Note: This Module is available in PDF format for easy printing -Click Here

Introduction
Important Note : Material included in the entire training program may refer to situations in either the U.S. or Canada and legislation pertaining to either country, but in all instances the points can be made for
either jurisdiction as the rules, procedures and laws are very similar in both countries. The actual governing acts are provided for both the U.S. and Canada with this training material.

* The training course materials contain sections throughout (Debtor Client Counseling Sections ) devoted to the financial counseling of the debtor client before, during and after the debt arbitration/settlement
process. This is information that a Certified Debt Specialist should provide to their clients when appropriate. The Debtor Client Counseling material is normally presented in the same verbage you will use
when advising and presenting the subject to your client (addressed to the client).

Module One (A)

Pre-amble...

Debt Settlement is a "Very Agressive" and "Highly Effective" debt relief option

Discussion: The Main Debt Relief Solutions

Millions of consumers are asking how to resolve overwhelming debt problems. They need debt relief information so that they can understand all of their options.

To start out with, there are four primary concerns for most consumers who are seeking a debt relief solution:

Monthly payment
Time to debt freedom
Total cost
Credit rating impact of the debt resolution program

Consumers need to evaluate each program available relative to their prioritization of these factors — not all programs are equal and not all are well suited to each
consumer.

Since there is this variety of debt resolution options, including credit counseling, debt negotiation/debt settlement, a consolidation loan, bankruptcy, it is important for the
client to fully understand each option and then pick the solution that is right for their situation, this is where you come in.

IAPDA Certified Debt Specialists advise their consumer clients on all 4 debt relief options.

Consolidation Loans, Credit Counseling/Debt Management Plans, Bankruptcy and Debt Settlement.

Each option may be the best option for a particulat consumer client, each consumer will have a unique financial situation.

1. About Debt Consolidation Loans

Your client has probably seen the commercials, whether it be on TV or the Radio. A man in a nice suit tells you how he can "pay off" all of their debts. He will tell them

about how he can get rid of their multiple high interest payments and give them one low easy payment. It makes it seem like getting a debt consolidation loan is the
answer to all of their problems. After they get passed the flashy commercials, they will find that they really do not have a whole lot to offer.

Basically, the lender will write a check to pay of all of their consumer debt, and then give them a new loan for all the checks they wrote. Usually these debt consolidation

loans are second mortgages, which allow them to offer interest rates of about 8% or 9%. There are a number of problems with these type of loans, and are really just not
worth it for a consumer wanting to eliminate debt.

The biggest problem with them is that they do not change the client's behavior. Debt is not the problem, rather debt is the symptom. The problem is that the client is

spending too much money, and getting a debt consolidation loan does nothing to stop their overspending habits. So they pay off their credit cards with a debt
consolidation loan, and end up just going back into debt because they have a bunch of credit cards with a zero balance and a huge spending problem. It's just not the

solution to most consumers financial problems...

Most of the time they won't even get the great loan that the lender presents to them in the advertisements. That's the teaser rate for people with the best credit, but if they
have all sorts of debt and need a debt consolidation loan, they probably won't have the absolute best credit score and will get a less than decent loan. Often times there

will be a number of hidden fees which they will use to get a lot more money out of the borrower than they had expected.
Another problem with the loan is that their debt will moved from an unsecured loan to a secured loan. Before the creditor could only yell and scream if they didn't pay their

debt, and eventually sue the consumer after many years. Now since it's a second mortgage, if they don't pay their debt, then they can take their house from them. They
are adding collateral where there was none before.

The solution is usually not debt consolidation, rather the solution is getting very intent on eliminating their debts. Taking care of a few points of interest really won't do

anything. Even knowing this your client may still wish to choose this option.You should have reciprocal referral relationships with several consolidation
lenders/mortgage brokers who will be happy to provide information to your client if that is what they/you decide is the best option for their situation.

To find a reputable lender/mortgage broker that you may be able to work with on a reciprocal referral basis you can start by checking the listings at the National

Association of Mortgage Brokers (NAMB) at http://www.namb.org, Be sure to contact several lenders/brokers and find one that you are comfortable with and who is
willing to work with you on a reciprocal referral basis.

2. About Consumer Credit Counseling/Debt Management Plans

Consumer Credit Counseling works best for people with the ability to pay their debts in full, or at least a great portion of the debt amount. they must be able to pay the
credit counseling payment without falling behind on their regular living expenses such as their house and car payments for this to be a really good option.

Credit Counseling is another method of consolidating debt and a good alternative to obtaining an additional debt consolidation loan. A credit counselor will communicate

with their lenders on their behalf to have interest rates and fees lowered or eliminated. They will also devise a re-payment plan that is acceptable to their creditors while
also fitting their budget.

The consumer will make one monthly payment to the agency, and the agency will disperse the funds to their various creditors. they will usually be required to close all

their credit card accounts, but they will no longer have to deal with collection calls and they will have a long term plan for getting out of debt. A credit counseling program
can take between 3 and 7 years to complete, depending on the amount of debt they have and how much they are able to pay each month...

Much of consumer debt is carried at high interest rates. According to a survey by IndexCreditCards.com that surveyed over 50 different cards and a number of credit

issuers, the average interest rate for consumer credit cards is 16.82%.

While some consumers struggling with debts may be able to maintain their minimum monthly payments to their creditors, others are struggling to do so or already behind

on their payments. Those who can't stay current face a hike in interest rates that, in some cases, exceeds 30% annual interest. Once a person is carrying high debt at

such an interest rate, paying it off can be next to impossible. Even those who are making minimum payments may feel trapped in a cycle of high monthly payments; they

pay and pay as required but their principal balances don't seem to come down.

Amongst the different kinds of help available to consumers struggling with debt are the services of Consumer Credit Counseling Services, or CCCS firms. If they are

struggling with credit card debt and can't seem to make any headway in paying it off, they may examine credit counseling.

Pros of Credit Counseling

If they are struggling to manage their debts, then credit counseling is worth exploring as a possible solution. Federal law now mandates that all bankruptcy candidates

receive credit counseling before filing. However, credit counseling services can also help them long before bankruptcy becomes a possibility. Reputable consumer credit

counseling services offer a wide range of solutions tailored to their specific situation. A good Consumer Credit Counseling Service (CCCS) will review their finances,
assist they with budgeting tools, and devise a customized program to help them get out of debt.

A Debt Management Plan (DMP) is one specific type of CCCS program. In a DMP, they make one payment to the CCCS, which then distributes payments to their

participating creditors. The main benefit of credit counseling is that it will negotiate lower interest rates for them with their creditors. After interest rate concessions from
their lenders and creditors are negotiated and put into place, more of each monthly payment they make goes to pay down their principal balances. This speeds up the

time that it takes they to pay off their debt. Because the main benefit of a credit counseling program is lowering their interest rates, it is a better choice for them if they are

carrying high-interest debt. DMPs are less effective if their interest rates are already low. Because different credit card companies and lenders have different concession

rates.

An advantage of working with a credit counseling service is that monthly payments are being sent to their creditors. This means that late payments don't appear on their

credit report and they will not be subjected to aggressive collection calls that occur when they stop paying their creditors entirely.

Fair Share

With most credit counseling services, part of the cost is underwritten by the banks that issue credit cards in a system of payments to credit counseling companies called

"fair share." It may seem odd that creditors would pay CCCSs, but they do so because the CCCSs help the banks' bottom line. CCCS help some financially stressed

consumers continue making payments on a regular basis, while avoiding bankruptcy, where the creditors would get nothing. In the past, the typical "fair share"
percentage was around 15%. This means that credit counseling services received 15% of all money they paid to creditors on behalf of their clients. However, the average

fair share has dropped significantly, to around 2-6% in recent years, as many banks have reduced their fair share payments, and some have stopped them altogether.

Some financial experts see the counselors' reliance on "fair share" as a conflict of interest between the credit counselors' obligations to their consumer clients and their
need to please credit card lenders, which provide the majority of many agencies' revenue. In a broader view, if the 'fair share' is disclosed, there does not seem to be any

conflict of interest. It should be more important to they how the program can help they, than how the CCCS is compensated. If a credit counseling service can get they

out of debt faster and at a lower cost than what they can achieve on their own, then those results should be their focus. Concentrate on the program's out-of-pocket costs
and fees and the savings the program delivers, to see if credit counseling is right for your client.

