Welcomes you to: The Road to Home Ownership Credit Repair Kit
Congratulations on speaking with a mortgage consultant that is willing to invest his or her time into assisting you in realizing your dream of home ownership. Owning a home will be an exciting and enriching experience for you when the time is right for you to make that move. Improving your credit rating will not only better your chances of obtaining a mortgage, but it will save you money in every walk of life. For example, it will help determine the interest rate on your car loan, and the rates you pay for car insurance. In addition, along with your claims history, insurance companies see a poor credit rating as a sign that you are more likely to make claims for damages. If you plan to buy a car, a poor credit rating could increase your interest rate to over three times that of a person with excellent credit. Thus, the worse your credit rating, the more you pay in interest compared to someone with good credit. Your credit rating could also impact your job prospects, as some employers even check the credit rating of applicants before deciding whether or not to hire them. The good news is that a bad credit rating isn’t permanent. This packet is specifically setup with you in mind. You have some work that needs to be done to prepare yourself to show a mortgage lender that you are a good risk for a mortgage loan. Here is our plan for you…follow it consistently, and soon you will be a homeowner. In general, we will be accomplishing the following four things before you may be in a position to buy a home: 1) Educate – Educate you on what lenders consider when deciding whether or not to approve you for a mortgage loan. 2) Plan – Implement changes in your lifestyle to improve your creditworthiness. 3) Follow The Plan – Accomplish your goal to improve your credit rating 4) Review – In _____ months we will review your progress. It will be an honor to help you achieve your goal at that time. Sincerely,
Your Mortgage Consultant for Life
Reading your credit report – A copy of your credit report should be included with this kit along with instructions on how to read and understand it. In addition, if there are collections, judgments, or liens, than we have highlighted the information you will need to know to work on disputing or paying those accounts off. Specifically you will need to know who is responsible now for collecting on the delinquent account, the account number, and the amount. In addition, if it is available, at the end of the report there should be phone numbers listed for any collections that you may have outstanding.
Credit history is one of the main factors any lender considers when deciding whether or not to lend you money. But, before we address how to create or improve your credit history, here are some additional considerations lenders take when deciding whether or not to approve you for a mortgage loan: A lender considers numerous factors about a person’s ability to repay a debt before extending credit. One important aspect of a lender’s decision comes from a borrower’s credit report. Credit reports are put together by credit bureaus. Credit bureaus rate your credit based on several factors. The information is compiled by the credit bureaus on a credit report. Your credit report lists anyone with whom you have had credit dealings. The longer your credit has been extended and the larger amount you have been allowed to charge, the better your credit rating will be. Credit Rating/Credit Score Your credit score is a measure of your past ability to make payments on time and manage your credit. It’s designed to help lenders determine how likely you are to pay back your loan. The number is calculated using a formula created by Fair Isaac Corporation, which is why it’s also referred to as your FICO score. Scores range from the 300s to around 850, depending on the credit-reporting agency. A perfect score is nearly impossible to achieve. The average score is about 675. Your score is usually the average of your three credit scores.
Name: ___________________Your current credit score is: _______. Name: ___________________Your current credit score is: _______. After following the steps outlined in this credit repair kit, your target credit score(s) is/are ________.
Avoiding Bad Debt-What Can You Do To Improve?
