Credit Made Simple For the Amateur Consumer

Credit Made Simple Pixel 1024x681 Credit Made Simple For the Amateur Consumer

The following post comes from my Free Better Credit Blueprint Video Lecture Series available on the Udemy Platform

One of the first things you need to know is that a credit score and a credit report are two entirely separate things. Your credit report is raw data, while your credit score is what a lender makes of that raw data using one of dozens of credit scoring models that we, as Amateur Consumers, are really clueless about.

Unfortunately, a lot of you reading this post or viewing the video don’t even know that a credit score is a number that reflects your credit worthiness… at a given point in time.  It’s not just sitting there in some computer with a number already assigned to it.  It just doesn’t work that way.  Your credit score is based on the information contained in your personal credit report at the time that your credit report is pulled.

Different Scoring Models

To determine a credit score from your credit report, lenders use credit scoring models. As I say in earlier videos, there are dozens of these, but FICO is by far the most common and for sure you’ve probably heard the term Fico Score.

Different scoring models stress different aspects of your credit history. For example, one model might tell a bank how likely you are to default on a mortgage while another scoring model might tell how likely you are to let your credit card payments go 90 days late. Depending on what bank you apply for credit with, what type of loan you’re getting, and what model they use, you’ll wind up with different credit score from each one.

Not Just One Credit Score

What this means is that your credit score will change depending on what model is being used to generate it.  In other words, you don’t have just one stable credit score, but rather a range of scores depending on the information contained in your credit report by Experian, Equifax, and TransUnion.  The difference can be as much as 50 points and I’ve personally seen reports that differed by 100 points!

And yes; that is most definitely a wide enough range to push you up or down on a lenders interest rate scale or to just flat out get you denied. So now that you know this fact, think your credit report and credit scores are worth keeping an eye on?  You better believe it!

Building a Credit File

A lot of the information that I personally have learned throughout the years about credit reporting came from researching and reviewing numerous court proceedings, depositions, and testimony.  One of these court cases I reviewed was from January 2005 in the court case of Kirkpatrick vs. Equifax.

In this court case, Equifax Vice President Phyllis Dorman said that when “building a file” after receiving data from a creditor, or when deciding what data to include on a credit report that will be disclosed to a creditor, the first factor considered by the Equifax system was geographic region.

Then its “matching algorithm,” which is known as L90, relies on 13 matching elements. Two of the elements that constitute a distinct category are: (1) exact Social Security number (SSN) and (2) partial SSN (meaning that most, but not all digits are the same).  The remaining elements are (3) last name, (4) first name, (5) middle name, (6) suffix, (7) age, (8) gender, (9) street number, (10) street name, (11) apartment number, (12) City, state and zip, and (13) trade account number.

Credit Attributes

The summary variables that are generated from the raw data are referred to variously as “credit attributes,” “credit variables,” or “roll-ups.” Each of the CRAs has hundreds of attributes that have been created at various times for various purposes, but a typical scoring algorithm uses far fewer.  The primary factors that affect credit scores include:

• payment history, including late payments and collection items;

• balances, available credit, and the percentage of existing credit lines being utilized;

• negative public records such as bankruptcy, judgments, and liens;

• length of the credit history and the mix of credit types; and

• evidence of taking on new debt, such as new accounts or inquiries.

“Generic” Scores and “Industry” Scores

When credit scores are designed and sold to predict payment behavior on a wide range of credit products, they are referred to as “generic” scores. When they are designed to predict performance on a specific type of credit, such as automobile loans, they are referred to as “industry” scores. Some lenders, especially larger lenders, receive credit reports from a CRA and calculate scores themselves using models developed to predict the performance of their own customers and these scores are called “custom” scores.

Now be truthful with yourselves; how many of you reading this post or whom have watched the video knew all or any of what I just went over?   The simple fact is, not only is credit misused but it’s misunderstood by millions of people who don’t know or understand the credit system that they are participating in on a daily basis.

It’s almost like a foreign language to them and some people find the topic confusing or too intimidating to understand but again, you have to get over your fears and challenge yourself to be a better- more informed consumer for the betterment you and your family!

Amateur Consumers vs Credit Professionals

Remember, at the end of the day, we are all amateur consumers.  The banks, creditors, and the credit bureaus? They are all professionals!  The more you learn, like you’re doing by reading this post or watching the Free Better Credit Blueprint Video Lecture Series, the better you will manage your credit and finances moving forward.

Now, I’ve talked to hundreds of people that truly believed that after going through  financially devastating events like bankruptcy, foreclosure, or divorce to name a few, that they were powerless to recover their credit; almost as if their credit controls them, when in fact; nothing could be further from the truth.

Without a doubt, these events will hurt your credit and no one knows that better than me, but you need to understand how credit works so you can make it work for you – that’s the key so please… don’t be a mindless consumer.  Credit is a powerful tool that you can use in your financial life and affects you more than you know beyond having purchasing power.