Negatives of Credit Counseling

While using a CCCS can greatly speed up the time it takes to pay off their unsecured debt, it is important that they understand that in a credit counseling program they
are still repaying 100% of their debts, plus some interest, as opposed to bankruptcy or debt settlement.

Another factor to consider is how much of a difference the CCCS will make in their required monthly minimum payment, when they compare what they are paying on

their own and what will be required by the CCCS. Often, in a CCCS, the size of their monthly payment in the program, while lower than paying as they were, is not
significantly low enough to be affordable. So, if they are having trouble making their current monthly payment, a CCCS program may not be right for them. The program

demands that they make a timely payment each month. If not, they could end dropping out of the program without having resolved their debt problem, delaying their

quest to become debt free because they did not find the best debt solution for their circumstances in the first place. Consumers should not commit to a plan unless they

are confident they can make it work.

A good number of people who enroll in CCCS programs drop out before completing the program, mostly because they can no longer afford the monthly payments, which

ends up not solving the problem. On average, most credit counseling programs take around five years. Most credit counseling programs do not have a negative impact

their FICO score, because payments are sent to their creditors each month on time. However, being enrolled in a credit counseling debt management plan may show up
on their credit report and could affect their credit rating during the time they are enrolled in the program. Trying to finance a major purchase when enrolled in a CCCS will

be difficult or will come at the cost of a high interest rate.

Summary

If the consumer can afford a healthy monthly payment (about 3 percent of their total debt each month), are not making any progress in paying down their debt due to

carrying high-interest debt, want to protect themselves from aggressive creditor collection actions and they do not want to go delinquent with their creditors, then they

should consult with a reputable consumer credit counseling service. You should have reciprocal referral relationships with several leading credit counseling

organizations who will be happy to provide information to your client if that is what they/you decide is the best option for their situation.

To find a reputable credit counseling agency that you may be able to work with on a reciprocal referral basis you can start by checking the listings at the National

Foundation for Credit Counseling (NFCC) at www.nfcc.org, and the Association of Independent Consumer Credit Counseling Agencies (AICCCA) atwww.aiccca.org. Be

sure to contact several agencies and find one that you are comfortable with and who is willing to work with you on a reciprocal referral basis.

3. About Bankruptcy

Bankruptcy is a process in which consumers and businesses can eliminate or repay some or all of their debts under the protection of the federal bankruptcy court. For the

most part, bankruptcies can be divided into two types -- liquidation and reorganization.

Bankruptcy for reorganization can be utilized by a commercial (company) debtor. Bankruptcy liquidation by consumers and commercial debtors.

Bankruptcy could carry a social stigma and thus should be considered an option of last resort. It generally requires a full, public disclosure of all their assets and liabilities.

It harms their credit greatly and remains on their credit report for up to 10 years. Also, the costs for filing for bankruptcy are not insignificant. Add to this, the kind of

bankruptcy that can wipe out most of their debts is more difficult to qualify for, since the bankruptcy laws were reformed in 2005.

Still, there are times when filing for bankruptcy could be the best available option, especially if they have already tried some of the alternatives to bankruptcy, such as

credit counseling and debt settlement, but could not maintain the monthly payments that those programs require. It also makes sense to seriously consider bankruptcy as

an option if they have serious debts and are able to qualify for a Chapter 7 bankruptcy under the new, stricter requirements.

New Bankruptcy Requirements: Means Test, Median Income, and Counseling

Chapter 7 Bankruptcy & Chapter 13 Bankruptcy

Chapter 7 is also called liquidation bankruptcy. All non-exempt assets are sold off and the money used to pay the debtor’s unsecured commercial creditors. The Debtor's

obligations are then considered paid off. The debtor may choose whether they want to reaffirm their mortgage and car loans, in which case those assets are not included

in the bankruptcy estate. Not every debt may be discharged under Chapter 7.

Chapter 13 is also called wage-earner's bankruptcy. This is essentially a court ordered debt management program where the court appointed trustee creates a budget

that will allow the debtor to pay back all of their debt within 5 years. The basic principle acting behind a Chapter 13 Bankruptcy is that the debtor then makes their

payments to their creditors through the trustee until all of their debts have been repaid.

Before they can proceed with a Chapter 7 bankruptcy, there are some preliminary hurdles they must pass. The Bankruptcy Abuse Prevention and Consumer Protection

Act of 2005 (BAPCPA) made it more difficult to qualify for a Chapter 7 bankruptcy, especially if their income is above the median income level

www.justice.gov/ust/eo/bapcpa/meanstesting.htm for their state and for a household their size. Now, in order to successfully discharge their debts in a Chapter 7, they

are required to pass a "means test." The means test will examine their income and certain of their living expenses, in order to determine if they have the means to make
are required to pass a "means test." The means test will examine their income and certain of their living expenses, in order to determine if they have the means to make
reasonable payments to their creditors or not.

Under the new bankruptcy means test, if their disposable income is determined to be above a certain level, then they may not be eligible for Chapter 7 relief, and instead

be forced to file for a Chapter 13 bankruptcy, if they still wish to pursue bankruptcy as a remedy.

Another requirement of the 2005 BAPCPA was to require them to seek credit counseling from a government-approved counseling organization

www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm within 180 days before their filing for bankruptcy. they also must complete a debtor education course, in order to

have their debts discharged. Credit counseling must take place before they file for bankruptcy; debtor education must take place after they file.

Chapter 7: Liquidation Bankruptcy

When they hear the word "bankruptcy", consumers most likely think of a Chapter 7 bankruptcy, the kind of bankruptcy that can eliminate or discharge their debts. This

type of bankruptcy is also called a Liquidation bankruptcy, because in a Chapter 7 bankruptcy the bankruptcy court appoints a trustee who is empowered to liquidate their

assets and use the proceeds to pay back their creditors. The trustee is not allowed to liquidate all of their assets; some of their assets are protected. Despite the fact that

bankruptcy cases are filed in federal court, which of their assets are protected and to what level they are protected is governed in part by the laws in their state. Each

state has laws that lay out what assets are exempt from collection. Basically, this means a court appointed trustee sells everything they can use to pay off their creditors,

except what is exempt.

Chapter 13: Payments for distribution to creditors

One of the consequences of making it harder to qualify for a Chapter 7 bankruptcy is that more people who wish to file for bankruptcy may end up having to file a Chapter

13 bankruptcy, which may be referred to as "Adjustment of Debts of an Individual with Regular Income."

They may be required to file a Chapter 13 Bankruptcy if they have a regular source of income, whether it is from a job, a pension or their social security benefits, that the

court determines allows them to make payments to their creditors. In a Chapter 13 bankruptcy, they are allowed to propose a "payment plan" to repay creditors. Payment

plans are usually spread out over a five year period. The bankruptcy court can require them to repay all or only a portion of their debts and will determine which creditors

receive what percentage of their required monthly payment.

If they file for a Chapter 13 bankruptcy, they will be required to have a confirmation hearing, which serves as the basis for the court order approving their payment plan

and ordering the creditors to accept it. This hearing is called a section 341 hearing, or "the three forty-one." The court either approves or disapproves their repayment

plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation.

One key difference between Chapter 13 and Chapter 7 is that in Chapter 13 they usually remain in possession of the property of the estate and they make payments to

their creditors based on the their anticipated income over the life of the plan. Unlike Chapter 7, they do not receive an immediate discharge of debts. they must complete

all the required payments under the plan before their bankruptcy will be discharged. During their bankruptcy case, they are protected from lawsuits, garnishments, and

other creditor actions.

Bankruptcy Costs

To comply with all the requirements under the new bankruptcy law, attorneys are required to spend more time on each case. Attorneys are now required to personally
verify and vouch for all financial information provided by their clients. This means the attorneys must spend even more time on cases and that they have a personal

liability if the information in a case is incorrect. More time on a case means more fees, so costs for filing bankruptcy should rise.