Debt is like cholesterol, there’s a good kind and a bad kind. A common mistake people make is incurring too much bad debt. Things to avoid include: 1) Carrying too much debt on credit cards. For most people credit cards are a daily fact of life, but it’s important not to borrow the maximum limit against your credit card. Having “maxed out” credit cards will have a negative effect on your rating, even if they are paid on-time. Also, keep in mind, the longer it takes you to pay off a credit card loan, the more interest you’ll being paying. 2) Do not allow payments to be more than 30 days late. Sometimes we all find ourselves in situations when we can’t pay our bills on time for whatever reason. If you find yourself in this situation, just make sure the payment is not more than 30 days late. More importantly, never allow payments to become 60 or more days late. 3) Avoid allowing outstanding medical bills, utilities bills, etc to go to collection. In most cases, you can work out a payment arrangement that will keep accounts from even being reported on your credit report. Simply not paying or not acknowledging an outstanding balance will do more harm than good. 4) Avoid incurring too much debt. It’s easy to be tempted by advertisements that promise items for sale at “no money down, no interest for one year”, but if you can’t pay off the loan by the due date, the interest rate usually balloons. In addition you may find yourself liable for retroactive interest on all the monthly payments you’ve delayed. Bottom line…try to limit the amount of credit you have in your name(s). 5) If you pay child support, keep payments current. Child support that is not current is now reported on your credit report. 6) Pay all federal, state, and local taxes on time. If taxes are not paid they will become a tax lien and will be placed on your credit report. NOTE: If you have Limited or no established credit, refer to “Establishing Credit” in the Plan section within the next couple of pages.
In addition, the following factors are taken into consideration when determining your credit rating/credit score:
Age To obtain a mortgage, you must be at least 18. This is the age when you are legally bound to anything you sign. Generally, the older you are, the better risk you are. By law, if you are older than 62, you cannot be rated lower than someone under 62. Job History The longer you are at a job and the higher your wages are, the higher your credit rating will be. Occupations are also important. Stable occupations improve credit ratings. Employment over ten years will improve your rating. The longer you stay in the same occupation, the better your credit rating will be. Credit Reporting It is important to find out what has been reported on your credit report to verify the information being reported is correct. A bad rating with the credit reporting bureau can ruin your chances of getting credit.
Mortgage History If you have past or present mortgage accounts in good standing, that have not been over 30 days late, that will help you achieve a higher rating. A foreclosure or payments made later than 30 days from their due date will have a negative impact on your credit score. Credit Cards In general, if you have credit card accounts in good standing, that have not been over 30 days late, this should help your rating. Unpaid card balances will hurt your rating. As mentioned before, try and control the amount of credit card debt. Having a significant amount, and having them “maxed out” will have a negative impact. Income Your rating will improve, not because of what you make, but because of what you bring home (net income). Lenders will also compare the amount you earn to the amount you pay out in bills (not utilities) to calculate your “debt ratio.” Basically, a mortgage lender will want to see that your new mortgage payment is no more than 25-35% of your gross (before taxes ) income…and that all debt, including your proposed new mortgage, is no greater than 40-50% of your gross income. Address The longer you have the same address, the better your credit rating will be. Having the same address for several years shows stability, and this is why it is considered for your credit rating. Car Ownership If you own a car, especially a late model, then you credit rating will benefit. You will also benefit if you are paying for the car on installments and if you have always paid on time. Having large payments on a car may also hurt you when your expenses are considered. Expenses and Debts The more your expenses add up, the lower your rating will be. A lender looks at how much money you have left after you have paid your monthly expenses. As mentioned earlier, they will look for a low income-to-expense ratio, or debt ratio. Savings: Having savings…in other words…showing the ability to save…makes you a better credit risk. The more you have in liquid savings, the more it improves your credit risk. Down Payment If you buy something on credit, the amount of the down payment will play a large part in your getting credit. The more you put down, the lower risk you are to the lender. The above categories are summed up and easily remembered by the three C’s of credit: Character: What type of person are you? How do you handle your financial transactions? Are you upstanding and honest and take paying your bills seriously? Collateral: Lenders understand that the more you have in savings, or to offer as collateral, the better risk you are. If you have savings, you have money to tap into to make your payments in an emergency. In addition, the more money you pay as a down payment on a home, the less likely you are to let the home go to foreclosure since you have that money to lose. Capacity: Can your budget handle another payment? Do you have enough money after your monthly debts to make another payment? The three “C’s” exist to instill belief in your lender. That’s what credit is all about: belief in your ability to be as good as your word, to be true to your signature, and to repay what you have borrowed.