Knowledge is Power

However again, if you don’t understand the world of credit you participate in every single day, then in fact, you are powerless!  You need to know, at the very least, the credit basics and you need to figure  meaning how to stay out of debt, manage your credit, and then create a new mindset or as I call it; a new “money consciousness” in order to be successful in life!

And for the record; I haven’t used credit in over 2 years which is why I say it affects you in more ways than being a consumer looking to perhaps – make a purchase… you shouldn’t make!

If you haven’t already done so, please read my 4 New Year’s Resolutions That Will Ensure Your Financial Success in 2013 !  So what about you?  Are you setting out to create a new “money consciousness” for 2013?  How much of the information I covered in this post did you even know about?  I’d love to hear your thoughts and comments icon smile Credit Made Simple For the Amateur Consumer


How I Define C.R.E.D.I.T.

Loving Life How I Define C.R.E.D.I.T.

Credit is defined as the ability to obtain goods or services before payment is made, based on the trust that payment will be made in the future.  But here is how I define the word credit by each letter of the word:

(C) Is for Consumerism:

The reason I named my blog The Amateur Consumer is because, in fact, we are all amateurs when it comes to consumerism!  By definition, consumerism means the theory that an increasing consumption of goods is economically desirable.  It also means a preoccupation with, and an inclination toward, the buying of consumer goods.  How exactly is consumerism economically desirable?

In a recent guest post titled “The Psychology of Consumerism”, David M. Carter, a graduate of the master of applied positive psychology program at the University of Pennsylvania wrote “Consumerism can be a devastating psychological addiction that saps our financial resources, well-being, and hope”.  This article is a must read in order to understand the Intrinsic and Extrinsic Motivation behind consumerism.  Believe me; you’ll be glad you did!

(R) Is for Responsibility:

Responsibility is defined as moral, legal, or mental accountability.  For me, the key word in that definition is accountability.  Mr. Carter goes on to say “If your consumerism is motivated by extrinsic values, as you continually seek financial gain and recognition by others in a seemingly never-ending display of profligate consumption (read; keeping of with the Jones’), you find that you have become addicted. “

He said “You are not even aware that this vicious cycle is happening and continue to ramp-up your acquisitive lifestyle, constantly seeking that which will make you feel fulfilled. It just never seems to happen, and you become depressed and often describe being lost.”  I know exactly what Mr. Carter is talking about because I have lived it.  Be accountable for becoming a better, more informed guardian of your own life!

(E) Is for Education:

Education is the key to avoiding credit and financial mistakes!  And without a doubt, the time to have a map is before you enter the woods, right?  So why are so many people truly amateur consumers?  Why do so many of us lack the basic financial “common sense” it takes to manage our lives so that we may live a happy and more fulfilling one?  Now, when I say common sense, what I mean is having a basic fundamental understanding of what it takes to be truly happy living your life, day in and day out.  Not knowing the difference between simple and compounding interest!

So many people confuse lack of financial literacy for lack of “life literacy”!  Understanding what it takes to live a life “debt-free” and on your own terms is something we should all strive for.  I know through my personal journey of surviving credit and financial hell that the biggest epiphany I have had has not been learning how to accelerate the process of credit recovery (yes, this is a fundamental shift in my blog), rather, it has been learning that income, savings, and frugality are the basic staples of “life literacy” if you want to live life on your terms, free from the chains of consumerism!

(D) Is for Discipline:

Every financial guru, credit and debt expert, or personal finance blogger has espoused the view that besides financial literacy, self- discipline is the key to managing credit and debt.  And while there is certainly truth to that statement, the real way to put the “ED” into C.R.E.D.I.T., is to first develop the mindset it will take to live that happy and fulfilling life and then applying self-discipline to that knowledge!

Self-discipline starts with the ability to change and create new habits and refrain from practicing old ones that in my case, led me and my family down the path toward credit and financial hell.  Again, if you can create the mindset necessary to learn how to become “life-literate”, you will never travel the bi-ways of credit and financial hell like I did!

(I) Is for Independence:

Independent is defined as; free from outside control, not depending on another’s authority.  Let’s look as some synonyms for the word independence; self–sufficiency, self-dependence, self-reliance, self-subsistence, self-support.  WOW!

If you are free from consumerism, debt, and the misuse of credit, and then apply self-discipline to your new “life mindset”, imagine what that life would look like?  I know, I know; it sounds like the cure for all your credit and financial ills; doesn’t it?  I can’t answer that question for you, but for me, this is exactly what it has meant.

Now I don’t want to mislead you; for sure, my $1.6 million dollar bankruptcy was a huge burden lifted off my shoulders. Unfortunately for me however, my epiphany came as a result of what I went through. It is my sincerest hope for anyone reading this blog that you can avoid going off that proverbial “financial cliff” and develop the mindset it will take to find that ‘Zen’ in your life.  To know what is truly important!

