1. Demystifying Credit Repair
Ten Greatest Myths About Your Credit

2. Let’s go WAY back to… How were home insurance premiums calculated? -How were auto insurance premiums calculated? -How were job applicants screened and qualified? -What’s next? Health Care? Utility rates?
Prior to 1998 FICO scores did not even appear on a Residential Mortgage Credit Report. Credit worthiness was determined 100% based upon a client’s past ability to pay their debts on time. NOW, that only accounts for 35% of your credit score. Lending guidelines are not the only thing affected, in fact, the states of Michigan and Washington have brought suits against the property and casualty insurance companies doing business in their states because of a perceived over reliance upon the credit scoring system. As time goes on, only more things will be gauged based on your credit score.

3. A WORLD OF CHANGE. Who is FICO
A WORLD OF CHANGE Who is FICO? Who are Experian, Equifax and Trans Union? Who are their customers? (what do they say?)
Everything in this course revolves around an understanding of the relationship between 4 very large corporations. If we go to their respective websites and read their published material, they are all provide consumers with an “education” about the services they provide. The truth is that the consumer is not the customer. Finance companies, banks, landlords, employers and insurance companies are the bill paying customers. An honest discourse on the subject of credit scoring and credit repair must come from the perspective of the bill paying customers and the value credit scoring brings to their businesses.

4. The Big 3 Equifax – Beacon, EFX, S&P 500 component, Atlanta, Georgia
Trans Union – Empirica, Private company, H Group Holdings, Pritzker (ie. Penny Pritzker – Obama appointee) family of Chicago, IL Global Hyatt, Royal Carib.
Experian – Fair Isaac, EXPN, London Stock Exchange, Dublin, Ireland
Equifax is the only company with any transparency. Trans Union is a privately held company and Experian is a foreign corporation. Each of the 3 credit bureaus are repositories of information. The collect and sell data provided to them from banks and finance companies and generate reports (Federal Trade Commission FTC free reports are obtained at These reports contain information about the following, but do NOT include a credit score:
The open date of the account
Name of the creditor
Original balance
Loan terms
Who is obligated on the debt (joint, co-signed, individual, shared, or authorized user)
Type of debt (revolving, installment, or mortgage)
Payment history
Current balance
Available credit limit
Date of last activity
A credit is score is derived by running the credit scoring algorithm through the repository data. This is a separate function and a separate charge.

5. FICO, A Brief Chronology
1956 – Engineer Bill Fair and mathematician Earl Isaac found FICO on the principle that statistical data can improve business decisions
1963 – Montgomery Ward begins using the credit scoring system
1970 – Delivery of first credit card scoring system to Connecticut Bank & Trust
1987 – FICO goes public, moved listing to NYSE as “FIC” in 1996
1991 – FICO made available to Equifax, Trans Union and Experian
1993 – First insurance bureau score introduced
1995 – Fannie Mae and Freddie Mac recommend use of FICO
1997 – American Bankers Assoc. honors Bill Fair and Earl Isaac
2000 – 2003 Multiple mergers and world-wide implementations
2004 – Launch of Global FICO
2007 – 100 Billionth FICO score sold
Current headquarters in Minneapolis, MN
The concept of credit scoring was a doctoral thesis presented at Stanford University by Engineer Bill Fair and mathematician Earl Isaac. The purpose of a FICO score is to predict the probability of default on a credit obligation within 90 days. Starting in the early 80’s, nearly every consumer had a credit score, however, the industry operated pretty much within the realm of credit underwriters and was not given much public notice. As of 2007, the Fair Isaac Company had sold more FICO scores than McDonalds had sold Big Macs. Guess what – I FICO score costs more than a Big Mac. In 2006 the “Big 3” began developing their own credit scoring algorithm called Vantage Score. This was met by an immediate law suit filed by the Fair Isaac company who claimed that the credit scoring models, score ranking, score range and other methodology was protected by patents. As of this writing Equifax has withdrawn from the suit. The official website for a consumer to obtain their true FICO score is at The Equifax-based FICO score is free along with credit score monitoring for 30 days so long as credit card information is provided at the time of service.

