Sky High Credit - How To Improve Your Credit Profile And Raise Your Scores


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Sky High Credit - How To Improve Your Credit Profile And Raise Your Scores

  1. 1. Sky High Credit How to improve your credit profile and raise your scores. David G. Clifton President / CEO N-2 Focus Solutions™ ©Copyright 2013 | David G. Clifton | N-2 Focus Solutions™ | All Rights Reserved 1
  2. 2. Table of Contents Acknowledgment - 3 Foreword - 4 Chapter 1: Components Of A Credit Score - 9 Chapter 2: The FCRA Is Not Pro-Active - 14 Chapter 3: Credit Bureaus Are Not Your Friends - 23 Chapter 4: Sixteen Tons Of Credit Card Debt - 31 Chapter 5: Debt Settlement – One Step Up From Bankruptcy - 37 Chapter 6: Accounts In Dispute Will Stop Your Loan - 43 Chapter 7: Do Not Let Debt Collectors Violate Your Rights - 49 Chapter 8: Credit Repair – Buyer Beware - 59 Chapter 9: N-2 Focus Business Model - 65 Chapter 10: Formulating An Action Plan - 73 Epilogue - 90 2
  3. 3. Acknowledgment I wish to express my gratitude to the person whom I admire and respect above all others in the world, who made this project possible. Rose Marie Clifton “…a noble woman is worth far more than rubies. She is clothed with strength and dignity. Her children rise up and call her blessed.” Proverbs Chapter 31 3
  4. 4. Foreword I hope you like stories, because I love them. Stories can teach, enlighten, motivate and inspire us. I want to begin our time together by telling you a true story about Wolfgang Amadeus Mozart. Mozart was just thirty five years old when he died, and yet he is recognized as one of the most prolific and influential composers of all time. By the age of five he was performing before the royalty of Europe. At his death, he had written over six hundred symphonies, concertos, and operas. Near the end of his life, he was performing a piano concert in Vienna. After the performance, a woman approached him and said, “Mozart, I’d give my life to play piano like that.” Mozart replied, “Madam, I have.” Right now you may be asking yourself, “What does Mozart have to do with restoring my credit?” Well, here’s the connection: Mozart became who he was because he practiced his craft every day of his life. He didn’t sit down at a piano once a week or once a month. He was at his piano every day. As we begin 4
  5. 5. this journey together, it is critical for you to understand that things we do every day matter much more than things we do every once in a while. It is important in our personal lives and equally important in the financial areas of our lives. The things we do with our finances day in and day out, in a disciplined, consistent manner, are those things that will move us from where we are to where we want to be. You can hope and wish all day long that your credit score will improve, but until you start doing the things you must do to make that happen, your credit score is not going to go up a single tick. Good intentions carry no weight in this arena. I’d rather see one ounce of “doing” rather than ten tons of “wishing.” You must begin now to do the things necessary to clear up your credit picture and, like Mozart, you must do these things every day – from this day forward. I wrote this E-booklet to help you lay out a road map for your trip. It contains practical information that you will need for the journey. The book has ten chapters filled with information and insights that I’ve learned about credit bureaus, credit reports, credit scores and credit restoration over the past several 5
  6. 6. years. I hope this information will help you get your credit score where it needs to be and then keep it there for the rest of your life. You will need to be committed to your credit restoration and determined to see the process through. That can be a challenge, particularly when credit bureaus or creditors seem to be doing everything they can to stall, delay, and frustrate you. Once a commitment is made, then retreat or surrender is not an option. Decide now, before the journey starts, that you are going all the way. Another thing you will need to do is to spell out exactly why you want to make this journey. Identify the most important goal you want to accomplish by restoring your credit profile. Write that goal down on paper and post it where you can see it every day. Maybe you have never written your goals down on paper before, but it is second nature to me. It is a very important step in empowering you to reach your goal. You will need to formulate an action plan for making sound financial decisions. This book will provide critical information and tips on how to do that. One other thing: DON’T WAIT - START NOW! This is a 6
  7. 7. recurring theme that you are going to see time and again throughout this E-Book. Tomorrow is a deep, dark dungeon where 99% of all human achievement is locked away. Don’t ever wait until tomorrow to start anything important. Always start today. I believe that you have the ability to raise your credit score to 750 or higher. It doesn’t matter who you are, what you’ve done, where you live, how much money you make, or where your score is now. It will require commitment, effort, and discipline. Do you have what it takes to make this happen? Let me tell you another story and we’ll see if we can answer that one together: A young boy, just 7 years old, was at the State Fair in Mississippi, in the fall of 1961. He was black. He was watching a balloon vendor selling balloons to other children. The way the vendor attracted customers was to fill up balloons with helium and then let them go, where they would float over the fairgrounds for all the crowd to see. The boy watched the vendor fill up white balloons, and red balloons, and yellow balloons and let them go. He watched them all float up high into the clouds. The boy walked over to the balloon 7
  8. 8. vendor and in a low, quiet voice asked him, “Mister, if you filled up a black balloon and let it go, would it go up as high as the rest of them?” The old vendor knew exactly what the young boy was really asking him. He put his arm around the boy’s shoulders and said, “Son, it’s not the color of the balloon. It’s the stuff inside that makes it rise.” A good friend told me that there are two kinds of people in the world: those who think they can and those who think they can’t – and they’re both right. I’ll ask you, “Can you or can’t you? Do you have the will to put your financial house in order? Do you have the stuff inside you that will enable you to rise to this challenge?” I believe that you do or you wouldn’t have come this far. So, let’s begin our journey together – and let’s start RIGHT NOW! 8
  9. 9. CHAPTER ONE Components Of A Credit Score A good place to start is by learning exactly what makes your credit score high or low. Your credit score is the result of factoring different components of your financial history and your borrowing and repayment habits into a mathematical algorithm, or scoring model, that was first developed in the 1950’s. It was originally designed to predict the likelihood of you making a 60 day late payment sometime over the next 24 months. It is also known as your “Risk Score”. There are different scoring models that can be used to determine your score but the only one that has been universally embraced by lenders is FICO which stands for Fairman Company. It is sometimes referred to as Fair Issac. These names refer to Isaac Fairman, the man who developed the first algorithm. FICO scores run between 350 and 800. Several different factors make up that score. It may surprise you to learn that your salary has no bearing on your credit score. I’ve worked with 9
  10. 10. millionaires with credit scores in the low 500’s and then worked with roughnecks from the oil field making $50,000 a year who posted credit scores in the high 700‘s, Income is not important to your score. The scoring model doesn’t care how much you make. It is only concerned with how you manage what you make. Here are the components that make up your credit score: Account History – 35%: This is a measurement of your borrowing and repayment history. This is where late payments, charge-offs, repossessions, foreclosures, and collection accounts all come to bear on you. This makes up such a significant portion of your credit score that a single late payment can drop your score by as much as 75 points in one month. If you’re serious about raising your score, there can be no more late payments, nor can you allow any new collection accounts to begin reporting. Credit Utilization – 30%: This measures how much of your available revolving credit you are using. By “revolving credit”, I mean credit cards. This is the only thing that utilization looks at. Credit cards 10
  11. 11. and credit card companies pander to our impulses and weaknesses. They often encourage us to spend money we don’t have on things we don’t need in order to impress people we don’t know. However, your credit score will never be as high as it should be unless you have at least two open credit card accounts. The scoring model identifies the combined credit limits of all of your credit cards. The model also identifies the combined balances of all of your credit cards. Your utilization ratio is then determined by placing your combined balances over your combined limits. For example – if you had a credit card with a $1000 limit and you carried over a balance of $500 from month to month, your ratio would be 50%. To receive the largest benefit from your credit utilization, you need to keep your ratio between 19 – 28%. Any more than that will begin to lower your credit score. I’ve seen ratios as high as 105%. I’ve also seen credit scores jump as much as 75 points in a single month by just paying down the credit card debt to an acceptable level. This is the only area of your credit score that you can impact immediately, either for the 11