Summary

Most people consider filing bankruptcy as an option of last resort. Because of the costs, the long term effects on their credit, the public nature of bankruptcy, and the fact

that it may be more difficult to qualify for a Chapter 7 than before, it makes good sense for them to look into all the available alternatives to bankruptcy, before they

choose to file. A comsumer should look into a Consumer Credit Counseling service that can lower their interest rates, which could provide enough relief to allow them to
avoid bankruptcy. Consult with a reputable debt settlement provider that can negotiate reduced out-of-court payoffs with their creditors (who should not charge they any

fees for settling an account until after the settlement is finalized). Weigh the pros and cons of each approach. Pay extra attention to their bankruptcy alternatives, if they

are told that the only bankruptcy they qualify for is a Chapter 13.

Most bankruptcy attorneys will offer a free initial consultation. Consumers should not meet with one who doesn't. They should find out if the attorney sees them as a
candidate for Chapter 7 or Chapter 13. They should make sure to check out the reputation of any attorney they consider hiring and comparison shop to find the best

attorney at the best price. They should not hesitate to ask any questions that occur to them and do some homework before they meet with an attorney. The more

prepared they are, the less the chance that they will be surprised at the end result. You should have reciprocal referral relationships with several leading

bankruptcy attorneys who will be happy to provide information to your client if that is what they/you decide is the best option for their situation.

To find a reputable bankruptcy attorney that you may be able to work with on a reciprocal referral basis you can start by checking the listings at the National Association

of Consumer Bankruptcy Attorneys (NACBA) at http://nacba.memberpath.com Be sure to contact several agencies and find one that you are comfortable with and who is

willing to work with you on a reciprocal referral basis.

4. Debt Settlement...an aggressive but highly effective approach to consumer debt relief.
4. Debt Settlement...an aggressive but highly effective approach to consumer debt relief.

With a structured debt settlement program, a consumer will repay their debts in an average of two to three years. This is much less time than they would spend paying

back their debts with other debt relief options while also avoiding bankruptcy.

With other debt relief options like credit counseling, debt consolidation loans and Chapter 13 bankruptcy there are debt repayment periods from three to five years.

There may be negative consequences to debt settlement for consumers to endure during the debt settlement process including: collectors may continue calling, creditors

aren’t guaranteed to agree to accept settlement offers, a consumer's credit can suffer more damage than with other options, and they may owe taxes to the IRS on the

amount of debt that’s cancelled.

These negative consequences for consumers in a debt settlement program can be well managed during the debt settlement process and successfully repaired after

completion of the program.

As with any debt relief option, the consumer must weigh the overall benefits of debt settlement with all of the potential negative side-effects of this option and must

complete the program to see the desired results.

Debt settlement, also known as debt negotiation, debt reduction, or debt resolution, is the process of working to resolve debts for less than what a consumer owes.
Typically, a debt settlement firm acts as the consumer’s advocate, working to lower principal balances and to resolve debts so that the consumer can achieve financial

freedom. A debt settlement firm does not make monthly payments to creditors, but rather negotiates directly with the consumer's creditors while the consumer

accumulates funds for the settlement through a monthly program payment. Debt settlement firms charge consumers a fee for their services, and for compliant and ethical

firms, this fee is only charged AFTER the client has had a successful resolution and received results.

Debt settlement is optimal for individuals or families who are in financial hardship or struggling with large debt burdens, and those who are looking for an alternative to

bankrupcty. Debt settlement programs help qualified clients who stay with the program fully resolve their enrolled debts in approximately two to four years.

Unlike other forms of debt relief, debt settlement is based on the future resolution of a consumer's accounts, which means that results vary significantly and it is very
important to only work with a qualified and accredited CDS Certified Debt Specialist provider.

Debt Settlement Pros

Along with the potential of reducing total principal owed, debt settlement programs provide one low monthly program payment. This program payment is used to

accumulate funds for the settlements, and is typically significantly less than minimum payments and the monthly payment required by a credit counseling firm; consumers

who stay with and complete a debt settlement program may be able to resolve all enrolled debt within two to four years, vs. five years for credit counseling or

frequently up to 15 years (or more) when simply making minimum monthly payments; compliant and ethical debt settlement companies only charge fees associated with
debts that they actually resolve. No conflict of interest exists with creditors, because the debt settlement provider receives no payments from credit card companies and

acts solely as the consumer’s credit advocate.

Debt Settlement Cons

Debt settlement can have a negative impact on credit scores, because consumers do not make payments to creditors while they are accumulating settlement funds; also,

creditors or collectors are likely to contact consumers during the settlement period (consumers should expect help with managing collection calls from a good debt

settlement company that acts as their credit advocate); fees and interest will accumulate during the settlement period, and should be taken into account when calculating

savings; creditors can take legal action against consumers for unpaid accounts during the settlement period.

Who Debt Settlement is Best For

Debt settlement is best suited for individuals who are struggling with very serious debt, who cannot make required minimum payments, and who would otherwise be

considering bankruptcy or credit counseling. For consumers seeking a low monthly program payment and who want to resolve debts relatively quickly, debt settlement

will be the best alternative.

Summary

Although there are many forms of debt relief, people with good to perfect credit who own homes may want to look into debt consolidation loans, while those with high

credit card debt and poor credit may want to explore debt settlement. However, each consumer is different, so find the debt relief option that fits your client's

circumstances.

Here are some tips and a quick Debt Relief Evaluator:

1. If your client has perfect credit and has equity in their home — they should consider a Consolidation Loan/Mortgage Refinance.

2. If they can afford a healthy monthly payment (about 3 percent of their total debt each month) and they want to protect themselves from collection and from going

delinquent — they should consider Credit Counseling.

3. If they want the lowest monthly payment and want to get debt free for a low cost and short amount of time, AND are willing to deal with adverse credit impacts and

collections — then Debt Settlement is for them.

4. If they cannot afford anything in a monthly payment (less than 1.5 percent of your total debt each month) — Chapter 7 Bankruptcy might be right for them.
Background – The History of Credit

Centuries ago, there was the BARTER SYSTEM which was the trading of one item or service for another. If you needed a new axe and the blacksmith down the road

needed two chickens, which you had, the exchange was made. This was thought to be fair for the parties involved. The above method of trading still exists but is not as

common in today’s day and age.

Then came the birth of currency which eventually became a more widely used form of exchange for a good or a service due to its standardized value. No longer is an axe

worth two chickens on one day, and then three chickens a few days later. Currency has created a common value for both the axe and the chicken that can only be

negotiated on if the parties agreed.

Today, we have evolved into a PLASTIC SOCIETY where our wallets mostly contain our lives on plastic, such as driver’s license, medical card, credit cards, debit cards,

and the list goes on. Gone are the days of “Cold Cash” in your hand to make purchases such as gifts, gas for the car, groceries, and other day to day necessities. Even
checks are becoming obsolete.

Today, the use and application of credit is so widespread that it affects the lives of everyone. Credit permeates our whole social and economic structure with almost every
member of the community using credit in one way or another. The convenience of being able to purchase goods and/or services on a credit basis has become a standard
in today’s society. Hence, the need to obtain credit and to maintain credit.

What is Credit? Credit is the power to obtain goods or services on the strength of a promise to pay for them in the future. Credit helps the North American economy and
assists us to enjoy a higher standard of living. Credit vastly increases the flexibility of our economic system. In a transaction of purchase and sale, the purchaser offers
their credit in exchange for goods or services obtained, and the seller accepts or rejects the purchaser’s credit.

In some cases, due to reasons beyond a person’s control, their finances may have changed for the worse. This will most often have a direct effect on their credit standing
and the ability to meet their current obligations.

Adjustments need to be made in order to provide for the necessities of life such as the roof over their head, food, clothing, etc. In some cases, financial difficulties may

result in family disputes, marriage breakups or worse. No one is immune to the stress that these problems may cause.

If someone, living in a certain income bracket and a style of living to match, were to suddenly become ill or lose his/her job, the stress can be very high.
Whenever there is a financial crisis, there are side effects. One such example is back in the 1920’s when there was a major stock market crash; the hardships that

followed lasted for years.

Consumer credit is a relatively new concept. The Singer Sewing Machine Company was the first to introduce this concept. At the time the average family was only
earning about $500/year. With a singer sewing machine costing $125, this was quite unattainable for the average household. So a monthly payment plan was devised.

Following their lead, Ford Motor starting an entity called Commercial Credit in order to utilize financing as a selling tool. In 1915, vehicles financed through Ford Motors

required approximately 50% as a down payment with the balance spread over an 8-month term.
It is difficult to imagine today's world without the use of credit. It is estimated that the Average middle class family pays out 78% of his income to some form of debt

repayment. Large ticket items, which would not normally be affordable, can now be leveraged with installment loans. It appears that we are moving closer and closer to a
cash-less society, a society where handling and obtaining credit has become part of life.