6. Latest Statistics
WSJ reported in July of 2010 that 43 Million Americans have a FICO score of 599 or lower (25.5% of adults)
Feeder population of the unbanked will find it tougher to obtain a FICO
The train wreck is still happening
The current banking and insurance trends should be a cause of concern to every consumer. Those industries are relying more heavily on FICO scoring models, yet the average credit score of the population has been down graded substantially. Another area of concern is people’s ability to acquire credit. The CARD Act, who’s provisions kicked in February of 2010, prohibits credit card companies from targeting college-age students by requiring anyone under the age of 21 to demonstrate an ability to repay the debt, or to obtain a co-signer. You must have reportable trade lines in order to generate a credit score. Most lenders will not lend under any circumstances unless you have a credit score.

7. Why Credit Scoring?
Credit scoring is a “lazy man’s” method to evaluate your risk of defaulting - nondiscriminatory
Credit scoring has become a thermometer of your financial health
FICO scores range from 300 to 850
Assets and income not considered
Banks and insurance companies have embraced the credit scoring model because information like: race, religion, income, assets, age and health issues are NOT considered in the 3-digit score. Historically these were often claims for discrimination suits. Since the data being analyzed is non-discriminatory, FICO scoring becomes an easy line in the sand because there is no “subjective” data. The NAACP filed a class-action discrimination suit in 2007 against 14 subprime lenders, but the suit never got traction for all the reasons sited above.

8. Credit score factors Payment History Late Pays Collections Charge-Offs
Repossessions
Foreclosures
Tax Liens
Bankruptcies
Judgments
Short-Sales
Length of History
New Credit
Soft Inquiries
Hard Inquiries
This is the pie chart that almost every person in the credit industry has come to know. What is interesting is that this information was only disclosed because the Fair and Accurate Credit Transaction Act (2003) required its disclosure. Prior to a legislative mandate, even this ambiguous information was completely kept from common knowledge.
Payment History speaks for itself, but the other 4 areas require some further discussion.
Types of Credit Used
A Mortgage Loan
An Auto Loan
2-3 Major Credit Cards
Amounts Owed
Credit Cards
Mortgage Loans
Auto Loans
HELOC’s
Installment Loans

9. Payment history: 35%
Paying a collection that is more than 2 years old can hurt a score.
Derogatory accounts do NOT always fall off of a credit report automatically after 7 years. They must be disputed.
A divorce decree does NOT take precedence over the creditor agreement.

10. Amounts owed: 30% Managing debt
New debt temporarily decreases a score.
Balances should be kept below 20%(?) of the limit at all times to maintain a score.
Debt should NOT be consolidated, it should be distributed evenly over all credit card accounts.
Going over the limit on a credit card, even by $1 can cost as much as 100 points
HELOCs can be considered revolving debt, not mortgages.
Credit card accounts should NOT be closed except in special circumstances.
Unused credit card accounts will become unrated in 3 months.
Amounts Owed is the percentage of debt that is owed compared to the limit made available. This is a cumulative number. For example, if you have 4 credit cards with a $500 limit each and each one has a $500 balance, you have utilized 100% of your available credit limit. Anything above a 70% utilization rate has a negative impact on your score. Now, if you were to get a new card with a $2,000 limit and no balance, your cumulative utilization rate will immediately drop to 50%. There is no need to move balances as was previously thought because the credit scoring algorithm looks at the sum total of all revolving balances and divides by the sum total of all the limits.
However, it is best to have a low utilization on every card

11. Length of history: 15% Mix of credit: 10%
Borrowers should hold onto old credit cards, even if the rate is not great.
Mixture is the best.
The type of credit card DOES matter.
2 to 3 revolving credit cards with established history is optimal.
Length of Credit History. A brand new trade line initially takes down a credit score sometimes. Only after a 3 month or longer good payment history will a score begin to improve. In order to get the full benefit of any trade line a minimum 24 month history is required. This is a good idea but in many cases the benefit of a new revolving account for a thin credit file far out weights the negative of having a new tradeline.