  12. 12. good or for the bad. I discuss how to properly manage your credit card accounts in the chapter, “Sixteen Tons Of Credit Card Debt,” later in this book. Inquiries – 10%: This measures how many companies are checking on your credit. When you check on your own credit, it’s called a “soft hit” and has no effect on your credit picture. When a company checks on your credit, it’s called a “hard hit”. Too many hard hits are an indication to any potential lender looking at your credit report that you may be desperate for credit. More than six inquiries per year begin to count against you. They will affect your score for one year but will remain in your credit report for two years. You need to be very careful about allowing companies to pull your credit. Excessive inquiries, particularly inquiries that you don’t remember authorizing, can also be the first indication that someone is trying to steal your identity. Make a habit of keeping an eye on this section of your credit report. 12
  13. 13. Average Age of Accounts – 10%. This measures the average age of all of your combined accounts. Lenders like to see how you’ve managed your credit over time. This is why it is important to never cancel a credit card account that you’ve had for years. Positive accounts can continue to report for 10 years from the last activity. Mix of Accounts – 15%: Lenders looking at your credit report like to see that different types of credit have been extended to you over the years. They like to see a mortgage, car payment, credit cards, and even an installment loan from a bank. This shows a lender that different types of other lenders have all looked at your credit profile in a very positive light. A good understanding of the different factors that affect your score will be important a little later in the process when you begin to put together an action plan for permanently raising your credit score. 13
  14. 14. CHAPTER TWO The FCRA Is Not Pro-Active The Fair Credit Reporting Act was passed by Congress in 1970 in order to: • Make sure that the reporting activities of the credit bureaus are fair to the consumer. • Protect the privacy rights of the consumer against the informational demands of the credit bureaus. The FCRA makes it a violation of Federal law for either creditors or credit bureaus to knowingly report false or misleading information in a consumer’s credit report. But, it’s important for you to note that while these things may be illegal, violations by creditors, debt collectors, and sometimes even the credit bureaus still occur on a regular basis. In fact, one of the so-called big three credit bureaus, was just assessed an 18.6 million dollar judgment for refusing to remove incorrect information from a woman’s credit report for over 2½ 14
  15. 15. years. Too often, the Fair Credit Reporting Act is not used to prevent your credit report from being corrupted by false information, but is used as the basis to repair your credit report after the damage has already been done. Companies that report to the credit bureaus are called data furnishers. Whatever information the data furnishers report about you to credit bureaus, shows up in your credit report. If you disagree with that information, it is assumed that you’re the liar. The credit bureaus will accept the word of a data furnisher over that of a consumer 100% of the time. The law assumes that data furnishers always report accurate information. And the fact is, most of them do. But when one of them doesn’t, you have an uphill battle getting that incorrect information out of your credit report because credit bureaus have already accepted it as gospel. You should always remember that maintaining the accuracy and integrity of your credit report is your responsibility. If you think the credit bureaus are looking out for you, you had better think again, because they are not. That’s not their job. Experian, Trans Union, and Equifax are billion dollar 15
  16. 16. corporations who are in business to make money. They make money by collecting some of the most sensitive, personal information about private citizens of the United States of America and then sell that information to companies who want to buy it. Do they break the law sometimes? Absolutely! As a result they’ve paid millions of dollars of fines over the years to the Federal Trade Commission. Should we be suspicious of the bureaus? You had better be! You need to become an informed consumer. Here’s how you do it - start a new ritual or tradition in your household. Every January 2nd, you, or if you’re married, you and your spouse, sit down in front of your computer and go to the website This is a website hosted by Experian, Equifax, and Trans Union. They are required by law to furnish you with one free copy of your credit report every year. At that website, you’ll be given the option of downloading one or all three of your credit reports and there will be no charge. It should take less than 10 minutes. 16
  17. 17. Once you have received your credit reports, go over them with a fine tooth comb. Pay close attention to the “Personal Information Section” of each report. Make note of every alias, every address and every phone number listed that does not belong to you. Make note of the social security number that’s on file and date of birth listed. Incorrect personal information can usually be corrected in about four to six weeks. Next, go to the accounts section of each report and go through every account listed. Make sure you recognize every account. Make a list of all negative accounts. Trans Union divides their accounts into “Adverse Accounts” and “Satisfactory Accounts”. Experian uses, “Your Accounts That May Be Considered Negative” and “Your Accounts In Good Standing”. Equifax mixes all of their accounts together so you will have to carefully wade through the Equifax report. If there are debt collectors reporting in your credit report, make sure you look for the original creditor of the debt and confirm that it is yours. 17
  18. 18. Make sure that two debt collectors aren’t reporting the same account. Sometimes the debt collector will sell an account to another debt collector and will not notify the bureaus to delete their reporting. Also look to make sure that the same account is not being duplicated and reported twice in your credit report. It happens all the time and when it does, you are being penalized twice for the same credit transaction. This is against Federal Trade Commission guidelines. On credit card accounts reporting negative information, check to see if you are listed as an Authorized User for the account. If you are, then you can have that account deleted from your credit report usually in four to six weeks. It is against FTC guidelines for creditors to report negative information in the credit report of an Authorized User. On all negative accounts, look for the date of the last activity. This is important in determining when a negative account becomes obsolete. Accounts can report negative information for seven years from the date of last activity (when the last payment was made). It is not unusual for obsolete 18
  19. 19. accounts to continue to appear in a credit report, so don’t get upset if you find one. They are usually easy to fix. If an account is obsolete, it can normally be removed in four to six weeks. Credit reports do not state in black and white the date of the last activity. Each account listed in your credit report is called a trade line. Study each negative trade line in your report. Look for a notation that says, “This item can remain in your credit report until Month / Year.” Look at the month and the year listed. Deduct seven years from that date to get to the date of last activity. As an example, if ABC Collections is reporting, and the credit report states the item can remain until June of 2015, simply back up seven years to June of 2008. That will be the date of the last activity for that account. Another reason establishing the date of last activity for negative accounts is so important is the Statute of Limitations. Creditors and debt collectors have a specific amount of time that they have to either collect a debt or sue a consumer over a debt. The Statute of Limitations in Texas for debt collection is four years from the date of last activity. After that time has passed, the creditor has lost the right to take a consumer to court over the debt. They can 19
  20. 20. still ask the consumer for the money, but they can no longer sue the consumer over the debt. It is a violation of the Fair Debt Collection Practices Act and of Chapter 392 of the Texas Finance Code if they even threaten a citizen with any action that would require them going to court. Knowing this can really take a lot of pressure off of you if you’re dealing with an overly aggressive debt collector. It can also give you a tremendous amount of leverage when negotiating a settlement with a debt collector. To determine the Statute of Limitations for a negative trade line, you will again look for the notation in the trade line that states, “Can remain in your credit report until Month / Date”, deduct seven years to establish the date of last activity, and then add four years to the date of last activity to arrive at the Statue of Limitations. We’ll use the same example as before: ABC Collections is reporting, and the credit report states the debt can remain in your credit report until June of 2015. Back up seven years to June of 2008 which would be your date of last activity. You would then move forward four years to June of 2012. That would be the Statute of Limitations. That means that ABC can no longer sue you over the debt. If they even 20
  21. 21. threaten to do so (and most of the time they will), you can sue them. Can you see how that might come in handy when trying to restore a credit report? Another thing to do is to look at the inquiry section of your report. Study it to see if any companies have checked on your credit who weren’t authorized do so, or, if you see any inquiries that you were not aware of. That’s usually one of the first indications that someone is trying to steal your identity. Also check to see if you have multiple inquiries reporting that are all the result of the same credit transaction. Example: You are shopping for a vehicle. You visit four dealerships within a ten day period and each dealership runs your credit report. There should only be one inquiry reporting in your credit report. FTC guidelines state that all inquiries that are the result of the same credit transaction occurring within the same forty five day period should only count as a single inquiry. If you’re going to shop around for the best deal, make sure you do all your shopping within the same forty -five day window. 21