Attention has been lavished on the recent rise in consumer debt levels, and in fact, household debt of all types has increased rapidly throughout the past decade. For

example, mortgage debt has grown more than 50% since the beginning of the decade (to $3.95 trillion)*, while revolving credit has increased a whopping 127% (to $456
billion)*.

Perhaps more troubling, however, is that the ratio of consumer debt to personal income has risen dramatically over the last several years, from a low of under 14%* a
decade ago to a current high of over 20%*. High ratios of debt to personal income can foreshadow future defaults. Indeed, the rate of credit card delinquencies, although
highly volatile, typically follows the debt-to-income ratio with a lag. Considering that we have yet to see a decrease in this ratio, we may reasonably expect the consumer

delinquency rate to continue rising in the near future.

* U.S. figures

The Credit Card Industry

Last year the Federal Reserve Statistical Release reported that the total US consumer credit card and non-credit card debt, excluding mortgage debt, had reached
$2.564 trillion. Revolving debt accounts for $961.3 billion and non-revolving debt accounts for $1.603 trillion. The US Consensus Bureau reports that there are 173 million
individual credit card holders, or an average of $845 per cardholder. They estimate the number of credit card holders will soon reach 181 million, and that there are more

than 1.5 billion credit cards in use in the US today.

After many years of rising profits, credit card companies are experiencing record losses in recent years. As reported by Innovest Strategic Value Advisors, the industry
absorbed a $41 billion dollar charge off back in 2015, and this year the loss is expected to reach over $100 billion.

The Nilson Report, a leader in payment system research, reports that the top 15 issuers of general purpose credit cards, based on outstanding balances, are:
1. Chase – $183.32 billion

2. Bank of America – $166.32 billion

3. Citi – $106.74 billion

4. American Express – $88.02 billion

5. Capital One – $60.08 billion

6. Discover – $49.69 billion

7. Wells Fargo – $36.36 billion

8. HSBC – $29.36 billion*

9. US Bank – $18.53 billion

10. USAA – $16.61 billion*

11. Barclays – $11 billion

12. Target – $8.65 billion

13. GE Money – $7.51 billion

14. Advanta – $5.02 billion

15. First National – $4.93 billion

*NOTE: The outstanding dollar values listed for HSBC and USAA are slightly lower than the actual outstanding for that bank because they do not include their American
Express business. However, the discrepancy does not have an impact on the overall rankings as listed above.

The credit card companies with the most general purpose credit cards in circulation are:

1. Chase – 119.4 million

2. Citi – 92 million

3. Bank of America – 80.2 million

4. Discover – 48 million

5. American Express – 46.5 million

6. Capital One – 46.3 million

7. HSBC – 38.8 million

8. GE Money - 27.2 million

9. Target – 23.4 million

10. Wells Fargo – 17.3 million

U.S. market share ranked by transaction processor, based on credit card receivables outstanding:

1. Visa – 46 percent

2. MasterCard – 36 percent

3. American Express – 12 percent

4. Discover Card – 6 percent

Profits or Losses at Top 10 U.S. Credit Card Issuers in 2016:

1. Chase – $780 million profit

2. Bank of America – $520 million profit

3. Citi – $530 million loss

4. American Express – $850 million profit

5. Capital One – $1.00 billion profit

6. Discover – $710 million profit

7. Wells Fargo – $990 million profit

8. HSBC – $520 million profit

9. US Bank – $1.07 billion profit

10. USAA – Not listed

The Credit Card Act Of 2009

The universal default policy of the credit card companies has outraged consumer advocates and the federal government intervened on their behalf with the passing of the
Credit Card Accountability, Responsibility, and Disclosure (CARD Act). The Act establishes fair and transparent credit practices regarding open-end consumer credit

plans, and for other purposes. The act does not apply to business or corporate credit cards.

Consumer Union, a non-profit organization, provides this breakdown of the new legislation:

• It requires issuers to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made.
• If the interest rate increases because the minimum payment is not received within 60 days after the due date, the rate must go back to the original lower rate if the

consumer makes on time minimum payments for 6 months.

• No over-the-limit fees may be charged unless the consumer has asked for the account to be set up to allow transactions that will exceed the credit limit.

• Prohibits credit card issuers from setting early deadlines for payments. Payments must be received by 5:00pm at a location set by the issuer.

• Due dates will be on the same day each month.

• The rule prohibits card issuers from treating a payment as late unless the monthly statement is mailed or delivered at least 21 days before the due date.

The legislation did not become effective immediately. The first series of changes took effect on August 20, 2009. The bulk of the legislation's key provisions took effect in
February 2010. The remaining provisions took effect in August 22, 2010.

However, Congressman Sandy Levin (D-MI) urged The House of Representatives to pass legislation to prevent credit card companies from instituting unfair practices by

moving forward the effective date for previously passed reforms. Congressman Levin is an original co-sponsor of the legislation, which passed by a vote of 331 to 92.

“Earlier this year Congress passed landmark credit card reform legislation to put an end to the unfair and abusive credit card practices that outrage so many families
across Michigan,” said Rep. Levin. “Some of the reforms were set to take effect early next year, but the credit card companies have used the time since the bill was

signed to impose new rate increases and make other detrimental changes. The legislation passed today will move up the effective date to prevent further abuse.”

Originally, the new provisions were scheduled:

Effective on August 20, 2009:

• Send statements to consumers 21 days before the due date of any payments

• Provide 45 days' written notice of any increases in the interest rate or other significant changes to the terms of a credit card account

• Inform consumers of their right to keep the current terms by closing their card credit card account

Effective on February 22, 2010:

• Prohibits arbitrary interest rate increases and universal default on existing balances

• Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions, and also limits over-limit fees on
electing cardholders

• Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest

• Prohibits issuers from setting early morning deadlines for credit card payments

• Prohibits interest charges on debt paid on time (double cycle billing ban)

• Requires issuers extending credit to young consumers under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual
21 years or older who will take responsibility for the debt; or proof that the applicant has an independent means of repaying any credit extended

• Protects recipients of gift cards by requiring all gift cards to have at least a fiveyear life span, and eliminates the practice of declining values and hidden fees for those

cards not used within a reasonable period of time

Effective on August 22, 2010:

• Requires penalty fees to be reasonable and proportional to the omission or violation

• Requires that creditors periodically review all interest rate increases since January 2009 and reduce rates when a review indicates that a reduction is warranted.

• Amends the Electronic Fund Transfer Act to limit dormancy, inactivity, and service fees associated with gift cards.

Introduction to Credit

When deciding whether or not to extend credit, lenders often rely onCredit Bureaus to provide information on the applicant. If you use a checking or savings account,
owe money on your car, rent an apartment, or rely on credit for whatever purpose, chances are you have a credit record on file.

What is a Credit Bureau?

Credit bureaus are private firms that keep track of your past payment records and your present financial situation. This information is used by those considering giving

you additional credit or a job to determine your credit reputation. The most important factor is your past record for paying debts.

Lenders assume that if you have always paid on time in the past, you are likely to continue to do so.

Your credit history file follows you if you move to another city. Adverse information, such as unpaid bills, must be deleted after a period of time. Information of a
bankruptcy must deleted after 10 years. Stores, banks and mortgage lenders can obtain access to your credit file if they are members of the credit bureau, or if they pay a
bankruptcy must deleted after 10 years. Stores, banks and mortgage lenders can obtain access to your credit file if they are members of the credit bureau, or if they pay a

fee to use the information for granting credit. Your credit file is also available to your present employer for such purposes as your promotion, reassignment or retention, as
well as being available to a prospective employer. Your poor credit record could not only keep you from obtaining credit, but also from getting a job or promotion.

The initial use of the credit report was for creditors to judge your past credit performance to see if you met their criteria for lending.

Over the past decade or so, the use of these reports has changed. Insurance companies now use them to determine premiums and many prospective employers review
reports to establish the character of their job candidates.

There are three major credit bureaus, TransUnion, Equifax, and Experian, and each maintains separate credit files on you. This is because different creditors report to
different bureaus.