Now that you better understand the different factors that lenders consider before lending you money, try and establish a plan on how you might change your lifestyle to improve your creditworthiness. To help with this, please see Appendix A on how to set and manage goals that will help you qualify for a mortgage as soon as possible. A part of that plan is having a budget for your money, which is included in Appendix B. As a part of your plan, we have included a list of items that you may or may not work on in terms of your credit. We have checked only the items that apply to you…incorporate these items into your plan by following these instructions accordingly.
Disputing Inaccurate Credit:
1) Credit Restoration– This would be the most aggressive and extensive
means for restoring your credit. We will actually give you the means to legally dispute any negatives on your credit report…regardless of whether they are accurate or not. What we have found is that the credit bureaus cannot comply with their own original standards to validate ANY negatives on anyone’s credit. The program lasts 12 months, but it typically takes 3-5 months to remove any negatives. By using this trademarked credit disputing system, on average our clients will see an increase in their credit scores of 50-120 points. The cost for this process is currently $99.00 set-up and as low as $39.00 per month at www.LexingtonLaw.com 2) Credit Rescoring – For inaccurate reporting. Basically this is a process where we can quickly report to the credit bureaus proof that negative information on your report is inaccurate. You will need to provide sufficient written evidence to prove your claim to remove or correct the item. In general, depending on the amount of repair needed, it takes between 4-7 business days to have the corrections made and your credit immediately rescored. The cost for this expedited repair process generally ranges from $60.00 to $150.00. 3) Self Repair – You may legally dispute any misleading, inaccurate or incomplete information. Generally this will take 45-60 days to process, and have your report updated. It will only cost you the postage and your time to compile and send the information. To correct inaccuracies in writing, send copies that prove the disputed item(s) on your report is/are inaccurate along with a letter (See Appendix C) to the three reporting agencies: Equifax Information Svc. LLC P.O. Box 740341 Atlanta, GA 30374 800-685-1111 www.equifax.com Experian P.O. Box 2002 Allen, TX 75013 888-397-3742 www.experian.com TransUnion, LLC P.O. Box 1000 Chester, PA19022 866-887-2673 www.transunion.com
Re-establishing Credit When Generally Unavailable – (typically
after instances of divorce, lost job, bankruptcy, etc.) When your credit is damaged, you may be unable to get lenders to extend you credit. In order to re-establish some positive credit on your report, try and get approved for one or two pre-paid credit cards. 1) Prepaid Credit Card (See Appendix D) 2) Opening a checking account with a debit card (See Appendix E).
The most important thing to remember is that from now on, any credit you keep or open must be paid on time, every time. Do not allow any bills to be 30 days past their due date. Devise a strategy to pay down or pay off as many different kinds of accounts as you can. A good start would be to pay extra on the credit card with the smallest balance until it is paid off and then do not re-use, if at all possible. Then, move on to the next smallest credit card and pay extra until it is paid in full. This strategy allows you to see progress in your plan to reduce your credit card debt and feel more like progress is being made.
Pay Bills On Time-
Control or Reduction of Revolving Debt -
Establishing Credit - Establishing credit without any is like starting from scratch, and starting small may be the easiest option. Try a credit card from a department store or your local credit union. If you can’t qualify on your own, ask a friend or family member to co-sign for a credit card. If you don’t have someone to co-sign for you, consider a secured credit card. See Appendix D for a list of banks offering secured credit cards. Open a checking account with a debit card (See Appendix E). Payoff Collections, Judgments, Liens, etc. - These items may be
negotiated and settled for a smaller amount. Whether this is an option or not, it is important that you work to pay these items off…as much as it may hurt to do so. It is best to focus on paying the judgments and liens off first before anything else, than move on to the collections. It is critical that you get paid receipts for all paid collections, judgments, and liens so the credit bureau can be notified of the paid status of the account. Make sure that the account number that the court, collection agency, etc provides on the written proof that your account is paid in full matches the Account Number or your credit report. Save this written proof in your own files, and follow the instructions in the “Self-Repair” part of this Plan section on submitting this proof to the credit bureaus to move these accounts from unpaid to a paid status.
