Credit Repairing for 2008
A Guide to Repairing Credit Scores 6.5
Presented By:
Daniel Dobbs Investors Mortgage…Broker Cell 949-400-5564 Fax 949-716-4474 dandobbs6@gmail.com
Introduction
• • • • • • • Daniel Dobbs;23 years as a loan consultant Closed over 1,000 personal transactions Brokers & Notary License AA and B.A in Communications from CSUF … Published writer, photographer Formerly Licensed by the DRE for Continuing Ed Attended all the Google’s work shops for SEO
2
Today's Objectives
• • • • Thinking about credit as a process vs event Show You the inside workings of the Industry Develop some strategies for limiting damage Teach you to “play the game”& lower the frustration…credit is an emotional issue • Answer your questions, so please speak up • Please complete an evaluation • Enjoy the class…I like what I want it to show
3
Experian.com
4
Equifax.com
5
TransUnion.com
6
The Cost of Bad Credit
• Lack of available of Credit “HELOC” .. is cut off • “Universal Default” ….HOW STUPID IS THIS? • Cost of Credit..if you are late with “MC” all unsecured creditors will up your rate 31 % • Embarrassment.. Inability to work • Loss of Security Clearance (aerospace, military Cops) • Homes Lost…Marriages Fail..Kids uprooted... • Higher car insurance rates (not in Calif. –yet) • Higher Homeowner rates (not in Calif. -yet)
7
Free Credit Reports
• Entitled to one CREDIT REPORT per year… per bureau…BUT NOT A “SCORE “ • You will be steered away from the “free” to every $$$$ service the bureau is selling • Each bureau uses a diff. reporting “format” • They supply minimal data on reported accounts, (ie no addresses or contact phone #s for current & past creditors).
8
What is Risked Based (FICO) CreditScoring?
• Scoring models to objectively evaluate all the of your credit file • Experian (90%) TransUnion(70%)Equifax (30%) • The scoring model analyzes and balances of varying pieces of info to assess risk for repayment of future debt. • It’s a “Snapshot” of your credit file; at a given point in time. It is your “Financial DNA”
9
What Credit Data Is Analyzed by the Credit Scoring Model?
• Past Payment History - approx. 35% of weight
– Includes information from public records on bankruptcies, foreclosures, tax liens district attorney , etc.
• • • • •
Debt Capacity vs. Debt Utilization – 30% weight If the balances are maxed your score is lower Length of Credit History – 15% Type (Install (secured) vs. Revolving (unsecured) 10% Applications for New Credit – Inquiries –1-10%
10
Wamu Credit Score Simulator
11
Score vs Odds of Mortgage Default ?
Below 600 620 - 659 660 – 679 680 – 699 700 – 719 720 – 759 8 to 1 26 to 1 38 to 1 55 to 1 123 to 1 323 to 1
760 – 799
Above 800
597 to 1
1292 to 1
12
Credit Score Killers
• • • • • • • • • Divorce proceedings (Tri Merge Rescore) MD Bills / Insurance Corps/Collection agencies IRS & State Taxes..DMV//Prop Taxes (time share) Student Loans (account transfers) Identity Theft / Identity Confusion Renter’s utilities bills (electric– gas– etc) Small Unpaid balances that clients blow off Credit Card annual (auto) renewal fee’s Cancelling a credit card “auto pay”
13
Length of Reporting
• Bankruptcies: Impossible to remove • Chapter 7: 10 years from date of DISCHARGE • Chap.11 & 13 :7 yrs from date of DISCHARGE +5yrs it takes to pay off all creditors. • Judgments: valid for 10 years; 7 yrs. Reporting • May be renewed for another 10 at 12 % APR • Consult “the rule of 72” for compounding interest • “Abstact Judgements” 4 yrs. Check with Title
14
Cost of “BK”
15
Length of Reporting
• • • • • • • • 30-90 day lates….7 years & 20-40 pts lower score Rolling “Collect. Accounts” 7 yrs from last update Unpaid tax liens …Indefinite Charge off accounts…7 years from charge off date Don Sieveke BK Attorney…714 543-8419 Ask to speak to Shannon reference myself Typical BK is $1500 If you have assets -don’t use a paralegal “We the People”
16
Legitimate Causes for Deletion Letters
• • • • • • • Wrong billing address by creditor Spouse’s debt resulting from the divorce Documented ID Theft/ “ID confusion” Account closed before item is reported Creditor/Lender originated deletion letter Don’t waste time on “lates” over 4 yrs. Start with the easiest creditor 1st
17
Legitimate Causes for Updating a CR
• Copies of a release of judgment or lien…issued by the court. A copy of a canceled check is not sufficient. • A copy of a divorce decree removing responsibility for an account.(mortgage only)
– The three bureaus don’t recognize divorce as a reason to rescore; a lenders underwriters will. – A copy of a paid collection account statement reflecting the corresponding account number and the date the account was paid in full.