Types of Reports

The following are the two types of credit reports:

• Consumer Version: Consumers are the only individuals who have access

to this version. A consumer version of a credit report lists all inquiries,

including promotional inquiries, account numbers, and account
management inquiries.

• Business Version: The business version is an abbreviated version of the

consumer version. This is the credit report that lenders see. The business

version does not contain promotional inquiries, account numbers, or account

management inquiries.

Contents of a Credit Report

The following are the four primary categories of information contained in each
type of credit report:

• Personal information
• Credit history
• Public records

• Inquiries
Personal Information

• Full name
• Current and previous addresses

• Social Security number

• Telephone number

• Date of birth
• Current and previous employers

Credit History

A credit report’s credit history section shows how you have paid your credit
accounts in the past and is used as a guide to determine whether you are likely
to pay accounts on time in the future. A credit report’s credit history section

generally includes a listing of the credit accounts from the last ten years.
Each entry includes information, such as:

• Account number
• Creditor’s name

• Amount borrowed
• Amount owed
• Credit limit

• Date when the account was opened, updated, or closed

• Timeliness of payments

• Late payments (these are noted as a negative activity)

Public Records
A credit report’s public records section includes:

• Tax liens
• Bankruptcies, and

• Court judgments (including child support judgments)

Inquiries
A credit report’s inquiries section includes a listing of creditors or authorized

users who have requested a copy of your credit report. The following are the
three types of inquiries:
three types of inquiries:

• Normal Inquiries: Lenders are given permission to view your report to

determine if you are a good candidate for lending.

• Promotional Inquiries: Creditors review the credit bureaus’ databases

based on a set of parameters and receive mailing address information for

individuals matching their criteria. They are not viewing reports, they just
want to give people who meet their parameters a firm offer of credit.
• Account Management Inquiries: Creditors who have permission to review

the credit reports of their account holders may do so on a periodic basis.

Many creditors have permission to do this as one of the terms of the

lending contract.

The Fair Credit Reporting Act (FCRA) protects consumers from being penalized
for inquiries that they did not initiate or request. Therefore, promotional and

account management inquiries are excluded from the business version of credit reports.

A credit report does NOT include information regarding the following:

Race
Gender

Religion
Sexual Orientation

National Origin
Medical History

Checking or Savings Accounts

Personal Lifestyle
Political Preferences

Criminal Record

Information from your credit file can be given in the following circumstances:

In response to a court order.

If the consumer requests, in writing, that a report be made. Eg., Applying for credit
If the person seeking information will use it for granting credit,

collecting payments or reviewing your account.

If the person seeking information will use it for employment purposes such
as hiring, promotion, reassignment or retention.

For an insurance policy application involving the consumer.

Credit reporting agencies or credit bureaus, collect information about consumers' financial affairs and sell that information to their business members, such as credit
grantors, employers and insurance companies. The credit bureaus charge annual fees as well as a fee for each credit report requested by members.

Credit bureaus obtain their information from three major sources:

1. Consumers supply information, primarily from filling out application forms for credit.

2. Public records provide information on such matters as bankruptcies, Court judgments, foreclosures and agreements registered with State/Provincial authorities.

3. The major credit grantors and collection agencies send their credit files electronically to the credit bureau every month, resulting in files that include the account

number, outstanding balance, and a nine point scale indicating whether a payment was made on time or late.

The nine point rating scale is as follows:

0 - Too new to rate; approved but not used.

1 - Pays (or paid) within 30 days of billing; pays account as agreed.
2 - Pays (or paid) in more than 30 days, but not more than 60 days, or one payment past due.

3 - Pays (or paid) in more than 60 days, but not more than 90 days, or two payments past due.
4 - Pays (or paid) in more than 90 days, but not more than 120 days, or three or more payments past due.

5 - Account is at least 120 days overdue, but is not yet rated 9.

6. - (Code 6 does not exist.)

7 - Making regular payments under a consolidation order or similar arrangement.

7 - Making regular payments under a consolidation order or similar arrangement.
8 - Repossession (indicate if it is a voluntary return of merchandise by the consumer).
9 - Bad debt; placed for collection; skip.

The Credit Bureau's policy regarding bankruptcy information is:

Purging Files

The data included in the bankruptcy will be purged after a set time from date of last activity.
Bankruptcy Discharge

There is no change to data already appearing on the file following the posting of a bankruptcy or a discharge.
Listing Balances of Debts
The data that the credit grantor provides is on tape. The Credit Bureau records the balance shown by the credit grantor.

The Benefits of Credit Reports (Article)

Before the advent of national credit reporting agencies, consumers

could obtain credit only in communities in which they were known and

had lived in for years. If they moved to another town where they
were unknown, credit was virtually unobtainable.

Today, automated credit reporting systems enable consumers to apply

for credit no matter where that consumer decides live. For example,

if a consumer with a good credit history moves across the country

for a new job, he or she typically can obtain credit instantly to
finance a car or apply for a mortgage.

Because of automated credit reporting agencies, North Americans enjoy the widest access to credit. Credit information enables lenders to
either avoid consumers who do not pay their bills or lend to them on

special terms. Credit losses, which are ultimately passed on to

consumers who do pay their bills, are therefore minimized.
Credit reporting agencies also foster intense marketing battles

among financial services providers. This competition brings consumers no annual fees, toll-free customer service phone numbers, customer recognition and

incentive programs, and purchase protection plans.

Credit bureaus are required by law to share with you any information

they have on file about you.

If you are having trouble getting credit, try checking your credit

yourself. The credit report tells how you have managed your credit
in the past. Companies examine your credit before deciding whether

to give you credit. When a company denies your request for credit

because of your credit report, it must tell you and identify the
credit bureau that supplied the report. Even if you do not have a

poor credit history, it is a good idea to conduct your own credit

check-up periodically, especially if you are planning a major

purchase, such as a home or a car. Checking in advance on the

accuracy of the information in your credit report could speed the

credit granting process.

Some Great Myths Of Credit Reports.

Myth: It is illegal or immoral to have your credit repaired.

Fact: It is not illegal or immoral. In fact, the Credit

Reporting Acts were created to protect consumer's rights.

One of its purposes is to give consumers the protection

of the law and to help guard against any unwarranted

invasion of a consumer's right to privacy.

Myth: The information on a credit report cannot be changed.

Fact: Actually, the opposite is true under the Credit Reporting

Acts. Federal and State/Provincial laws require that items be removed if they are not 100% accurate or cannot be verified in a timely manner.

Myth: It is impossible to get collection accounts off my credit

report.

Fact: Collection accounts are like any other derogatory item. The

nature of the derogatory item has nothing to do with its removal

 nature of the derogatory item has nothing to do with its removal

under the Credit Reporting Acts.

Myth: Credit Reporting Agencies are empowered with some kind of

government authority.

Fact: Absolutely Not!! They are simply large corporations whose

primary goal is to make a profit like any other business.

Ten More Myths Of Credit

1. Credit bureaus can make credit granting decisions.

A: No, they can not! In fact, they have no authority at all. They are custodians

of credit history. They are responsible for maintaining these records 100%
accurate at all times.

2. Credit bureaus own the credit report.

A: No, they do not. Actually, it is owned by the individual creditor that

reported it. The creditor also has the power to change it when and where they

see fit.

3. Credit bureaus are required to keep derogatory items on the credit report

for a number of years as set by legislation. (See Credit Reporting Acts)

A: Credit bureaus are required by law to automatically remove ANY derogatory

information that is obsolete, false, incomplete, non verifiable, or misleading!

They are only responsible for maintenance and verification of what is reported.

4. Bankruptcies are impossible to get removed from the credit report.

A: Yes, accurately reported bankruptcies cannot be removed before the time

allowed by the Act, unless it's false, obsolete, incomplete, non verifiable, or misleading.

5. Information on a credit report cannot be changed.

A: Of course it can be changed. In fact there are a few ways. If the information

is false, obsolete, incomplete, non verifiable, or misleading or unless the

creditor(s), collector agrees to change it.

6. It is illegal or immoral to have the credit report cleared.

A: We believe it to be ethically wrong to remove historically

accurate/negative credit history without the consent of a creditor, collector or

public records keeper!

By contrast, it is appropriate to correct error ridden

credit reports that destroy the quality of consumers lives and impact our

economy.

7. Paying a past due debt will remove all prior lateness from the debtors credit

report.