  22. 22. These are some of the things that you can do, and should already be doing, to protect yourself and to ensure that your credit report is accurate. If you don’t, it could cost you thousands of dollars. Don’t ever forget that while you can use the FCRA to repair the damage that has been done to your credit report by creditors and credit bureaus, the law does not prevent your credit report from being damaged in the first place. The responsibility for maintaining the accuracy of your credit report and safeguarding your rights as a consumer is yours. 22
  23. 23. CHAPTER THREE Credit Bureaus Are Not Your Friends There seems to be a belief in the minds of some people that the credit bureaus a type of governmental agency responsible for making sure everything that appears in our credit reports is accurate and up-to-date. I hate to be the one to tell you this but that’s just not the case. The credit bureaus are nothing more than private companies in business for one reason and one reason only – to make money. They generate revenue by gathering some of the most sensitive and personal private information that exists about you and me. They then sell that information to other companies who want access to it in order to make decisions that can affect the quality of our lives. The bureaus will correct inaccurate information, but only after you let them know that the information is 23
  24. 24. incorrect, and only then, after you prove beyond all doubt that the information is incorrect. Here’s something else that I hate to tell you - in a dispute between you and a company, the credit bureaus will accept the company’s word over your word – 100 % of the time. To the credit bureaus, you’re the liar. The company doesn’t have to produce evidence to back up their position. All they have to say is, “Our information is correct”, and the bureaus accept it. When you dispute the credit bureaus’ information, the burden of proof is entirely on you. Here’s another bit of information you may not be aware of: Credit bureaus make more money off of people with low credit scores than they do off of people with high credit scores. That’s because those with lower scores have their credit reports pulled more often than people with higher scores. Every time a credit report is pulled, the bureaus make money. So they’re not monetarily motivated to aggressively look for, or correct mistakes in credit reports. They’ll do it – but only if you make them do it. So, these guys are not necessarily guardians of truth, justice, and the American way. 24
  25. 25. In fact, they’ve paid millions and millions of dollars in fines and judgments over the years for violating the rights of United States citizens. One of the major bureaus just recently had a multi-million dollar judgment levied against them for refusing to correct mistakes that had been appearing in a woman’s credit report for over two years. Be aware that the agency responsible for making sure your credit report is accurate and up-to-date is you! Here are a few things that can help you: • Get one free copy of your credit report every year from Experian, Trans Union, and Equifax. The easiest way is by going online to Go over the reports and make note of any account that you don’t recognize. Go over the personal information section and make note of any address listed where you’ve never lived, any phone number you’ve never had, and any alias you’ve never used when applying for credit. Check the inquiries section of the report and make note of any credit inquiries that you did not authorize. Excessive inquiries are the first sign that someone may be trying to steal your identity. 25
  26. 26. • If you find incorrect information, or even information that you’re unsure of or don’t recognize, then you’re ready to start the process of trying to clean up your report. You’ll start with the creditors first. The contact information for every creditor is listed in your credit report. If you feel the information that a creditor is reporting is incorrect, write them a letter explaining why it is wrong. Include your personal information (name, address, birth year and the last four numbers of your social security number), the account number, and any supporting documents you’re lucky enough to have. DON’T INCLUDE YOUR PHONE NUMBER, especially when writing a debt collector. If there is an account that you don’t recall, or a late payment that you don’t remember making, include language in your letter stating that you are not disputing the account information. You simply have a question about it, and you are asking the company to check its records for accuracy and provide documentation that will validate their reporting. Many times they cannot do this and if they can’t, they are required to delete. Sometimes when you question a company’s reporting, they will notify 26
  27. 27. the credit bureaus that you are disputing the account. The bureaus will insert dispute language into that account trade line. Once your credit report shows a single account in dispute, you are unbankable. A lender will not give you a loan if you have even one dispute in your credit report. Creditors, debt collectors, and the bureaus all know this. Debt collectors will sometimes use this in trying to force the consumer to pay a debt, telling the consumer that the dispute language will be removed once the account is paid. That’s a violation of state and Federal law. I believe that companies and the credit bureaus use dispute language to frighten consumers from writing so many letters. So, it is very important that you stipulate that you are not disputing the account information in your letter. You are only asking for information. Sometimes a company will report the account in dispute anyway. You can then use your letter to prove that the company is violating state and Federal law. Much more on this in Chapter Six including what you can do about it. • When you get ready to write the credit bureaus, do not write them online. The bureaus are 27
  28. 28. trying to move the dispute process to the web, not to make it easier for the consumer, but to make it easier for themselves. We don’t care about making it easier for them. Always contact the bureaus with written correspondence and establish a paper trail. Always submit clear, crisp copies of identity documents with your letter. I recommend a copy of your driver’s license and a copy of a current utility bill bearing the same address. If you have supporting documents that back up your side of the story, submit clean, crisp copies of them as well. • Once you’ve sent a letter to the bureaus, be prepared to wait. The bureaus seem to stall every chance they get. I think they often do it in hopes that the consumer will just go away and leave them alone. One favorite trick is to wait about forty-five days after receiving a consumer’s letter and then send out a response stating that the consumer’s letter is a “Suspicious Request” which they have determined was not written by you. How did they make that determination? They don’t say how or why. In most cases, it is nothing more 28
  29. 29. than stone-walling. I think they often do it to frustrate the consumer and drag out the process. Be prepared to wait on them. • Many times the bureau’s response will state that the incorrect information has been verified, even when you know that it has not. This is a red flag telling you that the credit bureaus have ignored your letter and did not do their job. You have the right to demand to know exactly how the information was verified. This is referred to as the method of verification or “MOV”. You have the right to have your letter investigated thoroughly and many times that absolutely does not happen. The bureau will send an electronic twix to the data furnisher who will send an electronic twix back. The bureau will then send the consumer a boiler plate response stating, “Account Verified”. This may be their idea of an investigation, but it is not mine. You have the right to know how the information was verified and who verified it. If you get a response like this, go back to the bureaus and demand to know their method of verification. • The bureaus tell you that if you disagree with 29
  30. 30. their investigation, you have the right to file a “100 Word Statement” in which you can explain your side of the story. Never file a “100 Word Statement”. If you have one in your credit report now, get it removed. It may make you feel better to vent on a company that you disagree with, but it’s a red flag to any potential lender looking at your credit report – a red flag that says that either you’re slow in paying or you don’t pay at all. They will see that a “100 Word Statement” was filed but they never read it, so do not file one. Lenders, like the bureaus, will always side with the creditors first. These are just a few things to be aware of if you’re getting ready to do battle with the credit bureaus. Repairing your credit is like eating with chopsticks or twirling a baton. It looks easy until you try to do it. Trust me, it will be a battle. If you are feeling a bit overwhelmed by all of this, and think that you may need some professional assistance, feel free to contact me at any time by emailing me at: or 30
  31. 31. CHAPTER FOUR Sixteen Tons Of Credit Card Debt There was a very popular song many, many years ago called “Sixteen Tons”. It was a song about a coal miner, and sixteen tons of coal was what he had to produce every day just to keep his job. Coal mines were normally situated in remote areas. The miners and their families would need to live nearby, but there weren’t any stores or shops to provide the basics of life needed to survive. Whenever a mine opened, the mine owners would open a company store to provide for the needs of their employees and their families. The company store would extend credit to the miners. When payday came, the company store got their payment first (with interest) before the miner got anything. If the miners weren’t careful, they would see their entire paychecks go right back to the company and they’d have nothing left over for themselves. . 31