12. Inquiries: 10% Hard vs. soft Inquiries.
Inquires affect a score for one year.
Inquiries can cost between 2 and 30 points, depending on the current score.
Pre-approved card offers are NOT really pre-approved.
New Credit. A consumer must provide written authorization for a hard inquiry, however, lenders engaged in marketing campaigns can obtain credit information without consumer approval through a “soft inquiry”. A soft inquiry provides all the same data to the lender, but the inquiry does not appear on the consumer credit report, neither is it a factor in the consumer’s credit score. This information is provided to the lender so long as they are soliciting with a “firm offer of credit”. Just take a trip to the mail box today and read the fine print of any “pre-approved” offer of credit.

13. FICO 8 Mortgage Scoring System
Average 1st Mortgage Balance
Home Equity Line of Credit
Credit Cards With High Balances
2 new “Reason Codes”
Could see credit scores drop by as much as 100 points
The launch of FICO-8 Mortgage was announced in September of It had been beta tested for about one year with 7 large banks and is currently being pushed as a replacement to the current software which is called FICO Classic or FICO The current economy has highlighted some of the short comings about the forecasting ability of the older model and the Fair Isaac Company has been forced to reevaluate and respond. Prior to 2008 there were no specific Reason Codes for short sales and loan modifications. More on Reason Codes later.

14. Demystifying Credit Repair
Myth #1.
Credit Agencies are empowered with some kind of governmental authority.
Credit agencies have no legal authority at all, they are simply billion-dollar corporations who are in the business of gathering and selling YOUR information

15. Demystifying Credit Repair
Myth #2.
The credit agencies are required by law to keep derogatory items on your credit report for 7 to 10 years.
There is no law that the credit agencies report anything. Just the opposite is true! Credit Agencies are required by law to automatically remove all derogatory items older than 7 years, or in the case of a bankruptcy, 10 years.

16. Demystifying Credit Repair
Myth #3.
It is impossible to remove an item of public record.
Bankruptcies, tax liens, etc. come off just like any other item that is incorrectly reported, obsolete, erroneous, misleading, incomplete, or that cannot be verified. Remember, the nature of the item has nothing to do with its removal under the Fair Credit Reporting Act.

17. Demystifying Credit Repair
Myth # 4.
The burden of proof rests with the consumer to validate information contained on your credit report.
The opposite is true under the Fair Credit Reporting Act; both federal and various state laws REQUIRE that the credit agencies bear the burden.
This is perhaps the most important point of the presentation. The consumer education information provided by Trans Union, Equifax, Experian and the Fair Isaac Company are silent on this fact. Consumers have bee taught to believe that THEY must provide proof for any information thought to be inaccurate on their reports. The entire business of credit repair is the process of shifting the burden of proof to the party who legally bears that burden.

18. Privacy vs. Piracy Myth #5.
It is illegal or immoral to have the information on your credit report altered or removed.
Not only is it not illegal or immoral, but it is what the Fair Credit Reporting Act is all about. It was enacted by congress for the very purpose of protecting consumers from the intrusion of the credit agencies into our lives.
Here is another way to phrase this question. If a consumer has information on their credit report that is inaccurate, unverifiable or incomplete and the DON”T challenge the veracity of their credit report(s), then who are they allowing to break the law?

19. Demystifying Credit Repair
Myth #6.
Paying a past due debt removes it from your credit report.
Just because you pay an old debt does not change or erase the fact that at one time you were not paying on it as you agreed. Can this record be changed? Absolutely!
The FICO 8 Mortgage model is not supposed to punish a consumer credit score for collection accounts owing less than $100.