FOLLOW THE PLAN
Now that you have added the checked items in the previous section (Plan) to your goals, it is time to follow the plan and give it time to develop. Remember that part of improving your credit rating means you will need to make a conscious effort to be accountable to the plan every day. As you follow this plan and accomplish these goals, your credit will improve and your credit scores will improve accordingly. As a result, you will be closer to owning a home every day!
As mentioned on the initial page of this program, we feel like you will need at least ____ months to allow you enough time to improve your creditworthiness and be in a position where you may be ready to buy a home. Please make a note on your calendar or your day planner to review your progress on __________________. At that time we will re-run your credit and do a review of your progress. The cost for this credit report will also be covered as a part of this program. Hopefully you will be in a position to qualify for a mortgage loan meets your budget and your goals at that time.
Thanks for the opportunity to assist you with your dream of owning a home. If you feel like my services are a benefit to you, please take a minute and fill out the included pre-paid referral card if you know of others that might benefit from my World-Class Service. A referral from you is the single greatest compliment I can receive…and I would appreciate it if you DO NOT keep me a secret. Good luck as you work towards your goals…I look forward to hearing back from you soon!
Your Mortgage Consultant for Life
You Must Set Goals! The most successful people in the world are that way because they set goals for themselves. Whether it’s for each particular day or month or year, they all have this in common. Setting specific goals is the only way to get what you want in any area of your life. To make goal setting work for you, you must pay special attention to the conditions that must be present because these conditions are essential to the fulfillment of your goals. Below is a Goal Chart to help you set goals, plan, think and move ahead. When putting together your plan, outline everything you must do to attain your goal. Determine the day you plan to start and set a realistic end date. Be very specific and divide your plan into separate phases or steps to help you achieve your overall plan. All of your steps should be written out to help your visualize the completion of your plan. You can also look back to see what you have accomplished. Stay focused and you will succeed.
GOAL CHART Obstacles Solutions
WHAT I NEED TO ACHIEVE MY GOALS My Requirements Monetary Time
HOW I WILL GET TO MY GOALS What is my plan of action?
When will I complete my goal?
How will I be rewarded for completion of my goal?
What success will I visualize in the future?
Experience and background I need?
The people I want to learn from:
Obstacles to avoid:
Next it is important to prepare a monthly budget. A budget is a list of all your monthly expenses along with the amount you have to work with, which is your income. From there, you must determine how much of your monthly take home pay and other income (such as alimony, child support, rental income, etc.) will be used to pay your monthly expenses. The next page consists of a simple budget. Fill in the blanks to determine how much you spend on each monthly expense. If you pay your auto insurance on a yearly basis, be sure to divide the amount by 12. ($1,200 ÷ 12 = $100/month). Once you have prepared your monthly budget, you will have to discipline yourself to stick to your budget to help fix your bad credit or establish new credit. Keep in mind that your after tax income will need to be more than your monthly expenses to keep from going into more debt. Also, try and determine an amount every month from your budget that you can use consistently to pay off debt, collections, etc… This is the key to making consistent progress. Take time now to prepare your monthly budget. In doing so, you may also identify some monthly expenses that can or must be eliminated in order for you to make progress and achieve your goals. If you are married, it is very important that you involve your spouse in this process…it will need to be a team effort!