  32. 32. The chorus of the song tells the story: “You load sixteen tons and what do you get? Another day older and deeper in debt. Saint Peter don’t call me ‘cause I can’t go. I owe my soul to the company store.” It was an unfair, brutal way of life. Let me suggest to you that the “company store” business model is still alive and well today. It’s not the coal mine owners anymore. It’s credit card companies. In my opinion, the goal of these companies is to keep you in debt by making minimum payments to them at exorbitant interest rates for the rest of your natural life. Don’t believe me. Look at your statement. Companies are now required by Federal law to inform you that if you make minimum payments, your bill will be paid off in 40 years or so. Credit cards are evil but they’re necessary. If you don’t have them, your credit score is hammered. Not having a credit card, or as the bureaus call 32
  33. 33. them, “revolving credit”, can lower your score by as much as 30%. That means taking a credit score of 750 down into the low to mid 500’s where you couldn’t buy a stick of gum on credit. So we have to have credit cards, but we need to be smart and cautious about how we use them. I want to give you a strategy that can raise your credit score by as much as 50 or 60 points in a month. You have to understand how credit cards factor into your credit score and how the credit card companies are using this information to exploit you. 30% of your credit score is determined by what’s called utilization. Utilization looks at the combined sum of your revolving credit. Again, that means credit cards. The scoring model combines the limits of all of your credit cards, and then combines the balances of all of your credit cards. The combined balances are put over the combined limits, and that forms your utilization ratio. If you had a credit card with $1000 limit and you carried a $500 balance this month, your ratio would be 50%. The bureaus like to see the ratio at between 33
  34. 34. 19 – 28%. Exceed that and it starts counting against you. I want to explain how these credit companies can use your utilization ratio to keep your credit scores low, and what you can do to stop them. Let’s say that you have a credit card with a $1000 limit. You and your spouse go on vacation this month and you charge $1000 on the card. You get back home and get your bill around the 10th or 15th of the month. It’s due on the 30th, and on the 25th, you send that company a check for $1000 and the bill is paid in full. Question: What’s your utilization ratio that month? You charged $1000 and then paid the bill in full. There is no balance carried over to the next month. Your utilization should be 0%. Right? What if the credit card company reports account information to the credit bureaus on the 25th before they received your payment? When they reported, you had $1000 in charges and $1000 limit so your ratio for the month is 100% and your score goes in the tank. 34
  35. 35. Why would a credit card company do that to you? Two reasons - the lower the credit scores, the higher the interest rate they can charge you. Reason #2, and to me the more insidious; the lower your score, the fewer offers you’ll receive from competing credit card companies. Other credit card companies check on your credit all the time. When they see your credit picture improve, you get covered up with applications for preapproved credit cards. If your score stays low, you don’t get them. Keeping your credit scores low is how these companies keep you from leaving them and going to another company. This is how they maintain their market share. They don’t care if your scores go in the tank. They don’t care if this causes you to have to pay thousands and thousands of dollars in additional interest over the course of your lifetime. It’s like the Godfather nothing personal – just business. Here’s a simple solution to defeat that business model - start right now paying that bill as soon as it comes in – the same day. Don’t wait for the due date. Because of our payment habits, these companies know when we pay our bills. They 35
  36. 36. know when our balances are highest, so they know when to report to the bureaus. Once again, don’t wait until the due date. That’s what these companies are banking on. Pay the bill as soon as it comes in. I’m not saying you have to pay it in full. Make the minimum payment if you have to, but pay the bill when it comes in. Over time, pay your balances down and then keep those ratios no higher than 28%, and you’ll see the results immediately. Utilization has no memory. There’s no negative carry-over. You make a late payment and it can haunt you for 7 years. But you can have 100% utilization this month and 0% next month and there’s no negative carry over. Your scores will immediately bounce back and there is no negative history associated with it. Use this little strategy to stop credit card companies in their tracks 36
  37. 37. CHAPTER FIVE Debt Settlement One Step Up From Bankruptcy I see commercials on TV almost every day advertising companies that can help you get out of debt and settle all of your existing debts for “pennies on the dollar”. For many people, this is almost like an answer to prayer. They lay awake all night tossing and turning over the crushing debt they’re under. They are desperate to change their circumstances. The debt settlement company is pictured as a knight in shining armor who will slay that dragon of debt and put them back on the road to financial stability. I am not against debt settlement. I believe that there are situations when it may be the best available option. But consumers need to understand the effect that debt settlement can have on their credit profile. If bankruptcy is like dropping a nuclear bomb on your credit report, then wholesale debt settlement would be 37
  38. 38. like using TNT. Here’s the way it works: 1. You employ a debt settlement company to tackle your debt. 2. The company goes through your credit report and totals all of your existing debt. 3. You decide how much of a monthly payment you can make towards that debt. 4. You begin making payments into the debt settlement company’s escrow account. 5. They negotiate a settlement amount and payment terms with the creditors. 6. They make the payments to the creditors until the debt is paid. 7. Once the debt is paid, your credit report is updated to reflect that the account has been settled for less than the full amount and the account reports “Paid” with a $0 balance. 8. The account will continue to be reported for 7 years from the date the account first went into arrears with the original creditor. Here’s what the commercials don’t mention - an account reporting “Settled For Less Than Full 38
  39. 39. Balance” is still highly derogatory. Every potential lender looking at your credit report will see it and will ask themselves, “What if he doesn’t pay me in full either?” Lenders are really funny about that. When they loan us money, they actually expect to get re-paid. If you’re seriously looking at debt settlement, here are some other points to ponder: • How old is the debt? What was the date you made the last payment on the debt to the original creditor? This is referred to as the date of last activity. There are two reasons why this is such a critical piece of information: 1. There is a Statute of Limitations for the collection of most debt. In Texas, the Statute of Limitations is four years from the date of last activity. After four years has passed, the creditor or debt collector has lost the right to take you to court over the debt. They can still ask you for the money, but they cannot take legal action against you if you refuse to pay. 39
  40. 40. They will continue to report the debt in your credit report for another three years after the Statute of Limitations has passed, but that’s about all they can do. After the SOL has come and gone, the consumer has much more leverage over the creditor or debt collector and can usually negotiate a deeply discounted settlement. Settlements of 50% are common with some accounts settled for 10% of the original debt. In some cases, creditors and debt collectors will agree to waive reporting of the account in the credit report if the account is paid. One last important point is that the SOL on an unpaid cellular phone bill is two years from the date of last activity. 2. Derogatory accounts become obsolete and are supposed to be deleted from the credit report seven years after the date of last activity. Once an account is deleted, from the standpoint of the credit report, it is as if the debt never existed. At that point, it is up to the discretion of the consumer whether the debt is paid. Even if it remains unpaid, it 40
  41. 41. ceases to have any effect at all on the credit report or credit score. One last important point - the seven year rule does not necessarily apply to bankruptcies, judgments, Federally insured student loans, or Federal tax liens. • What does a debt settlement company charge for its services? It may be possible for you to negotiate acceptable settlements yourself without paying a debt settlement company to do it for you. At N-2 Focus Solutions™, we view the settling of debt as part of the overall credit restoration process. There is no additional charge if we undertake debt settlement on behalf of a client. It is already a part of our business model. We advise settling a debt only after all other processes have been exhausted. It can be an important component in improving a client’s credit picture. One final last important point - if you choose to work with a debt settlement company, be aware that some creditors will insert language into their reporting to the bureaus indicating that their debt is being 41
  42. 42. handled by a debt settlement company. This is highly derogatory and has never occurred with client of N-2 Focus Solutions™. If you are seriously considering using a debt settlement company, you need to realize that wholesale debt settlement will have a profound effect on your credit situation for years to come. It should only be viewed as the last resort in avoiding bankruptcy. 42
  43. 43. CHAPTER SIX Accounts In Dispute Will Stop Your Loan Repairing your credit is like eating with chopsticks. It looks easy until you try it, and then you learn that it may be more complicated than you first thought. You don’t need to be a rocket scientist to do it. However, there is critical information that you will need to be aware of in order to successfully contend with creditors or the credit bureaus. Consider this: • Most people simply do not have the time to look for that information. • Some of the information that you will need is not printed or posted on the internet. It can only be gained through the experience of actually dealing with creditors or credit bureaus. If you are trying to repair your credit report, and you don’t have the information needed to get the job done 43
