobbyists and others representing the banks and credit bureaus. Within this sea of corporate soldiers sits a handful of vastly outnumbered consumer advocates, endeavoring to do the best they can, in the face of great odds. To make the jobs of these consumer advocates even more challenging, the banking committees are usually dominated by members from the states where the banks and credit card companies are concentrated.⁷ These states (Delaware and South Dakota, for example) attract banks and credit card companies by offering favorable tax laws and no limits on interest rates.

The global financial crisis—the worldwide meltdown—that began in 2008 is closely connected with the U.S. consumer credit system. The excesses and irresponsible behavior that led to the crisis are mirrored in similar excesses and irresponsible behavior on the part of banks, collection agencies, credit bureaus and credit card companies in the context of consumer credit, detailed throughout this book.

The basic structure and dynamics of the U.S. consumer credit system, from the perspective of personal credit, can be explained in simple terms. Throughout your life as a consumer, you engage