Checking, Credit Restoration, and Education * How to Get a Good Home Loan If You're Self-Employed * The Credit Counseling Process * Credit Repair: Making Inquiries * Credit Repair: Fees * Debt Settlement * Facing Bankruptcy * Credit Issues and Bankruptcy * The Effects of Bankruptcy on Employment # CHAPTER 2 Credit-Checking, Credit Restoration, and Education * How to Avoid Problems with Your Credit * How to Avoid Problems with Your Credit Reports * How to Obtain Your Own Credit Report and Credit Score * Keeping Your Credit in Shape * How the Credit Market Works * Credit Scores: The Four Categories of Credit Scores * How to Improve Your Credit Score No one wants to hear it, but the sad truth is, in today's credit environment, a bad credit rating is your birthright. You have probably heard the terms "bad credit" and "good credit" thrown around at least once in the last day. These terms refer to your credit score, a figure that lenders use to determine whether you qualify for a loan or credit. In reality, everyone has credit, whether they are aware of it or not. For instance, if you buy a credit card to protect yourself from bad things that happen in life, then you have some credit. And don't get me started on those prepaid credit cards you find on gas pump kiosks and online! In reality, whether you have a bad credit rating or a good one, the only difference between you and the next guy is how far behind you are on bills and how quickly you want to pay them off. **So What Exactly Is Credit?** In today's world, everything we buy is based on credit. Think about it: if you've ever visited a car dealership and been offered a test drive, at some point you had to put some money down. If you're buying a house or a car, you have to put some kind of down payment. Even when buying your groceries, you have to put a certain amount of money down on the groceries you purchase. Credit makes us buy things we can't afford with our own money. Even when we pay cash, the company we're purchasing from expects us to pay for our purchases with a credit card. And it's not just money; it's our lives. A big part of our identity is our credit. How you've done in school and what your friends think of you all depend on how well you have done in the past. So what do most people do? They keep this account of their lives at the center of their lives, and they check it every day. If you've ever paid for something by check and gotten a credit-line increase, you've probably used credit. You can also use credit when you're out of town and your debit card gets declined at an ATM, or when you need a last-minute flight to attend a party, or if you need to rent a car. Credit is everywhere and it affects just about everything. Credit is so prevalent that it's hard to imagine a time when credit didn't exist. What's more, we don't pay attention to our credit the way that we pay attention to our bank accounts. Think about it: when was the last time you had your credit checked? Not just your credit scores, but the true meaning of credit, whether you have any credit and how much. Your credit score represents all the credit you've taken out—you know, things like loans, credit cards, mortgages, car loans, revolving credit accounts—and compares it to the available credit you have. The lower the number on your credit report, the lower your credit score. You could say credit is like a rating for financial responsibility. You're graded on the credit you've earned. One thing that used to be considered credit but no longer is, is your student-loan balance. You can't control the amount of money you owe, and so you don't get any credit for that. Here's a more detailed definition of credit: * **Credit:** A measure of how reliable a person or organization is in repaying what they owe. If a business has credit, it has the ability to be reliable to its lenders. * **Debt:** The amount of money you owe a lender. * **Available credit:** What's available for you to spend, which is what your lenders are concerned about when you have credit. **Credit is just an estimate of how likely you are to pay back the amount of money you borrowed. That's why many people have a big problem with the idea of getting their credit score, as there is always a risk of getting charged interest on money that is not yours. And, unlike debt that you may have earned because you have lost, there is no penalty for not paying credit on time.** **Credit Repair** The main reason for your inability to qualify for credit cards, student loans, and mortgages is that you have negative information in your credit reports. As a result of years of not paying bills, credit has been withdrawn. Your credit score reflects that it's too risky for lenders to give you credit. But that was then. Today you need to reclaim your credit so that you can qualify for the things you need—including the money to pay for your education. There are several steps to improving your credit. This process can be divided into two phases: Credit Checking and Credit Repair. The methods we discuss will be done during phase one. At least one credit report and credit score will be taken during this process. Because you will be using an accredited credit-repair company to help you, the charges from the credit-repair company will show up as student loans on your credit report, so be sure to mark them "Not Applicable" for privacy. As mentioned, one credit report and score will be taken, because we are going to be doing so many different things to improve your credit. That's why one credit report and one credit score are required. To ensure you get your most accurate report, you will want to call your lender to request your report. Your lender will need your date of birth and social security number to do so. To keep your report from becoming confused with someone else's (especially if you have obtained multiple reports), be sure to make your request as soon as possible after you begin receiving loans. Once you have a report, compare your information to the information on the report. If there are issues that need to be resolved, please contact the credit-repair company listed above for assistance. The credit-repair company will work with you to correct any inaccuracies on your credit report. **Credit Scores:** How to Find Out Your Score According to the Consumer Financial Protection Bureau, if you are not satisfied with the lender who services your student loan, you can switch and receive a free credit report every 12 months. You also have the option to get a free credit score once a year. This is different from the score you receive when opening a new credit card or applying for a loan, which can cost $4 or more. Credit scores are determined by the amount of debt you have, the length of time you've had the debt, and whether or not the lender ever lost money on the loan. What's more, if you're in debt and have any questions about your credit score, just ask the lender. The lender has every right to know your credit score if it's affecting your ability to obtain the service you're requesting. This is also true if you owe back taxes or if you've taken out a reverse mortgage on your home. The lenders that provide student loans have no obligation to provide you with your credit score. That's why the Consumer Financial Protection Bureau recommends keeping track of your own credit score for the same reasons you shouldn't rely on lenders for your credit score. This will make your decision to take out a loan easier if you know the score. There is no obligation for the lender to inform you of your credit score, so if they do not, you need to get it yourself. And this process can be done very simply. The credit-repair company you hired will provide a simple form to fill out with your information. **The following is an example of a completed form. If you can't get access to the online forms, check the information online for future reference.** Credit-Repair Forms **Chapter Summary** * You can purchase a credit report and credit score at your lender or you can have them mailed to you for a fee. * If you know the length of time your loans will be out for, you can just get your credit report when you start receiving them. Your lender will give you the date of your first payment, so be sure to call them as soon as possible after you have started receiving your loans. * Always check with your lender to get your credit scores. If you find a lender that charges for them and you're not on a repayment plan, look for another lender. There is no reason to pay for this information. * Credit reports show credit scores, but the scores are not shown on credit reports. The credit-repair company will give you your credit score. Your score is a reflection of how many other loans you've obtained. It's also a reflection of how much you pay off on your balance each month. The better your credit report and your payment history, the better your credit score will be. * Some lenders will require you to have