20. Demystifying Credit Repair
Myth #7.
Credit reporting and credit scoring were developed to educate and inform consumers. (visit their websites)
False. The big 3 and FICO serve the banking and insurance industries who need a 3rd party to “rate” their services.
Evidence: Blockbuster and Hollywood video article
When Hollywood video went bankrupt in 2009 they soon found various collection agencies that were willing to report late charges that Hollywood Video had previously written off. Blockbuster soon found this as another revenue source as well. Initially, credit reporting was only done by actual lenders who had extended credit via consumer loans and mortgages. Those types of trade lines could be a benefit if paid as agreed, or a negative if not. The past 20 years have seen a shift in the type of data that is collected. Hollywood Video and Blockbuster cannot and never will be a “positive” line of credit because you bring your movies back when agreed. The same is true with cell phone bills, utility bills, rent payments, gym memberships, etc. Increasingly, there is an on-going trend to find any kind of dirt that could possibly exist for the sole intent of bringing a credit score down.

21. Demystifying Credit Repair
Myth #8.
If you get a derogatory item removed, it will just come back.
Not if it is removed legally. When it is removed with cause under the Fair Credit reporting Act it cannot legally be placed back on your credit report. Consumer must receive a reinsertion letter 5 days prior.
The Fair Credit Reporting Act requires that a consumer be given notice (a reinsertion letter) via 1st Class US mail dated within 5 days of when a previously removed credit item reappears on your report. This is seldom done. This means that a previously deleted item will almost always remain deleted if the consumer understands the process and how to exercise their rights.

22. Demystifying Credit Repair
Myth #9.
The past equals the future.
This is the biggest myth of all. The concept that once bad, always bad, or at least for 7 years is totally false. The scoring model, like Google’s search engine parameters, has been in constant change. The simple truth is, no credit report or scoring model can predict the future

23. The Fair Credit Reporting Act: 1971
First the Facts
The Fair Credit Reporting Act: 1971
Congress passed the Fair Credit Reporting Act (FCRA). The FCRA was passed by congress with the intention to regulate credit-reporting agencies. The Act spelled out all the rules and regulations that the credit-reporting agencies had to follow before they put anything on someone’s credit report. All information reported must be 1) Verifiable, 2) Complete and 3) Accurate. For the past three decades, those agencies have ignored most of the law. If “reasonable procedures” have not been correctly followed, then any verified inaccuracies, etc. must be removed from your credit reports as defined in the FCRA. The three credit reporting agencies (CRA) ARE Experian (formerly TRW), Equifax and Transunion. There are various agencies that purchase information from these three major agencies, but they get their information from the “Big-3”, so if you can repair your credit with the Big-3, you basically repair it with everyone. report
The Yale University report along with several instances of case law highlight the fact that information on a consumer credit report must be verifiable. The credit bureaus do not say this anywhere on their respective sites of and
Sadly, it has been left up to the consumer to pay for services or learn on their own how to challenge the veracity of negative items on their credit report even if the event actually happened as reported. For most consumers a simple statement to the credit bureaus of “this is not my account” is sufficient to force an investigation. The credit bureau is required by law to contact the original creditor and verify the account information. If the creditor is out of business or the records cannot be verified, or if the process has not been completed with 30 days of the notice, then the information must be corrected or deleted.

24. Fair Credit Reporting Act
How to read your results
Deleted - This item was removed from your credit report
Remains - This item has been verified as accurate
Updated – A change was made to this item; review this report to view the change. If ownership of
the item was disputed, then it was verified as belonging to you.
Reviewed - This item was either updated or deleted; review this report to learn its outcome
Items We investigated
We completed investigating the items you disputed with the sources of the information. Here are the results: Credit items outcome
CAP ONE Remains
ZALES/CBSD Updated
STATE OF ALABAMA HR Deleted
CBSI Deleted
SECURITY CHECK LLC Deleted
HSBC BANK Deleted
CAVALRY PORTFOLIO SERV Deleted
LISTER-HILL CREDIT UN Remains
Visit experian.com/status to check the status of your pending disputes at any time
This is a sample Experian response to a consumer challenge. Notice that even large institutions like HouseHold Bank will either not respond in time or fail to provide sufficient documentation to verify a debt.