  44. 44. right, you stand the chance of investing a year or more of your life in the process and winding up with a credit report in worse shape than when you started. Let me give you an example. You have a collection account with ABC Debt Collection Company. The original creditor of the debt was Citibank Visa. The debt you owed to Citibank was $150 but you received a collection letter from ABC stating you owed them $650. You decide to write a letter to Citibank asking for verification that they had sold the debt to ABC. You write a second letter to ABC asking them how much interest was added to the debt when they acquired it. You also ask for the rate at which that interest was calculated. Citibank never responds to your letter. ABC sends you a letter stating that after investigating your dispute, they have verified that they are reporting accurately and have notified the credit bureaus to change the status of your account to “Disputed”. 44
  45. 45. You check your credit report and find that both Citibank and ABC have added language to their accounts stating “Account Information Disputed By Consumer”. You may not realize it, but you’ve just become un-bankable. There is not a single lender in the United States willing to give you a loan. One account reported to be in dispute is grounds for stopping a loan application. You may have been very clear in your letters that you were not denying that the account was yours. You were only asking for information in order to decide how best to settle your debt. That doesn’t matter. Your credit report is now more corrupted than when you began. You need to understand why these companies have added the dispute language. They are keenly aware that lenders do not grant loans when accounts are in dispute. They have added the dispute language in an effort to gain leverage over you and force you to pay your debt. If you call them and ask them what they’ve done, in most cases, they will tell you that asking a question about an account is considered a dispute. They will 45
  46. 46. offer to remove the dispute language once the account is paid. What these companies fail to tell you is that their actions are violations of state and Federal law. They are, in effect, holding you hostage in order to force you to settle your account. This is illegal. They are also reporting information to the credit bureaus which they know to be untrue. If you appeal to the credit bureaus, you will be informed that you will need to take the issue of the dispute up with the creditor. The bureaus just throw you back to the wolves. So be aware! Sometimes trying to repair your credit can have unintended consequences that can make your situation much worse. An account in dispute is one of the main complaints I have against most of the “so-called” credit repair companies. Accounts in dispute are actually by-products of their business models. Most credit repair companies charge a client an upfront fee to organize the client’s file and to obtain the client’s credit report. They then begin charging the client so much a month to send letters to the credit bureaus disputing every negative account in 46
  47. 47. the credit report. They simply state in their letters, “This account is not mine. Please delete it”. In most cases this is not true, but repair companies do it in hopes that the creditor will not verify the reporting with the bureaus. For a credit repair company to do this is a violation of Federal law. And it’s not just illegal. It is ineffective and counter-productive to what you’re trying to do in the first place. It doesn’t work. The long-term effect of this approach is that the client’s credit report fills up with accounts in dispute. If you have accounts in dispute showing in your credit report, I would advise you to immediately contact the creditor or debt collector who entered the dispute language and demand that the language be removed. If they refuse, then you will need to: • Contact an attorney who is well versed in credit law and consumer protection for specific advice on how to proceed. OR • Contact me and N-2 Focus Solutions™ will take over the restoration of your credit report. This 47
  48. 48. includes taking on the removal of any existing disputes. In most cases, this can be done in 30 – 60 days. If an attorney is needed, we hand the file to our corporate law team. Where clear violations of the Fair Debt Collection Practices Act have occurred, there are no attorney fees passed on to the client. The attorney costs you nothing. So a word to the wise: Use caution when dealing with creditors or credit bureaus. Do not allow them to make matters worse for you. 48
  49. 49. CHAPTER SEVEN Do Not Let Debt Collectors Violate Your Rights It probably comes as no surprise to you that debt collectors throughout the United States casually and routinely violate state and Federal law in their collection efforts. Let me begin by saying that I believe if I have a legitimate debt, then I should pay it. But I also believe that creditors and debt collectors should obey state and Federal law in their collection efforts. Many times they SIMPLY DO NOT. The Fair Debt Collection Practices Act was passed by Congress in 1977 to prevent abusive debt collection practices and protect citizens against invasion of their individual privacy. Almost every day I get a call or an email from a client telling me that they’ve been harassed or threatened by a debt collector. Here are some of the most common complaints and what the FDCPA has to say about it: 49
  50. 50. • Repeatedly calling you at your place of employment, or at early or late hours demanding a decision on how you are going to handle a debt - if a debt collector is calling you at all hours of the night and day or bothering you at work, you can tell him to stop. If he doesn’t, then he’s violated state and Federal law. The FDCPA states that debt collectors can only call between the hours of 8am and 9pm (in your time zone) and are barred from contacting you at work if you notify the collector that you’re working and cannot be disturbed during business hours. Continually calling the consumer with the intent to annoy or harass is a clear violation of the law. A debt collector must cease all communication with a consumer once the consumer has notified the debt collector in writing to do so with two exceptions: A. To notify the consumer that collection activities have ceased. 50
  51. 51. B. To notify the consumer that the debt collector intends to pursue legal remedies to collect the debt. • Threatening to embarrass you by talking to your neighbors or employer or threatening to come to your place of employment – threatening to tell your boss or your neighbors that you’re refusing to pay a debt is against the law. The collector can communicate with other people but only for the purpose of acquiring location information about you. The collector can only contact the person once, cannot state that his activity is related to the collection of a debt, and can only identify his employer if specifically requested. As a general rule, it is forbidden by the FDCPA for the debt collector to communicate with any person other than the consumer in connection with the collection of any debt. The debt collector cannot threaten to damage or harm the reputation of a consumer. • Calling to tell you that a deputy is on his way to your home or place of business to either serve 51
  52. 52. you with civil papers or take you to jail, and the only way to prevent this from happening is an immediate payment made over the phone Debt collectors do not control deputies. The court does. If a civil action is brought against a consumer, the court will serve the consumer with a summons, notifying the consumer that an action has been filed and informing the consumer where and when to appear. The summons will also inform the consumer that failure to appear may result in a summary judgment against the consumer. The court does not send a deputy to your home or place of business to arrest you with that initial notification or summons. • Threatening to file a lien against your home, garnish your wages, or seize your tax return A debt collector may not imply that nonpayment will result in arrest and imprisonment or seizure and garnishment of any property or wages unless such action is legal. There are times when that may be legal, but the debt collector doesn’t order that. The court does. 52
  53. 53. • Sending you a collection letter disguised to look like a court summons - A debt collector may not use any written communication which falsely represents to be a document issued or approved by a court of law. The document must state that it is a communication from a debt collector. • Threatening any action that would require court approval after the statute of limitation for debt collection has passed - In Texas, a creditor has four years from the date of your last payment to take you to court. After that time, they lose the right to take court action against you. It is a violation of state and Federal law if you are even threatened with court action. It is a violation for a debt collector to threaten any action that cannot legally be taken. • Identifying themselves as attorneys and threatening to sue you - A debt collector may not represent himself as an attorney. It is a violation of the law if the collector identifies himself as anything other than a debt collector. 53
  54. 54. • Cursing or screaming at you over the phone – It is a violation of the FDCPA for a debt collector to use obscene or profane language to harass or embarrass a consumer. Every one of these examples are clear-cut violations of the FDCPA. I hear stories like these all the time. General Rule of Thumb: Don’t ever make a payment to a debt collector when you’ve been threatened. Tell them, “No.” Ask them to send written communication to you so you will know exactly who you’re dealing with. Let’s consider what can happen to you if you don’t pay a legitimate debt. Let me begin by stating that I am not an attorney. This information is not meant to be taken as legal advice. I am relating real life situations that have come up over the years when working with my clients. This is how I have been advised by our corporate attorney to respond. Our company is well represented by attorneys who specialize in consumer protection and credit laws. If you are having serious problems with a debt collector, I would advise you to seek legal advice. When I’m 54