A: No, it does not. The past performance/payment history will remain as it was

reported. The only difference now will be that the record will show that the debtor
paid the debt.

8. Inquiries are not derogatory and will not affect the credit standing.

A: Often misunderstood and always underestimated, inquiries, better known

as the amount times a person applied for credit, can trigger the wrong signal to

potential credit grantors that may perceive too many inquiries indicates someone who is TOO actively seeking credit.

9. Once a derogatory item is removed, it will just come back at a later time.

A: Information that was deleted in accordance with Federal law can not reappear

at a later time.

10. The past predicts the future.

A: Credit grantors and credit bureaus are heavily in favor of using scoring

models which attempt to predict the future likelihood of a potential customer

defaulting on loans. We believe that scoring systems are flawed and do not take

into consideration extraordinary events like medical emergencies, job loss,

divorce, crime, or an Act of God. The simple truth is that no credit report can

predict the future of any consumer!

Credit Scores
Credit scores are the numerical translation of your credit report. It takes all of

your information, such as the number of lines of credit you have and how you

have managed them, and assigns an overall number. This number is between

300 and 850 (the higher the better) and tells a lender how likely you are to
repay a loan and if they can expect your payments on time.

With the introduction of credit scores to the public several years ago, the transition

to being referred to simply as a number (your credit score) began. Your “number”
can hold you back from getting a job, an apartment, and even increase your

insurance premiums. Now more than ever it is important to keep your credit in

good standing.

There are different types of credit scores. The most commonly used scoring

system was devised by the Fair Isaac Company and is most often referred to as

a FICO score. Under the FICO system, there are five major categories that make
up a credit score.

Payment History: 35% of Score

This is a huge factor in determining a credit score. Lenders obviously want to

know how a consumer has managed their financial obligations in the past. Late

payments are not a complete negative; however, they are definitely frowned

upon. An overall good credit score can outweigh one or two instances of late

payments. It is important to realize that having no late payments does not

constitute an automatic approval, either.

This factor evaluates the following:

Payment information. This includes payments on all types of loans, such

as Visa, MasterCard, American Express, retail store credit cards, installment

loans, finance company accounts, and mortgage accounts.

Public record and collection items. These include bankruptcies, judgments, lawsuits, wage garnishments, and collection items. These are considered

serious; however, older items count less than recent items.

No late payments. Each account without late payments will increase a credit score

Amounts Owed: 30% of Score

Many consumers carry balances on their credit cards, car loans, mortgages and other types of accounts. Depending on the amounts owed, it can mean that the

consumer is overextended, which may lead to late payments or no payments at all. This factor determines if the consumer can currently manage more credit
responsibility.

This factor evaluates the following:

What is owed. Even if an account is paid in full, a credit report may still show a balance on that account. The balance on the consumer’s last
statement is generally what is shown on their credit report.

Who is owed. Part of this score takes into consideration the amount owed on specific types of accounts, such as credit cards and loans.

Length of Credit History: 15% of Score

A longer, positive credit history will increase a score. However, those with shorter credit histories may still get high credit scores depending on what the

rest of their credit history is like.

This factor evaluates the following:

The age of accounts. This takes into consideration the age of the oldest account and the average age of all the accounts.

How often the accounts are used.

New Credit: 10% of Score

Opening several new accounts or having many inquiries into your credit history
in a short period of time will affect your chances of qualifying for credit. The

FICO system distinguishes between searching for many new credit accounts

and shopping around for lower rates.

This factor evaluates the following:

• New accounts. This takes into consideration the age of the newest accounts.

• Recent credit history. If there was a period of late payments and the

consumer has re​established his or her credit, the score will rise over time.
What Types of Credit Used: 10% of Score

This factor does not usually play a big part in the lender’s decision to extend

credit; however, if there is not a lot of information in the other factors, this factor
will become more important.

This factor evaluates the following:

• The mix of credit cards, loans, finance accounts, and mortgages the

consumer has.

These five factors are all considered when establishing the consumer’s credit
score. No one factor will, by itself, determine the score. Depending on the

information in the credit report, however, one factor can play a more important

role in the overall score, regardless of the percentage that particular factor

contributes. When a lender receives a credit score, they will also receive up to
four “score reason codes.” If the score was low, these codes will explain why.

Expansion Scores

People who are relatively new to credit can experience difficulty obtaining

financing, or getting the best interest rates because they lack an established

credit history. Approximately one fourth of all adult U.S. consumers, roughly 50

million individuals, either lack credit reports entirely or have credit reports with

too little information to make a good prediction of credit risk. This group includes
immigrants, young adults, people who are recently divorced or widowed, and

other groups that typically don’t use credit very often.

These consumers have often found it difficult to obtain financing for their first

credit card, auto loan or home mortgage. One reason for this is that credit

bureaus only add consumers to their database when a creditor, collection agency
or other business sends it credit related information involving that consumer.

Consumers can be missing from credit bureau files if the consumers have not

yet opened a credit account or have insufficient credit activity. To assist these
consumers, Fair Isaac and Company have developed their FICO Expansion score.

The purpose of this new score is to predict the credit risk of consumers who don’t

have a traditional FICO score. The Expansion score is a credit risk score based

upon non​traditional consumer credit data (in other words, not based on data

from the major national credit bureaus, TransUnion, Equifax and Experian).

Examples of such data include deposit account records, pay day loan cashing,

and purchase payment plan performance. Because it uses alternative data

sources, the Expansion score helps lenders extend credit to consumers who are

typically excluded from the traditional credit granting process.

Unlike traditional FICO scores that range from 300 to 850, these new Expansion

scores will range from 150 to 950. The same logic behind traditional FICO

scores applies, meaning that the higher the score a consumer earns, the less of
a risk they are to lend to. As with traditional credit scores, consumers turned

down for credit based on the new scores will be able to get a copy of their credit report, which they can challenge or take steps to improve.

more on FICO Scores later...

* Debtor Client Counseling Section

This next short section of this module deals withAdvice to clients on increasing a low FICO Score that a Certified Debt Specialist can provide to their clients if

desired. The material is presented in the same verbiage you may use when advising and presenting the subject to your client.

Note: It is adviseable to consult with company management or your attorney before presenting this information to your client as advice and a suggested procedure for

them to follow. The information contained is accurate and valid but is argued that it should not be given as advice to a client from a Certified Debt Specialist.

Increasing Your Credit Score (FICO)

It’s important to realize that if your score is low, it won’t necessarily stay like

that forever. A score is a “snapshot” of your credit history at any point in time.

It changes as new information is added to your credit history, and it can improve

if you manage your credit responsibly.

We know that credit scores are made up of five parts. Let’s see what you can do

within each of these parts to improve your overall score.

Payment History

Pay your bills on time. Delinquent payments and collections can have a major

negative impact on your score.

If you have missed payments, get current and stay current. The longer
you pay your bills on time, the better your score.

Be aware that paying off a collection account will not remove it from

your credit report. It will stay on your report for seven to ten years.

Amounts Owed

Keep balances low on credit cards. High outstanding debt can affect a score.

Pay off debt rather than move it around. The best way to improve your

score in this area is by paying down your revolving credit. In fact, owing the

same amount but having fewer open accounts may lower your score.

Don’t close unused credit cards as a short term strategy to raise your score.

Don’t open a number of new credit cards that you don’t need. This

approach could backfire and actually lower your score.

Length of Credit History

If you have been managing credit for a short time, don’t open a lot of

new accounts too rapidly. New accounts will lower your average account age,
which will have a greater effect on your score than not having a lot of other

credit information.

New Credit

Re​establish your credit history if you have had problems in the past.

Opening new accounts responsibly and paying them off on time will raise your

score in the long term.

Types of Credit Used

Apply for and open new credit accounts only as needed.

Have credit cards ​ but manage them responsibly. In general, having

credit cards and installment loans (and making timely payments) will raise your
score. Someone with no credit cards, for example, tends to be a higher risk than someone who has managed credit cards responsibly.

End of the * Debtor Client Counseling Section

Credit Report Terms

Account Condition

Indicates the present state of the account, but does not indicate the payment history of the account that led to the current state. (i.e. open, paid, charge off, repossession,

settled, foreclosed, etc).

Account number
The unique number assigned by a creditor to identify your account with them. The Credit Bureau removes several digits of each account number on the credit report as a
fraud prevention measure.