MONTHLY BUDGET FOR____________________________ AVERAGE MONTHLY INCOME Gross monthly income salary or wages Minus Social Security Minus Income Tax Other deductions from paycheck on monthly basis: Insurance Credit Union Union Dues Other Net monthly salary, wages Monthly income from other sources: Commissions, Bonuses, etc. Unemployment, Welfare, etc. Dividends, Interest, etc. Business income Rents, Royalties Other monthly income TOTAL AVERAGE MONTHLY INCOME AVERAGE MONTHLY EXPENSES Mortgage or Rent Property Taxes Homeowners Insurance Electricity Water, Garbage, Sewer Cable Television Telephone Fuel Oil and Natural Gas Cleaning and Laundry Repairs and Maintenance Pest Control House-wares Groceries Meals Outside of Home Clothing Medical, Dental, Prescriptions Education Day Care/Baby Sitter Entertainment Gifts or Donations Vacation expenses Public Transportation Automobile Gasoline and Oil Repairs License Insurance Payments
$_________ $_________ $_________
$_________ $_________ $_________ $_________ $_________
$_________ $_________ $_________ $_________ $_________ $_________ $_________
$_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________
Insurance Health Disability Life Other Other Expenses_____________________________________ __________________________________________________ Fixed Debts on monthly basis: Creditor: _______________________monthly payment Creditor: _______________________monthly payment Creditor: _______________________monthly payment Creditor: _______________________monthly payment Any Other Debts: Creditor: _______________________monthly payment Creditor: _______________________monthly payment Creditor: _______________________monthly payment Creditor: _______________________monthly payment TOTAL AVERAGE MONTHLY EXPENSES: ASSETS: Cash Stocks Bonds Real Estate Automobiles Contents of Home or Apartment Jewelry: Other (list):__________________________________ TOTAL ASSETS: SUMMARY OF INCOME AND EXPENSES: Total Average Monthly Income: Total Average Monthly Expenses: MONTHLY DISPOSABLE INCOME (Income minus expenses)
$_________ $_________ $_________ $_________ $_________ $_________
$_________ $_________ $_________ $_________
$_________ $_________ $_________ $_________ $_________
$_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________ $_________
$_________ $_________ $_________
MONTHLY AMOUNT USED TO PAY-OFF/DOWN DEBT
Sample Dispute Letter
Date Your Name Your Address Your City, State, Zip Code (Bureau Name & Address)
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)
Getting a pre-paid or secured credit card is a way for you to establish a payment history when banks won’t extend credit to you. Basically how it works is you send the money to them as security for a set time of usually 6 months to 2 years. This money is held in case you don’t make your payments. You are then issued a secured credit card that, as you make your payments, is reported just like any other credit card on your credit report. Eventually, after a good track record of payments, you can request a non-secured credit card, and if approved, the bank would, in many cases, send the money that was used as collateral back to you. The idea is to be able to show a history of on-time payments. Please note that the idea is not for you to take on additional debt! Our recommendation is that you pay the balance off in full every month that you have put on the card(s). Again, the idea is to establish a new, positive credit history…not to encourage you to accumulate new debt.
Banks Offering Secured Credit Cards
First Indiana Bank, David Taylor Amalgamated Bank of Chicago, Chicago, IL American Pacific Bank, Portland, OR Associates National Bank, Wilmington, DE Banco Popular, Orlando, FL Bank of Hoven, Hoven, SD Bank One, Tempe, AZ Capital One, Richmond, VA Chase Manhattan Bank, Manhattan, NY Citibank, Sioux Falls, SD Cross Country Bank, Wilmington, DE First Consumers National Bank, Beaverton, OR First National Bank of Brookings, SD First National Bank of Marin, Last Vegas, NV First Premier Bank, Sioux Falls, SD JC Penney/Associates Bank, Wilmington, DE Key Bank & Trust, Havre de Grace, MD Sterling Bank & Trust, FSB, Southfield, MI United National Bank, Somerset, NJ Western Security Bank, Burbank, CA
1-317-485-7485 1-800-723-0303 1-800-610-1201 1-800-533-5600 1-888-642-2626 1-800-777-7735 1-800-544-4110 1-800-445-4523 1-800-48-CHASE 1-800-950-5114 1-800-252-1159 1-800-937-3795 1-800-658-3660 1-702-269-1100 1-800-987-5521 1-800-533-5600 1-800-840-5577 1-800-767-0923 1-732-448-4075 1-800-262-2085