25. Additional related Acts
Google Search; consumer rights +
FCRA
FCBA
FDCPA
FACTA
CROA
The two main laws that govern credit reporting are the Fair Credit Reporting Act 1971 and the Fair and Accurate Credit Transactions Act Under the search above you will find a website with a short summary of each of the acts listed above. It is interesting that even the FTC website does not mention that consumer debts must be verifiable. The one-page summary of the credit reporting acts only mentions that all information must be accurate.
The Fair Credit Billing Act and the Fair Debt Collection Practices Act govern the methods creditors may use when attempting to collect a debt. There have been a handful of lower court rulings in Utah and California that equate credit reporting to the act of debt collection. Were these suits to be pursued with more vigor the consumer would have the ability to collect greater damages. The Fair Credit Reporting Act limits creditors to a fine of $1,000 per tradeline violation. This form of “tort reform” has limited the amount of legal interest in pursuing credit reporting abuses.
The Credit Repair Organizations Act limits the collection of up-front fees for credit repair companies and sets forth federal standards for compliance. Many states have regulations in place that are stricter than the federal standards.

26. Fair & Accurate Credit Transactions Act
ALERT
ADDRESS DISCREPANCY: THERE IS A SUBSTANTIAL DIFFERENCE BETWEEN THE ADDRESS SUBMITTED IN THE INQUIRY AND THE ADDRESS(ES) ON FILE
TRANSUNION ID MISMATCH ALERT: PREVIOUS ADDRESS MISMATCH. INPUT DOES NOT MATCH FILE.
SCORE MODELS
EQUIFAX/BEACON SOME PPERSON – XXX-XX-XXXX
SCORE: 588
SERIOUS DELINQUENCY, AND DEROGATORY PUBLIC RECORD OR COLLECTION FILED
NUMBER OF ACCOUNTS WITH DELINQUENCY
LENGTH OF TIME SINCE DEROGATORY PUBLIC RECORD OR COLLECTION IS TOO SHORT
LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED
_________________________________________________________________________________________
TRANSUNION/FICO CLASSIC (04) – SOME PERSON – XXX-XX-XXXX
SCORE: N!A
SC3 - FILE NOT SCORED BECAUSE SUBJECT DOES NOT HAVE SUFFICIENT CREDIT
EXPERIAN/FAIR, ISAAC (VER- 2) – SOME PERSON – XXX-XX-XXXX
SCORE: 524
38 - SERIOUS DELINQUENCY AND PUBLIC RECORD OR COLLECTION FILED
13 - TIME SINCE DELINQUENCY IS TOO RECENT OR UNKNOWN
02 - LEVEL OF DELINQUENCY ON ACCOUNTS
18 - NUMBER OF ACCOUNTS WITH DELINQUENCY
08 - TOO MANY INQUIRIES LAST 12 MONTHS
More information on Repository Reason Codes. The reason codes are like a deck of cards. There are currently 41 codes, or reasons, why a person does not have higher credit score. These codes are listed in order of priority and only appear on credit reports because FACTA required their disclosure. This example demonstrates different points previously mentioned:
Not all creditors report to all 3 bureaus. This is why the report does not have a Trans Union score. If there is no trade line activity for 6 months, there is no “scoreable” data and the consumer credit score will go to zero
Reason Code 038 is the number one reason for a lower score with both Equifax and Experian, but Reason Code 018 is listed 2nd with Equifax and 4th with Experian. This is because each of the credit bureaus are allowed to “shuffle the deck” based on their own interpretation of which factors are more important than each other.
It is difficult to obtain the exact ranking of each score because the bureaus want to promote their own brand of FICO as better than their competitors, however, the codes themselves are attached in a separate PDF and were obtained from the Fair Isaac Company.

