Module 1 Flashcards
information collected by credit bureau
- history of accounts
- number of inquiries
- number of collections
components of credit report - personal info
consumer identification information, including name, SSN, addresses, phone numbers, and employers
components of credit report - account/trade line info
info about each consumer credit account, including payment history, account dates, credit limits, and balances owed
components of credit report - public records
items that are listed in the public record, including bankruptcy, judgments, tax liens, and wage garnishments
components of credit report - inquiries
requests initiated by a company or person for a consumer’s credit profile information
components of credit report - consumer rights
info about consumer rights and protection for reference (included in credit reports from the major reporting agencies, but not in most tri-merge reports)
indicators of good/bad credit
1) payment history
2) capacity used
3) length of credit history
4) type of credit used
5) new credit
indicators of good/bad credit: payment history
positive, negative, negative examples
Positive: timely payment history demonstrates reliability
Negative: late payment history demonstrates higher risk of future delinquency
Negative examples: lien, judgment, collection account, charge-off account, repossession, bankruptcy
indicators of good/bad credit: capacity used
positive, negative, negative examples
Positive: low credit utilization demonstrates good financial management
Negative: high credit card balances demonstrate poor financial management (i.e., client needs more access to credit)
Negative examples: maxed out credit cards
indicators of good/bad credit: length of credit history
positive, negative, negative examples
Positive: longer credit history provides more info for lenders, which means lower risk
Negative: Shorter credit history provides little to no info for lenders, which means more risk
Negative examples: no credit history
indicators of good/bad credit: type of credit used
positive, negative, negative examples
Positive: different types of credit show variety, which shows lenders that consumers can handle different types of credit
Negative: fewer types of credit show limited profile info to lenders, which means a higher risk
Negative examples: ONLY having a student loan, or ONLY having credit cards
indicators of good/bad credit: new credit
positive, negative, negative examples
Positive: credit applications can lead to new credit accounts or loans, which can establish history over time
Negative: too many inquiries or new credit accounts in a short period of time will raise questions for lenders
Negative examples: new inquiry each month or several new lines of credit within a few months
credit score
a numerical interpretation of a consumer’s creditworthiness based on info in his/her credit report
percentage breakdowns of credit score factors
- account history = 35%
- accounts owed = 30%
- length of credit history = 15%
- new credit = 10%
- types of credit used = 10%
Fair Credit Reporting Act (FCRA)
- you have the right to know what’s in your file
- you have the right to dispute incomplete or inaccurate info
- access to your file is limited
- you may seek damages from violators
- additional state rights may be available
Fair & Accurate Credit Transactions Act (FACTA)
- you have the right to a free annual credit report
- you have the right to place a fraud alert on your credit file (lasts 90 days, all access to credit info must be approved by consumer)
- credit card numbers must be truncated so the full number is not visible on reports
Fair Credit Billing Act (FCBA)
1) you can dispute billing errors associated with your credit card account
- must be sent via mail within 60 days of date of credit card statement showing error
- creditor has 30 days to acknowledge letter and 90 days to research the dispute and make a determination
2) you must be billed in a timely manner
- creditors must send billing statements to consumers at least 14 days before the payment is due
4 steps of asset building
1) choose the right bank or credit union account
2) build savings for emergencies and large purchases
3) invest for retirement
4) take advantage of tax credits
Earned Income Tax Credit
low- to moderate-income individuals and families with earned income may be eligible for this tax credit. Earned income includes wages, salary, tips, and other employee pay. it also includes net earnings from self-employment.
Amount is based on income, marital status, and number of children.
Educational tax credit
clients who are in a post-secondary educational program, or who are supporting children in a post-secondary program, may qualify for an educational credit.
Child & Dependent Care Tax Credits
Those who are working, or are actively looking for work, may be eligible for this credit if they are paying a service to take care of a dependent (child or adult).
Also, a client may claim additional tax credits for any qualifying child under the age of 17.
Teaser Rates
an initial temporary interest rate on an adjustable-rate mortgage that results in lower mortgage payments
to attract borrowers, the rate is typically lower than the market rate, but only remains in effect for a short period of time before increasing, which in turn increases mortgage payments
can be a sign of predatory lending
6 common predatory lending practices
1) limited-time offers
2) high-risk loans
3) higher loan amounts
4) high fees or costs
5) false or hidden disclosures
6) loan flipping
limited-time offers
loan officers require you to act immediately, with statements such as “If you don’t decide today, you will lose this great opportunity!” or “This is your only chance to get this loan!”
high-risk loans
loans with confusing or unclear loan terms, balloon payments, or steep pre-payment penalties
higher loan amounts
lenders allow borrowers to finance more money than they need or can afford
some lenders will attempt asset-based lending, offering loans based on the amount of equity instead of the borrower’s ability to pay
high fees or costs
lenders charge fees for unnecessary or nonexistent products or services, or may inflate these fees, charging more than reputable lenders
false or hidden disclsoures
lenders misrepresent costs, using tactics like providing false appraisals or changing the loan terms before closing
loan flipping
lenders encourage borrowers to refinance existing loans to collect additional fees or charge higher interest
identity theft checklist
1) place a fraud alert with credit reporting agencies
2) order credit reports from the credit reporting agencies to review and identify inaccuracies
3) create an identity theft report, which involves obtaining an Identity Theft Affidavit from the Federal Trade Commission and filing a police report
Chapter 7 Bankruptcy
aka liquidation bankruptcy
assets that are not exempt are sold and the proceeds are distributed to creditors
all eligible debts are discharged
to qualify for ch. 7, you must meet with an attorney to determine your ability to repay your debts - this process is called a means test
liquidation
process of selling non-exempt assets to repay creditors in ch. 7 bankruptcy
means test
a bankruptcy qualification that considers income and equity in assets to determine if a client has the ability to repay part of the debt
Chapter 13 Bankruptcy
aka a wage-earner’s plan
allows individuals with regular income to develop a plan to repay all or part of their debts over 3-5 years
this can stop foreclosure proceedings and may cure delinquent mortgage payments over time
it also allows you to reschedule secured debts (other than your mortgage) and extend them over the life of the repayment plan, which may lower your payments
5 potential impacts of bankruptcy
1) lowers credit scores
2) will only qualify for more expensive loan options
3) future employer might check credit history - impact on job offers
4) future landlord might deem you too risky to rent apartment to
5) insurance company might charge higher premiums and banks might require additional deposits for accounts
4 alternatives to bankruptcy
1) consider making adjustments to your household budget
2) ask for a loan modification
3) consider debt management
4) negotiate with lenders