  55. 55. working with a client and I encounter a clear violation of the FDCPA or Chapter 392 of the Texas Finance Code, the first thing I do is notify our attorney, who normally takes the case at no charge to the client. What can happen if you don’t pay a debt? Let’s look at the most common situation - credit cards. You fall behind on your bill and start making late payments. Immediately your credit score takes a hit and your credit report will begin to reflect 30, 60, 90, and 120 day late payments. While all of this is going on, you are receiving letters from the company notifying you that your account is in arrears. Then the letters will become threatening and demanding payment. Your account is cancelled and the account is charged-off and either assigned or sold to a debt collector. If you don’t pay that debt, the debt collector or the original creditor has the option of going to court and seeking a judgment against you. The court will order you to make payment. An officer of the court, usually a Deputy, will serve you with a notice to appear in court. If the company prevails, and they will, a judgment will be awarded to the 55
  56. 56. company. The judgment will be listed in your credit report. It can be reported for up to seven years after it is paid. Your credit report will be damaged for years. If at all possible, avoid getting yourself into this situation. Here is some advice to prevent being dragged into court: The first thing to do is to determine the likelihood of being sued. A creditor can sue you over a nickel, but as a practical matter normally when the debt is less than $1000, the creditor will not take the case to court. Now understand, there’s no law that establishes minimums for filing court cases. Creditors can take whatever action is legal against you for whatever the amount. Generally, for debts less than $1000, it is not worth the time or expense for the creditor to pursue the case. If the debt is over $1000, the likelihood of being sued begins to increase exponentially. If the debt is over $2000, a civil suit is almost a certainty. Creditors and debt collectors do not like to file civil cases against consumers. It is time consuming and expensive. Even being awarded a judgment doesn’t guarantee that the debt will ever be recovered. To them, the filing of a civil suit is a last 56
  57. 57. resort. I mentioned earlier that you have the right to tell a debt collector to cease communicating with you and by law, the collector must stop. But understand, if you do that, you may be painting that debt collector into a corner where the only other option available is to sue. It may be wiser to keep lines of communication open and try to negotiate with the debt collector in an attempt to settle the debt. As long as there’s a chance that he’ll recover all or even part of that debt, it is unlikely that the collector is going to sue you. There are disreputable credit repair companies that tell you credit repair is all about hiding or canceling legitimate debt. They will lead you to believe that a consumer can run up thousands of dollars in debt and then decide not to pay it. The credit repair company rides in on a white horse and has all negative accounts deleted from the credit report. This is not true. It is also illegal. The Fair Credit Reporting Act states that once an account is verified and validated, it cannot be legally deleted. Honorably settling debt is an important part of legitimate credit repair and will dramatically improve your credit picture. Most of the time, debts can be settled on terms more beneficial to 57
  58. 58. the consumer than you may think is possible. One way to avoid going to court is to negotiate with the creditor or debt collector to pay the debt. Normally, you will be offered a payment plan that will fit into your budget. That is much better than having to appear before a judge to explain why you haven’t paid a debt. When companies loan us money, they expect to be repaid. When they are not paid, they have the right to try to recover their loss. This doesn’t mean you have to allow yourself to be railroaded by an aggressive debt collector. If you would like a copy of the Fair Debt Collection Practices Act, go to Google and enter “FDCPA”. For more specific advice on how to deal with out-of-control debt collectors, or how to negotiate a settlement with a debt collector, please feel free to email me at or 58
  59. 59. CHAPTER EIGHT Credit Repair – Buyer Beware If you are considering using a credit repair company, there is something you need to know. Most “so-called” credit repair companies have business models that violate state and Federal laws. These companies prey off of the hopes and dreams of people who are desperate to fix their credit in order to make a major purchase - like a home or an automobile. There are three kinds of credit repair companies: 1. Companies that know the law and want to help people. This is the best kind of company and N-2 Focus Solutions™ is this kind of company. Our business model is driven by an understanding of laws that relate to credit and the desire to use that knowledge to help men and women reach their goals. I joined the Houston Police Department in 1973 and spent the next several years of my life in the uniform of a Houston Police Officer. For five years I was in a police car carrying out 59
  60. 60. normal patrol duties. Then for nearly 10 years, I was an investigator in the Hit and Run Division. My brother and I started a part-time business in 1986. Within a year, I was able to resign my commission with HPD and devote myself to that business full time. A mentor in our business taught us the principle of “living by giving”. He taught us that the more we gave – on a business and a personal level – the more we would receive. The mentor taught us that we could have anything in life we wanted – if we helped enough other people get what they wanted first. I had never heard that principle before, but it resonated in my heart and I knew it was true. That is the principle my brother and I applied to our business efforts. As a result, we were very, very successful. That same principle is the bedrock upon which I built N-2 Focus Solutions™. That’s the kind of company we are. We know the law and we want to help people. 2. The second kind of credit repair company is a company that may be weak on the law, but wants to help people. That’s a good kind of company. If they’re driven by the desire to help others, they will not take advantage of their clients. They will learn the law over time, and then be able to help even more. 60
  61. 61. 3. The third kind of credit repair company is unconcerned about the law. They do not care what state and Federal laws say about how they are supposed to conduct their business. They just want to make money. This is the kind of company that needs to be put out of business. Unfortunately, most credit repair companies are in this third category. The Federal Trade Commission regulates this industry but they have more than they can deal with. So it is up to the consumer to put these companies out of business by not doing business with them. How can you tell if you’re dealing with a company like this? Here are some red flags: Red Flag # 1: If you are not given a form entitled, “Credit File Rights Under State and Federal Law,” and told to read and sign that form before signing any other document – that is a violation of Federal law. Red Flag # 2: If a company’s contract does not include a “Cancellation Form” explaining how to 61
  62. 62. cancel the contract, and appears twice on two separate pages of the contract – that is a violation of Federal law. Red Flag # 3: If a company’s contract does not spell out exactly how much, to the penny, their services will cost and stipulate the length of the contract – that is a violation of Federal law. Most of these companies want to get a copy of your credit report. They then begin writing letters to the credit bureaus every month disputing every bit of negative information in your credit report. Each month you will be charged a certain amount of money. The longer you’re in that letter writing loop, the more money these companies make. This is absolutely illegal and yet – most of them do it. Red Flag # 4: If a company makes any kind of guarantee to raise your credit score or delete any specific negative item in your credit report – that is a violation of Federal law. If I had a crystal ball that was right 100% of the time, N-2 Focus Solutions™ would still not give a guarantee to a client. It is against the law. 62
  63. 63. Red Flag # 5: If a company asks for money up front in order to get started before performing any services – that is a violation of Federal law. These companies usually ask for a couple of hundred dollars up front in order to organize your file and get your credit report ordered. They then start the letter writing campaign at so much a month. For how long? Who knows? That is absolutely illegal and yet most of them do it. These are just a few of the red flags. Don’t take my word for it. Go to Google and enter “CROA”, which stands for Credit Repair Organization Act. This is a Federal law most credit repair companies hope you never read. If you are talking with a credit repair company and any of these red flags pop up, get up and run – don’t walk – run. If you don’t, the odds are a year from now, you will have spent a thousand dollars or so, and your credit report will be more corrupted than it is today. If you would like a complete explanation of N-2 Focus Solutions™ approach to credit restoration, read the next chapter, “N-2 Focus Business Model”. 63
  64. 64. You will see why N-2 Focus Solutions™ is different from other credit repair companies. My complete contact information is on our website at . Feel free to contact me by email or telephone at any time with any credit-related question or concern. I will be glad to personally help you in any way I can. 64