18
Challenging the Lender/ Vendor
• Start with the easiest to build confidence
– Bank cards: very difficult – Department store/mail order are the EASIEST – They want your future biz – Car loans: Impossible. Don't bother – Collection accounts: Must be paid at the close of escrow to avoid lowering the current credit score. – Medical bills: Excellent if you deal directly with the doctors/hospital or original creditor
19
Examples of a Deletion letter
• ABC credit card has been paid as agreed and any derog info showing for acct # 123 in John Doe’s is to be removed from his credit files. • Acct # 3333 in John Doe’s name was discharged in a bankruptcy on 9/94 and has a 0 balance, the last date of activity was 9/94 • Note: Be sure the letter’s author’s name & business phone appear for verbal verification • Have the deletion letter faxed to you
20
Dispute the Bureaus
1) Sign up for each relevant “Credit Mgr service 2) Provide each “relevant” bureau with a copy of their credit report along w/ your dispute letters & copy of Picture ID (keep originals) 3) US Driver’s license…Resident (state) ID card..Green Card…US Passport..Military ID…. 4) Provide a copy of your Social Security card http://www.ssa.gov/pubs/10002.html#how
21
Basics of Sending Dispute Letters
5) Proof of address (copy of utility bills, pay stubs, or W-2 with current address) 6) Provide any documentation/proof to help the credit reporting bureau identify which items (“hi lite”) is incorrect and need be removed or updated 8) Send certified mail” with return receipt 9) Respond quickly to contact from bureaus
22
Using the Fair Credit Reporting Act (step 1)
• • • The borrower pays/ receives their report DIRECTLY from each bureau..You must use their format The borrowers downloads & completes an Investigation Form from each bureau Borrowers submits by certified mail, to the bureau, necessary documentation to prove the disputed entry should be deleted The bureau has “30 days” to verify the account with the lender/vendor/ C.A.
23
•
Using the Fair Credit Reporting Act (Step2)
• If the lender/ vendor doesn’t respond to the bureaus investigation (out of biz /doesn’t care can’t find records …typical customer service) • The bureau must delete the item in “30” days • The bureau will issue a deletion letter • Borrower should retain letters indefinitely • Filing Multiple Investigations twice in 60 days will get you a threatening letter..keep trying • Write the 2nd and subsequent letters by hand
24
Using the Fair Credit Reporting Act (Step3)
• The Credit Bureau will:
– Re-verify the info provided by vendor/lendor – And Electronically make the changes,corrections or deletions to the raw data stored in the consumers credit file
• Typical bureau times for to rescore: 45 -60 days. IF you are using their subscription service..otherwise 90 days is common
25
Dealing with Collection Agencies (CA)
• The statue of limitations for collecting a “non secured debt” is 4 yrs. • Note: No one gets a MBA to work in debt collection..Be prepared to meet angry people. Never argue with a “drunk or a madman” - you’ll lose.. • Keep calling until you get the pleasant voice • Collection Agency accounts will results in two “dings” 1”ding” from the vendor & 1 ding from CA : 20-40pts
26
Cost of a 30-90 Day late
28
Dealing with C.A. Blackmail
• Most CA report to only 2 bureaus • Upon receiving a CA notice ..you have 30 days to dispute…(Fair Credit Reporting Act) • www.ftc.gov/os/statutes/031224fcra.pdf • Contact the lender/vendor FIRST , they control the CA. the CA will always claim that they “own the account” and for you “not to contact the vendor” • The doctor /hospital just want $$$$..They may to agree to settle for less and delete the item..and they will direct the CA to delete the item
29
Before Contacting CA/Creditors
30
The Con “Read the Fine print”
• Borrower detects a CA account on CR and then..Calls CA with an offer to compromise & pay…The CA notes where the call has been made from.. • No Phones #s are blocked when calling a CA • The CA pulls borrowers credit report to check for recent credit applications.. Pending apps (mortgage and auto will harden the CA’s settlement position) • CA sends/faxes over “settlement letter outlining terms for payment saying they will report the debt paid ... insinuating that is will be deleted from the CR..it won’t be unless the letter specifically states the item will be deleted as part of the settlement
31
The Con “Read the Fine print”
• It is easier to get a deletion letter when you pay the entire balance “in full” vs “pennies on the dollar” • The “higher the balance” the better chance of obtaining the “deletion” letter • Be prepared to pay with 24 hours to increase your bargaining position • Otherwise… Do Not pay off accounts until the “close of escrow “pre-close” pay offs lower fico scores • CA are slow to update “paid accounts” with credit bureaus;(when:settled for less than“owed” you also will send the settlement letter to the bureaus
32
Dealing with C.A. Blackmail
• The C.A “1” sells the debt to CA “2’…extending the debt’s reporting “life” then files in small claims though 4 yr. legal limit has expired… • CA now serves you by “public notice” • They appear, WIN & garnish your wages • Or abstract of judgment is filed, attaches to your homes title • http://www.fair-debt-collection.com/
33
Documenting Identity Theft
• 1/3 of all identity theft cases involve close family members which hinders prosecution • To rescore, a borrower must have a Police Report (Court Documents/Arrest Reports) • Keep deletion letters from lender/vendor • Get Arrest Reports and Newspaper Clippings • Retain insurance reimbursements (burglary) • The “Burden of Proof” is on the borrower
34
What is Identity Confusion?
• Father and Son ( junior vs.. senior) • Borrower may apply for credit with two different versions of their name (ie. “middle intial) • Husband & Wife credit report become mixed • Co – signers of accounts • Common Surnames: Recent Immigrants (have less traceable residence histories … “Yusef Stalin” • The “Burden of Proof” is on the borrower • Sometimes this phenomenon requires a buyer to pay off a debt ..that isn’t theirs…”in order to close escrow…… “name game”
35
What is Rapid “Re-Scoring”
• A Credit Re-scorer is licensed (by all bureaus) “middleman” between mortgage broker & bureaus to update borrowers reports with new data. • Borrowers have no direct access to re-scorers. • A Re-scorer verifies the info given to them for accuracy & forwards info to at the 3 bureaus. • The Re-scorer notifies the mortgage broker that changes have been made (“rescored”) orders a new credit report that reflects the updated info scores.
36