Module 1

Question 1

information collected by credit bureau

Answer 1

• history of accounts
• number of inquiries
• number of collections

Question 2

components of credit report - personal info

Answer 2

consumer identification information, including name, SSN, addresses, phone numbers, and employers

Question 3

components of credit report - account/trade line info

Answer 3

info about each consumer credit account, including payment history, account dates, credit limits, and balances owed

Question 4

components of credit report - public records

Answer 4

items that are listed in the public record, including bankruptcy, judgments, tax liens, and wage garnishments

Question 5

components of credit report - inquiries

Answer 5

requests initiated by a company or person for a consumer’s credit profile information

Question 6

components of credit report - consumer rights

Answer 6

info about consumer rights and protection for reference (included in credit reports from the major reporting agencies, but not in most tri-merge reports)

Question 7

indicators of good/bad credit

Answer 7

1) payment history
2) capacity used
3) length of credit history
4) type of credit used
5) new credit

Question 8

indicators of good/bad credit: payment history

positive, negative, negative examples

Answer 8

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

Question 9

indicators of good/bad credit: capacity used

positive, negative, negative examples

Answer 9

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

Question 10

indicators of good/bad credit: length of credit history

positive, negative, negative examples

Answer 10

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

Question 11

indicators of good/bad credit: type of credit used

positive, negative, negative examples

Answer 11

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

Question 12

indicators of good/bad credit: new credit

positive, negative, negative examples

Answer 12

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

Question 13

credit score

Answer 13

a numerical interpretation of a consumer’s creditworthiness based on info in his/her credit report

Question 14

percentage breakdowns of credit score factors

Answer 14

• account history = 35%
• accounts owed = 30%
• length of credit history = 15%
• new credit = 10%
• types of credit used = 10%

Question 15

Fair Credit Reporting Act (FCRA)

Answer 15

• 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

Question 16

Fair & Accurate Credit Transactions Act (FACTA)

Answer 16

• 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

Question 17

Fair Credit Billing Act (FCBA)

Answer 17

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

Question 18

4 steps of asset building

Answer 18

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

Question 19

Earned Income Tax Credit

Answer 19

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.

Question 20

Educational tax credit

Answer 20

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.

Question 21

Child & Dependent Care Tax Credits

Answer 21

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.

Question 22

Teaser Rates

Answer 22

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

Question 23

6 common predatory lending practices

Answer 23

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

Question 24

limited-time offers

Answer 24

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!”

Question 25

high-risk loans

Answer 25

loans with confusing or unclear loan terms, balloon payments, or steep pre-payment penalties

Question 26

higher loan amounts

Answer 26

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

Question 27

high fees or costs

Answer 27

lenders charge fees for unnecessary or nonexistent products or services, or may inflate these fees, charging more than reputable lenders

Question 28

false or hidden disclsoures

Answer 28

lenders misrepresent costs, using tactics like providing false appraisals or changing the loan terms before closing

Question 29

loan flipping

Answer 29

lenders encourage borrowers to refinance existing loans to collect additional fees or charge higher interest

Question 30

identity theft checklist

Answer 30

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

Question 31

Chapter 7 Bankruptcy

Answer 31

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

Question 32

liquidation

Answer 32

process of selling non-exempt assets to repay creditors in ch. 7 bankruptcy

Question 33

means test

Answer 33

a bankruptcy qualification that considers income and equity in assets to determine if a client has the ability to repay part of the debt

Question 34

Chapter 13 Bankruptcy

Answer 34

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

Question 35

5 potential impacts of bankruptcy

Answer 35

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

Question 36

4 alternatives to bankruptcy

Answer 36

1) consider making adjustments to your household budget
2) ask for a loan modification
3) consider debt management
4) negotiate with lenders