  65. 65. CHAPTER NINE N-2 Focus Business Model The N-2 Focus business model is quite different from most other credit repair companies. The goal of most “so-called” credit repair companies is to get the client into a letter writing loop. The company then begins sending letters each month to credit bureaus disputing the negative items in the client’s credit report. These companies usually demand a couple of hundred dollars up front to organize the file. They will then charge the client a fee each month while letters are being sent to the credit bureaus. The longer the client is in that loop, the more money the company will make. This is a clear cut violation of a Federal Law called the “Credit Repair Organization Act.” Don’t just take my word for it. Go to Google and enter “CROA”. Find out for yourself. By contrast, we focus our efforts on three key areas: 1. We look for mistakes in the client’s credit report. Odds are that right now, you have mistakes in your credit report that you had nothing to do 65
  66. 66. with. Even though you were not the reason for these mistakes, they are affecting your credit score. Most of these mistakes were caused by the creditor or the credit bureaus when the data was entered. A good portion of these types of mistakes are significant enough to warrant a loan rejection. Again, the consumer had nothing to do with them. The good news is that these mistakes are most often a quick fix. They can normally be removed from the credit report in about four to six weeks. 2. The second thing we do is look for violations of the law. Would it surprise you to learn that debt collectors, creditors, and even the credit bureaus routinely violate state and Federal laws? It happens every day. When we find that a potential violation exists, or has occurred, we have a procedure in place to confirm the violation. Once confirmed, the account is sent to our corporate attorney at no charge to the client. The attorney then attempts to have that account deleted from the client’s credit report. With clear violations, there is usually no charge to the client. 66
  67. 67. 3. The third thing we do is request information under the authority of state and Federal law from every company reporting negative information in a client’s credit report. The most important word in the Fair Credit Reporting Act is the word “verifiable”. The accounts in your credit report are called trade lines. The FCRA states that 100% of every negative trade line in your credit report must be verifiable. If only 99% is verifiable, the negative information must be deleted. N-2 Focus Solutions™ uses various state and Federal laws to request verification and validation from every company reporting a negative trade line in a client’s credit report. If those companies no longer have the account, if they’ve destroyed their records, if they’ve closed the file or sold the account, or if they just don’t want to respond, then N-2 Focus Solutions™ will appeal to the credit bureaus for a deletion on the grounds that the account is not verifiable. 67
  68. 68. Most “so-called” credit repair companies send a letter to the credit bureaus stating, “This account is not mine. Delete it”. In most cases this is not true. When a credit bureau receives a dispute from a consumer, they are required by law to contact the company reporting the information and verify that information. About 25% of the time these companies will not respond to the credit bureau inquiry. When they don’t respond, the bureaus have to delete the negative information. That’s a good thing, but the problem is the other 75% of the time, these companies will respond. When they do, the bureaus insert language into the trade line stating that the account information is being disputed. Once that occurs, the consumer has become un-bankable, because a lender will not approve a loan if there is one dispute in the consumer’s credit report. When N-2 Focus Solutions™ appeals for a deletion to the bureaus, we state in bold letters that we are not disputing the account. We further state that information was requested from the original creditor who was 68
  69. 69. unable or unwilling to verify the information they are reporting. We then request that the negative information be deleted under the authority of the Fair Credit Reporting Act. We try to settle the issue with the original creditor first, then we go to the credit bureaus appealing for a deletion. This keeps most of the dispute language out of the trade lines. The average restoration takes from four to six months. Our term of service is 180 days - the longest allowable by Federal law. We have a clause in our contract stating that at the end of that period, if there is work remaining, then the contract will be extended 180 days and the extension is free. So we’re committed to our clients for a year. We have a set fee for our services. For one person the fee is $500, and $700 for a couple. This represents the sum total of everything you will ever pay to N-2 Focus Solutions™ for our services. A client is not allowed to make any payment up 69
  70. 70. front before any services are performed, and is not allowed to make payment in full. We do not accept payment for work that has not been performed. Our business model works like this: If you accepted our services, and we started working on your file right now, we’d begin by obtaining a copy of your credit report from the credit bureaus. We would then organize our file notes by listing every derogatory trade line appearing in the credit report. We’d list the company, their address and phone number, account number, type of derogatory, balance, date of last activity, action we are taking, and eventual outcome. The credit report would be analyzed for mistakes or violations of the law. We would then begin the first round of debt validation and account verification by sending letters to every company reporting negative data in your credit report. This will be done within the first 24 hours. Up to this point you have made no payment. The creditors have, by law, 30 days to respond. We’re in the position of waiting for the creditor responses. Fourteen days after we’ve 70
  71. 71. started, you would make an initial payment. For an individual, the payment would be $200 and for a couple, the initial payment would be $300. We have a cancellation period of 14 days which coincides with the date your initial payment would be due. At that point, if you have changed your mind about restoring your credit, then you do not make that initial payment. Your contract will be cancelled and you would owe nothing for the work that we have already done. See if you can find anything like that with any other company in this industry. If you make that initial payment, then four to six weeks later, a second payment would be due. For one person, the payment would be $150; for a couple $200. Then four to six weeks after the second payment is made, a final payment would be due – same amounts. Your restoration would be paid over a three to four month period. At every step, the work will have already been performed prior to the payment ever being made. Our business model puts our clients in control of 71
  72. 72. the process, and puts us above the crowd in the industry of credit restoration. We hope you’ll allow us the opportunity to be your credit advocate and partner in the restoration of your credit report. 72
  73. 73. CHAPTER TEN Formulating An Action Plan Your credit score is a number that is just as important to your financial health as your blood pressure is to your physical health. It can determine whether you rent or own, what neighborhood you live in, what kind of job you have, or the kind of car you drive. It can affect your ability to start your own business. It can even lower or raise your health insurance premiums. A high credit score can open financial doors to you, while a low credit score can slam those same doors shut in your face. Your credit score can have a tremendous impact on your pursuit of the American Dream. But, you must be willing to make a commitment to do whatever is necessary to raise your credit score. Here are twelve suggestions to help you put together and then execute your plan of action: • Determine exactly where and why your credit score is where it is. Log onto the internet and go to 73
  74. 74. to get a free copy of your credit report. You will not be given your credit score, but for just a few dollars, you can buy it. The report is free but the score is not. Go over the report and make a note of every single negative item in it. Go over the personal information section and make note of every alias you’ve never used, every address where you’ve never lived, and every phone number that you’ve never had. Once you get a clear picture of exactly where you are, then it is easier to chart a course of action that will take you to where you want to go. • Take ownership of past mistakes and don’t make them again. There can be circumstances beyond your control that can cause your credit score to drop: Identity theft, divorce, unexpected loss of a job, or a medical emergency. However, barring those, if your credit score is low, then it’s probably because you have not managed your money wisely. How much money you make has no effect whatsoever on your credit score. It is how you manage the money you make over time that determines whether your score is high or low. If 74
  75. 75. you’re in a financial hole, and you put yourself there, then the first step in improving your credit picture is to admit that you have made mistakes in managing your money. • The second step in improving your credit picture is to stop making those same mistakes. If you are in a hole, then stop digging. Your credit picture will not get better by luck or chance. Your credit picture will change when you change how you manage your finances. I had been working on a client’s credit file for about eight months when he called to complain that he had just been turned down for a home loan. He said that his credit scores were even lower than when he started working with me. He sent me a copy of the credit report that the lender had pulled and, sure enough, the scores were lower than when we had started. I went through the credit report and discovered that there were sixteen new negative accounts that had been added to his credit report after he had started working with me, some as recently as within the last thirty days. The client was continuing to make the same financial mistakes he had always 75