(T) Is For Transformation:

Transformation is defined as; an act, process, or instance of transforming or being transformed.  So the question here becomes; if you can understand consumerism, the psychology behind it, define what is important in life for you and your family, and then apply the self-discipline it will take to live it day in and day out, could you become independent from outside control and transform your current life into a more fulfilling and rewarding one?  As living proof, my answer is unequivocally YES!

What’s your answer? Please let me know below.  If you liked this article, please share it with your friends by clicking “Like”, tweeting it, adding it to your Google+ topics, or sharing it on LinkedIn icon smile How I Define C.R.E.D.I.T.

3 Reasons Why ‘Self-Help” is the Best Way to Tackle Debt and Credit Issues

Do it Yourself 3 Reasons Why ‘Self Help” is the Best Way to Tackle Debt and Credit Issues

As a bankruptcy and foreclosure survivor, after gaining 20 plus years of experience with credit and lending, and after speaking to numerous and credible consumer debt settlement and credit experts, we all agree; “self-help is the best way for any amateur consumer to tackle their credit and debt issues.

Amazingly enough, there are many personal finance bloggers and others on the “interwebs” that espouse the views that using credit counseling agencies, debt consolidation loans, and debt settlement companies, are the best course of action to take when tackling debt issues.  As for credit and that awesome oxymoron of a term called “credit repair”, everybody and their brother has an opinion, view, or some level of claimed expertise to want to write about it.  Below, I give you 3 powerful and straight to the point reasons why “self-help” is the best way to tackle debt and credit issues!

Reason #1: The Federal Trade Commission (FTC) Says So  

The fact is there’s no quick fix for creditworthiness or getting yourself out of debt! You can improve your credit and finances yourself, but it takes time and a conscious effort to gain a little know-how!  When it comes to credit repair, the FTC says to help yourself and provides you with a simple step by step process on how to dispute credit errors.

In fact, in my free Better Credit Blueprint Lecture series, I explain why, with a little personalization, the only dispute letter I use to correct errors and inaccuracies on my personal credit report is the one shown on the FTC’s website!

When it comes to being Knee deep in debt, the first advice the FTC gives consumer is about “self-help”.  Yes, the FTC also lists other debt relief services available to you, but the fact is that you should attempt to settle your debts on your own first!  For any blogger or consumer who disagrees, please listen to these public service announcements from the FTC and then continue reading:

Reason #2: Maximizes the Power of Your Money

The Federal Trade Commission (FTC) says do yourself a favor and save some money too by tackling your debt and credit issues yourself!  Again, all you need is time and a conscious effort to gain a little know-how!  When it comes to credit repair, the only reasons you would pay anyone to correct errors and inaccuracies in your credit report are; you don’t have the time and you do not want to put forth the conscious effort it will take to gain the know-how!

And if that’s the case, to that I say; really?  You don’t have the time to make sure that your economic reputation and what is being said about you is correct?  Then read this previous blog post titled “What Does Your “Credit” Resume Say About You?” and then answer that question again.  Hell, the Better Credit Blueprint Lecture Series is FREE and proven to help you become a better guardian of your economic reputation, so there’s your “know-how”.  Just make the conscious effort to watch it!

Reason #3:  Insight and Control of the Process!

Charles Phelan, noted consumer debt settlement expert and creator of Zip Debt – a “self-help” guide to settling debt and avoiding bankruptcy, wrote in his special report about settling debt yourself that a frequent complaint of folks who dropped out of credit counseling programs was they had little, or no insight, into what the agency was doing on their behalf and they had virtually no control over the process.

Why do you think Credit Counseling is the most touted way to handle debt settlement by the banks themselves?  The answer is; since the credit counselor is only negotiating the terms, full-repayment is still being made!  If this is all that is happening, again I ask; do you have the time and can you make the conscious effort to gain the know-how you need to do this for yourself? Of course you can!

The same is true with a debt settlement company.  Why would you pay for any service to settle your debt when with a conscious effort and a little know-how, you can be in control of the process and use 100% of your available funds to eliminate that debt instead of paying unnecessary fees.

What about your credit rating?  Think a credit counselor or a debt settlement company is concerned with asking for a favorable credit rating on your behalf?  Not a chance, which is why I wrote my special report “How Credit Card Debt Settlement Affects Your Credit Report and What You Can Do About It”.  I wrote this eBook to let you, the amateur consumer, know that if you don’t ask, you won’t get, and credit counselors or a debt settlement company will definitely not ask, so they definitely won’t get!

The One Argument for Outside Help

At the end of the day, what there can be no doubt about is this:  there is a tremendous need for solid consumer education!  Yet, Who Can You Trust When Taking Credit and Financial Advice?  Check out this previous post to read my opinion on this topic.  So the only argument you can have against not attempting do-it-yourself debt settlement or correcting errors in your credit report yourself is this; you don’t have the time or you don’t want to make the conscious effort it will take to gain a little know-how!

I would love to hear your take on this subject and the only way we can engage is for you to leave a comment below icon smile 3 Reasons Why ‘Self Help” is the Best Way to Tackle Debt and Credit Issues