27. F.A.C.T.A. S C O R E M O D E L S 5 MAIN BORROWER
EQUIFAX/BEACON
AMOUNT OWED ON REVOLVING ACCOUNTS IS TOO HIGH
LACK OF RECENT INSTALLMENT LOAN INFORMATION
_________________________________________________________________________________
3 MAIN BORROWER
TRANSUNION/FICO CLASSIC (04) 808
004 - LACK OF RECENT INSTALLMENT LOAN INFORMATION
014 - LENGTH OF TIME ACCOUNTS HAVE BEEN ESTABLISHED
012 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED
1 MAIN BORROWER
EXPERIAN/FAIR, ISAAC (VER. 2)
12 - LENGTH OF TIME REVOLVING ACCOUNTS HAVE BEEN ESTABLISHED
01 - AMOUNT OWED ON ACCOUNTS IS TOO HIGH
This is an example on the opposite end of the spectrum. An 810 credit score is good enough to obtain the very best rates for any type of loan or insurance coverage, yet, the consumer will have at least one reason code until all 3 scores reach In this example our borrower is being rated down because there is no installment loan information, ie. a vehicle loan or a student loan. Also, there are some new accounts that most likely have less than a 24 month history.

28. Credit Considered in Credit Scores
Trade lines
Inquiries
Collections
Public Records
NOT Considered in Credit Scores
Age
Address
Employment
Income
Sex
At one point address information was thought to have played a role. For example, a suburban versus an inner city zip code was sometimes thought of as a means of credit score discrimination.

29. Research and Repercussions
In June of 2004, the Public Interest Research Group found (79% or more) have significant errors in their credit profiles. These errors affected credit scores by 50+ points.
lyonslawfirm.com/pdfs/creditlawsuits.pdf
bankruptcydischargesettlement.com
10th Circuit Appeals Court ruled that E-Oscar is not a reasonable validation method (2010)
There is plenty of prima facia evidence that credit reports routinely contain errors and even more proof that consumers don’t challenge those mistakes. The 3 most prominent law suits pertaining to credit reporting a listed here with the following summary:
The Lyons Law Firm case was the first instance in which punative damages were awarded to a plaintiff. At the time it was thought that this would open the flood gate for law suits against the credit bureaus, but no large damages have since been awarded
This suit demonstrated that consumers who had filed for bankruptcy between 2002 and 2008 routinely had information about their bankruptcy debts misreported. This was proven in 2 ways. First, the balances originally owed, though discharged through bankruptcy, were still shown as the original amount listed while the law required those balances to be shown as ZERO. Second, the date of last activity on the account continued long after the discharge date. The law requires that no activity be reported upon the entering of the discharge date in the case of a Chapter 7 bankruptcy and upon the petition date of a Chapter 13 bankruptcy. Both of these errors served to artificially lower consumer credit scores and the lawsuit has sought to recover damages for people who were denied housing, jobs, or loans.
This lawsuit challenges the method that the credit bureaus and creditors use to verify debt. There is a form called an Automated Universal Data form (UAD) and was developed by E-Oscar (Online Solution for Complete and Accurate Reporting). This has been shown to be not much more than correspondence between the parties who “parrot” each other’s information and simply confirm the debt as valid. This means that until challenged, there are many accounts where a consumer might have proof positive that the information is wrong, but it is unlikely that real investigation will ever occur. There are other cases on this matter in Cushman v Trans Union, Stevenson v TRW, and Richardson v Fleet, Equifax.

30. Demystifying Credit Repair
Myth # 10.
I cannot restore my credit on my own.
Yes, you can! You can try to do it yourself (just like you can represent yourself as an attorney in a court of law).  But you can also allow experienced professionals to educate you and assist you in restoring your credit profile.

32. Credit Repair Organizations Act
CROA & who can charge
Credit Repair Organizations Act
2007 Amended to FCRA
Prohibited practices
Disclosures
Certain Federal Exemptions
Attorneys are not exempt from CROA, but federally-chartered depositories are. Will your banker fix your credit?

33. United credit education services
Industry Leader Established in 1997
Federally-chartered CUSO
“A+” Rating with the BBB
160,000+ Customers
Fantastic money-back policy
This is an optional slide that I DO NOT use in a CE presentation because the State of Utah prohibits the promotion of personal products and services. I keep it in there when presenting in a non-Continuing Ed environment.