Accounts in Good Standing

Credit items that have a positive status and should reflect favorably on your creditworthiness.

Adjustment

Percentage of the debt that is to be repaid to the credit grantors in a Chapter 13 bankruptcy.

AKA

Also Known As

Annual fee
Credit card issuers often (but not always) require you to pay a special charge once a year for the use of their service, usually between $15 and $55.

Annual percentage rate (APR)

A measure of how much interest credit will cost you, expressed as an annual percentage.

Authorized User

Person permitted by a credit cardholder to charge goods and services on the cardholder's account but who is not responsible for repayment of the debt. The account

displays on the credit reports of the cardholder as well as the authorized user. If you wish to have your name permanently removed as an authorized user on an account,
you will need to notify the credit grantor.

Balloon Payments

A loan with a balloon payment requires that a single, lump-sum payment be made at the end of the loan.

Bankruptcy Code

Federal laws governing the conditions and procedures under which persons claiming inability to repay their debts can seek relief.
Capacity

Factor in determining creditworthiness. Capacity is assessed by weighing a borrower's earning ability and the likelihood of continuing income against the amount of debt

the borrower carries at the time the application for credit is made. While capacity may be considered in a credit decision, the credit report does not contain information

about earning ability or the likelihood of continuing income.

Chapter 7 Bankruptcy
Chapter of the Bankruptcy Code that provides for court administered liquidation of the assets of a financially troubled individual or business.

Chapter 11 Bankruptcy

Chapter of the Bankruptcy Code that is usually used for the reorganization of a financially troubled business. Used as an alternative to liquidation under Chapter 7. The

U.S. Supreme Court has held that an individual may also use Chapter 11.

Chapter 12 Bankruptcy

Chapter of the Bankruptcy Code adopted to address the financial crisis of the nation's farming community. Cases under this chapter are administered like Chapter 11
cases, but with special protections to meet the special conditions of family farm operations.

Chapter 13 Bankruptcy

Chapter of the Bankruptcy Code in which debtors repay debts according to a plan accepted by the debtor, the creditors and the court. Plan payments usually come from

the debtor's future income and are paid to creditors through the court system and the bankruptcy trustee.

Charge-Off

Action of transferring accounts deemed uncollectible to a category such as bad debt or loss. Collectors will usually continue to solicit payments, but the accounts are no
longer considered part of a company's receivable or profit picture.

Civil Action

Any court action against a consumer to regain money for someone else. Usually, it will be a wage assignment, child support judgment, small claims judgment or a civil

judgment.

Claim amount

The amount awarded in a court action.

Closed Date
The date an account was closed.

Co-maker

A creditworthy co-maker is sometimes required in situations where an applicant's qualifications are marginal. A co-maker is legally responsible to repay the charges in the

joint account agreement.

Consumer Credit Counseling Service
A non-profit organization that assists consumers in dealing with their credit problems.

Co signer
Person who pledges in writing as part of a credit contract to repay the debt if the borrower fails to do so. The account displays on both the borrower's and the co-signer's

credit reports.

Credit Limit/Line of Credit

In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.

Credit items

Information reported by current or past creditors.

Credit Report
Confidential report on a consumer's payment habits as reported by their creditors to a consumer credit reporting agency. The agency provides the information to credit

grantors who have a permissible purpose under the law to review the report.

Credit Scoring

Tool used by credit grantors to provide an objective means of determining risks in granting credit. Credit scoring increases efficiency and timely response in the credit

granting process. Credit scoring criteria is set by the credit grantor.

Creditworthiness
The ability of a consumer to receive favorable consideration and approval for the use of credit from an establishment to which they applied.

Date filed

The date that a public record was awarded.

Date of Status

On the credit report, date the creditor last reported information about the account.

Date Opened
On the credit report, indicates the date an account was opened.

Date resolved

The completion date or satisfaction date of a public record item.

Delinquent

Accounts classified into categories according to the time past due. Common classifications are 30, 60, 90 and 120 days past due. Special classifications also include

charge-off, repossession, transferred, etc.

Discharge
Granted by the court to release a debtor from most of his debts that were included in a bankruptcy. Any debts not included in the bankruptcy – alimony, child support,

liability for willful and malicious conduct and certain student loans – cannot be discharged.

Disclosure
Providing the consumer with his or her credit history as required by the FCRA.

Dismissed

When a consumer files a bankruptcy, the judge may decide to not allow the consumer to continue with the bankruptcy. If the judge rules against the petition, the

bankruptcy is known as dismissed.

Dispute

If a consumer believes an item of information on their credit report is inaccurate or incomplete, they may challenge, or dispute the item. The Credit Bureau will investigate
and correct or remove any inaccurate information or information that cannot be verified. The Credit Bureau usually gives consumers the option of disputing online or they

may call the telephone number on their credit report for assistance.

ECOA
Standard abbreviation for Equal Credit Opportunity Act.

End-user
The business that receives the report for decision making purposes that meet the permissible purpose requirements of the FCRA.

Equal Credit Opportunity Act (ECOA)

Federal law, which prohibits creditors from discriminating against credit applicants on the basis of sex, marital status, race, color, religion, age, and/or receipt of public

assistance.
Equifax

One of the three national credit reporting agencies, headquartered in Atlanta, Ga. The other two are Experian and TransUnion.

Experian
One of the three national credit reporting agencies, with U.S. headquarters in Costa Mesa, CA. The other two are Equifax and TransUnion.

Fair Credit and Charge Card Disclosure Act

Amendments to the Truth In Lending Act that require the disclosure of the costs involved in credit card plans that are offered by mail, telephone or applications distributed
to the general public.

Fair Credit Billing Act

Federal legislation that provides a specific error resolution procedure to protect credit card customers from making payments on inaccurate billings.

Fair Credit Reporting Act (FCRA)

Federal legislation governing the actions of credit reporting agencies.

Fair Debt Collection Practices Act (FDCPA)

Federal legislation prohibiting abusive and unfair debt collection practices.

Finance Charge

Amount of interest. Finance charges are usually included in the monthly payment total.

Fixed Rate
An annual percentage rate that does not change.

Generation Identifier

Generation identifiers are Jr., Sr., II, III, IV, etc.

Geographical code

This information is received from the Census Bureau and represents the state, Metropolitan Statistical Area, county, tract and block group of the reported address. This
code is similar to a ZIP Code.

Grace period

The time period you have to pay a bill in full and avoid interest charges.

Guarantor

Person responsible for paying a bill.

High balance
The highest amount that you have owed on an account to date.

Installment Credit

Credit accounts in which the debt is divided into amounts to be paid successively at specified intervals.

Investigation

The process a consumer credit reporting agency goes through in order to verify credit report information disputed by a consumer. The credit grantor who supplied the

information is contacted and asked to review the information and report back; they will tell the credit reporting agency that the information is accurate as it appears, or
they will give us corrected information to update the report.

Investigative Consumer Reports

These are consumer reports that are usually done for background checks, security clearances and other sensitive jobs. An investigative consumer report might contain

information obtained from a credit report, but it is more comprehensive than a credit report. It contains subjective material on an individual's character, habits and mode of

living, which is obtained through interviews of associates.

Involuntary Bankruptcy
A petition filed by certain credit grantors to have a debtor judged bankrupt. If the bankruptcy is granted, it is known as an involuntary bankruptcy.

Item-specific Statement

Offers an explanation about a particular trade or public record item on your report, and it displays with that item on the credit report.

Judgment Granted

The determination of a court upon matters submitted to it. A final determination of the rights of the parties involved in the lawsuit.

Last Reported
On the credit report, the date the creditor last reported information about the account.

Liability amount
Amount for which you are legally obligated to a creditor.

Lien

Legal document used to create a security interest in another's property. A lien is often given as a security for the payment of a debt. A lien can be placed against a

consumer for failure to pay the city, county, state or federal government money that is owed. It means that the consumer's property is being used as collateral during
repayment of the money that is owed.

Line of Credit
In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.

Location number

The book and page number on which the item is filed in the court records.

Mortgage Identification Number (MIN)

Indicates that a loan is registered with Mortgage Electronic Registration Systems Inc., which tracks the ownership of mortgage rights. This number will follow the

homeowner throughout the mortgage.

Most Recent Date

The date of the recent account condition or payment status. This date is also the balance date.

Notice of Results

If your investigation results in information being updated or deleted, you may request that we send the corrected information in your credit history to eligible credit

grantors and employers who reviewed your information within a specific period of time. If your investigation does not result in a change to your credit history, results will

not be sent to other lenders.

Obsolescence
A term used to describe how long negative information should stay in a credit file before it's not relevant to the credit granting decision. The FCRA has determined the

obsolescence period to be 10 years in the case of bankruptcy and 7 years in all other instances. Unpaid tax liens may remain indefinitely, although Experian removes

them after 15 years.

Opt In

The ability of a consumer who has opted out to have their name re-added to prescreened credit and insurance offer lists, direct marketing lists and individual reference
service lists. Consumers who have previously opted out of receiving prescreened offers may have their names added to prescreened lists for credit and insurance offers

by calling 1 888 5OPTOUT (1 888 567 8688).

Opt Out

The ability of the consumer to notify credit reporting agencies, direct marketers and list compilers to remove their name from all future lists. Consumers may opt out of

prescreened credit and insurance offer lists by calling 1 888 5OPTOUT (1 888 567 8688).

Original amount
The original amount owed to a creditor.

Payment Status

Reflects the previous history of the account, including any delinquencies or derogatory conditions occurring during the previous seven years (i.e., Current account,

delinquent 30, current was 60, redeemed repossession, charge-off – now paying, etc.)

Permissible Purposes

There are legally defined permissible purposes for a credit report to be issued to a third party. Permissible purposes include credit transactions, employment purposes,
insurance underwriting, government financial responsibility laws, court orders, subpoenas, written instructions of the consumer, legitimate business needs, etc.

Personal Information

Information on your personal credit report associated with your records that has been reported to us by you, your creditors and other sources. It may include name

variations, your driver's license number, Social Security number variations, your date or year of birth, your spouse's name, your employers, your telephone numbers, and

information about your residence.

Personal Statement

You may request that a general explanation about the information on your report be added to your report. The statement remains for two years and displays to anyone

who reviews your credit information.

Petition

If a consumer files a bankruptcy, but a judge has not yet ruled that it can proceed, it is known as bankruptcy petitioned.

Plaintiff
One who initially brings legal action against another (defendant) seeking a court decision.
Potentially Negative Items
Any potentially negative credit items or public records that may have an effect on your creditworthiness as viewed by creditors.

Public Record Data

Included as part of the credit report, this information is limited to tax liens, lawsuits and judgments that relate to the consumer's debt obligations.

Recent balance

The most recent balance owed on an account as reported by the creditor.

Recent payment

The most recent amount paid on an account as reported by the creditor.

Released
This means that a lien has been satisfied in full.

Reported Since
On the credit report, the date the creditor started reporting the account to the Credit Bureau.

Repossession

A creditor's taking possession of property pledged as collateral on a loan contract on which a borrower has fallen significantly behind in payments.

Request an Investigation

If you believe that information on your report is inaccurate, we will ask the sources of the information to check their records at no cost to you. Incorrect information will be

corrected; information that cannot be verified will be deleted. The Credit Bureau cannot remove accurate information. An investigation may take up to 30 days.

Request for Your Credit History

When a credit grantor, direct marketer or potential employer makes a request for information from a consumer's credit report, an inquiry is shown on the report. Grantors

only see credit inquiries generated by other grantors as a result of an application of some kind, while consumers see all listed inquiries including prescreened and direct

marketing offers, as well as employment inquiries. According to the Fair Credit Reporting Act, credit grantors with a permissible purpose may inquire about your credit
information prior to your consent. This section also includes the date of the inquiry and how long the inquiry will remain on your report.

Responsibility
Indicates who is responsible for an account; can be single, joint, co-signer, etc.

Revolving Account

Credit automatically available up to a predetermined maximum limit so long as a customer makes regular payments.

Risk Scoring Models

A numerical determination of a consumer's creditworthiness. Tool used by credit grantors to predict future payment behavior of a consumer.

Satisfied

If the consumer has paid all of the money the court says he owes, the public record item is satisfied.

Secured Credit
Loan for which some form of acceptable collateral, such as a house or automobile has been pledged.

Security

Real or personal property that a borrower pledges for the term of a loan. Should the borrower fail to repay, the creditor may take ownership of the property by following

legally mandated procedures.

Security Alert

Statement that is added once The Credit Bureau is notified that a consumer may be a victim of fraud. It remains on file for 90 days and requests that a creditor request
proof of identification before granting credit in that person's name.

Service Credit
Agreements with service providers. You receive goods, such as electricity, and services, such as apartment rental and health club memberships, with the agreement that

you will pay for them each month. Your contract may require payments for a specific number of months, even if you stop the service.

Settle

Reach an agreement with a lender to repay only part of the original debt

Source

The business or organization that supplied certain information that appears on the credit report.

Status
On the credit report, this indicates the current status or state of the account.
Terms

This refers to the debt repayment terms of your agreement with a creditor, such as 60 months, 48 months, etc.

Third-Party Collectors

Collectors who are under contract to collect debts for a credit department or credit company; collection agency.

Tradeline

Entry by a credit grantor to a consumer's credit history maintained by a credit reporting agency. A tradeline describes the consumer's account status and activity.
Tradeline information includes names of companies where the applicant has accounts, dates accounts were opened, credit limits, types of accounts, balances owed and

payment histories.

Transaction fees

Fees charged for certain use of your credit line – for example, to get a cash advance from an ATM.

TransUnion

One of three national credit reporting agencies. The other two are Experian and Equifax.

Truth in Lending Act

Title I of the Consumer Protection Act. Requires that most categories of lenders disclose the annual interest rate, the total dollar cost and other terms of loans and credit
sales.

Type

This refers to the type of credit agreement made with a creditor; for example, a revolving account or installment loan.

Unsecured Credit

Credit for which no collateral has been pledged. Loans made under this arrangement are sometimes called signature loans; in other words, a loan is granted based only

on the customer's words, through signing an agreement that the loan amount will be paid.

Vacated
Indicates a judgment that was rendered void or set aside.

Variable Rate

An annual percentage rate that may change over time as the prime lending rate varies or according to your contract with the lender.

Verification

Verifying whether data in a credit report is correct or not. Initiated by consumers when they question some information in their file. Credit reporting agencies will accept

authentic documentation from the consumer that will help in the verification.

Victim Statement
A statement that can be added to a consumer's credit report to alert credit grantors that a consumer's identification has been used fraudulently to obtain credit. The

statement requests the credit grantor to contact the consumer by telephone before issuing credit. It remains on file for 7 years unless the consumer requests that it be

removed.

Voluntary Bankruptcy

If a consumer files the bankruptcy on his/her own, it is known as voluntary bankruptcy.

Wage assignment
A signed agreement by a buyer or borrower, permitting a creditor to collect a certain portion of the debtor's wages from an employer in the event of default.

Withdrawn
This means a decision was made not to pursue a bankruptcy, a lien, etc. after court documents have been filed.

Writ of Replevin

Legal document issued by a court authorizing repossession of security.

At this time it is important to gain an understanding of the Act governing the Credit Reporting industry. The Act is written in an easy to read form and sets out the rules
governing the way Credit Bureaus can conduct their business. It is important to understand that Credit Bureaus are private companies who are in business for a profit.

They sell Credit Record information on consumers to prospective credit grantors for a FEE. Although the governing Act sets out rules regarding the investigation of
information submitted to the Credit Bureaus they do not earn income from the activities of “investigating” erroneous information on consumer Credit Reports. Because
Credit Bureaus are in private business they will devote their manpower resources in the areas of generating fee income and not particularly to investigating the accuracy

of their consumer Credit Reports. This is one of the fundamental reasons that the business that we are in exists and provides such a valuable service to consumers.
Individual consumer rights to having up to date and accurate information included in ones Credit Report needs to be often forced on the Credit Bureau companies and

the process of achieving this is complicated.

The Collection Agencies are often owned by the same company who owns the Credit Bureau and their actions are based on the information that is included in the Credit

Report so it is important for us to understand the rules of the industry.

The Act governing the business of Credit Reporting is included in this lesson and needs to be studied and understood by you and links are below.

Credit Reporting Act (US)

Credit Reporting Act (Canada)

End of Module One (A) » Module One (B)