  76. 76. made, but he was hoping for a different outcome. It’s like adding two and two and hoping to come up with five. A four year old can tell you that it just won’t happen. • Changing our habits is the key to changing our circumstances. If you want to change the outside, you have to change the inside first. The idea of change frightens many people, and if you’re one of them, you need to shake that idea out of your head right now. Change is inevitable and believe me, you want to be on the transition team when change occurs. Don’t be afraid to be open-minded. Your brain is not going to fall out of your head. Stretch and get your arms around this: Change is good, change is healthy, and change is what is going to allow you to provide a better life for yourself and your family. So about now you’re telling yourself, “Okay, so I need to change. How do I do it?” The real question you should be asking yourself is, “Why will I do it?” Once your “Why” is clear to you, then the “How” becomes clear to you as well. Most of my clients are trying to improve their credit in order to buy a home. 76
  77. 77. Home ownership is not a right bestowed on us by the Constitution or Declaration of Independence. Unless you’re paying in cash, home ownership is a privilege reserved for those who have a history of repaying their debts in full, and on time. How do you change your credit profile so that that privilege will be extended to you? I love history, so allow me to use an example out of history to illustrate a point. Socrates was a Greek philosopher who lived about 400 years before the birth of Christ. One day he and a group of his students were walking along the seashore and a student asked him, “How can I attain knowledge like yours?” Socrates quietly took his student’s hand and led him out into the sea. Then he pushed the student’s head under the water and held it there. When the student was at the point of drowning, Socrates let him up and he gulped fresh air into his lungs. Then Socrates told him, “When you want knowledge like you wanted that breath of air, you will have it.” The lesson here is that you need to make buying your new home the most important goal in your life. That 77
  78. 78. is your “Why”. If your “Why” is big enough, then the “How” will take care of itself. You will automatically start choosing what you want most - over what you want now. It may be something as simple as deciding to have that first cup of coffee in the morning at home instead of buying that $5.00 Mocha Grande at Starbucks, or, deciding to eat in tonight rather than taking the family out to dinner. Little decisions like that can save you a couple of hundred bucks over the course of a month. That might mean you would be able to make your car or credit card payment on time this month before it’s due. It means that you won’t have a late payment showing up in your credit report next month. It means that your credit score won’t drop 60 or 70 points. Whether you realize it or not, the little decisions we make every day have a big impact in our lives. Little hinges swing big doors and if we start making the right little decisions, it’s much more likely that we will start making the right big decisions as well. It’s all about doing today what most people won’t, so you can live tomorrow like most people can’t. 78
  79. 79. • Identify exactly what you must do, or perhaps more importantly, what you must stop doing, in order to get your credit score where it needs to be. It’s easy to sit up and take notice of the things you need to do in order to change your credit picture. The hard part is getting up and taking action. What you must do now is develop an action plan and then execute it beginning right now. Remember that there are seven days in a week and “Someday” is not one of them. George Patton was one of the finest combat generals that the United States of America has ever produced. He commanded troops fighting the Germans in the Battle of the Bulge. American troops of the 28th Infantry Division were cut off by the Germans in the Belgium town of Bastogne. The Americans refused to surrender and were on the point of being overrun. All of the Allied Generals met in France to discuss whether or not Bastogne could be relieved in time. The general consensus was that it would take two weeks to formulate a plan of attack which meant that Bastogne would 79
  80. 80. have to be sacrificed. General Patton stood up cursing and screamed, “I’d rather have a good plan violently executed right now, than a perfect plan in two weeks. Hell, my troops will be killing Germans around Bastogne in 48 hours.” True to his word, his Third Army broke through the German lines and relieved Bastogne on the day after Christmas, 1944. As a result, the Germans were defeated in the Battle of the Bulge. The Americans continued advancing until they rolled into Berlin in April, 1945 and the war in Europe finally ended. Patton understood the importance of deciding what must be done and then doing it “NOW”. Many times I’ll contact clients to check on whether or not they have received responses to our correspondence from creditors or the credit bureaus. It amazes me when one of them says, “Yeah, I got something last week and I meant to send it to you, but I haven’t gotten around to it yet.” I hate to hear the words “haven’t gotten around to it”. I hate it so much that I am going 80
  81. 81. to make it impossible for you to ever utter those words again. Here, I want you to have this: You have now been given a Round 2 it. From now on, for as long as you live, you will never again be able to say that you haven’t gotten a Round 2 it. Deciding what you need to do will not get you into your new home, but doing what must be done will. Start now! • Sit down and formulate a household budget. Dave Ramsey is a recognized expert in the field of personal finances. Dave has basic budgeting forms that you can use to prepare your household budget. You are able to download them online at no charge by simply going online to Concentrate first on the necessities that your family must have each month. Take your time and include all the things on which you normally spend money. Identify what can be eliminated from your 81
  82. 82. usual purchases and save that money. As Dave says, “When you spend your money on paper and on purpose each month with a written budget, you’ll experience more freedom than ever before”. Formulating a budget and then sticking to it requires discipline. Remember when I wrote earlier that discipline is choosing what you want most rather than what you want now. Living within your means is where those words come into play and a budget will make it possible for you to do just that. Once you see where your money is actually going every month, chances are you’ll realize that you have more disposable income than you imagined. A budget is not meant to cause pain but rather freedom by putting you on the path to managing your money responsibly. It will motivate you to make small sacrifices today so that you can have the desires of your heart tomorrow. • No more late payments. Make it a habit to mail all payments to your creditors a week to ten days prior to the payment date. It’s even better to set up Auto Bill Pay through your bank so that you’ll have an electronic record of when payments were made. Late payments are credit 82
  83. 83. score killers and loan stoppers so be absolutely certain that all payments are made on time. • Pay down your revolving debt to between 19 and 28% of your credit limit. This will have an immediate and incredibly positive impact on your credit score. Keep debt to credit ratio on all credit cards at between 19 and 28%. • Calculate your total debt against your annual income. Home loans are not simply score driven. Just because your credit score is high enough to qualify for a loan, doesn’t mean that you’ll be approved. In addition to the score, loans also have other conditions that must be met in order to qualify for approval. One of those conditions is your Debt To Income Ratio, which now stands at 43%. What this means is that your debt cannot exceed 43% of your annual income. If it does, your loan application will be rejected. If you exceed 43%, then you’ll need to begin paying the debt down to an acceptable level. This debt would also include credit card debt. So by paying down your revolving debt, you’d also be lowering your debt 83
  84. 84. to income ratio as well. This number can change, so it’s always a good idea to check with your lender for current market and loan conditions. • Go through your credit report and make note of every single negative account listed. This is where you may want to use the services of N-2 Focus Solutions™. There are tactics and strategies for restoring a credit report that the average consumer is just not familiar with or even aware of. There are also things that a consumer can unknowingly do when restoring his or her credit report that can actually make the situation worse. It’s possible for anyone to restore his or her own credit. But the fact is that most folks simply don’t have the time to ferret out the information they’ll need to be able to successfully contend with creditors or credit bureaus. Your goal with these negative accounts is to eliminate the ones that you can, and then settle the ones that you can’t. Let me repeat that last part – settle the ones you can’t. There are a lot of these “so-called” 84
  85. 85. credit repair companies who will tell you that legitimate accounts will be deleted from your credit report and you won’t have to pay the debt. They’ll even guarantee it. Sounds like a “Get Out Of Jail Free” card doesn’t it? Well, this isn’t a game – it’s the real world. When companies loan us money, they expect to be repaid. When that doesn’t happen, they will report the delinquency in a credit report for a full seven years. Even though honesty is considered a virtue, I find that sometimes folks don’t want to hear the truth. Well, ready or not, here it comes. If I have a legitimate debt, I believe I should do everything in my power to pay it. Racking up debt and then believing that some “so-called” credit repair company can magically erase it from a credit report is nonsense. The Fair Credit Reporting Act clearly states that verifiable legitimate debt cannot be legally deleted. Honorably settling past debts is an important part of legitimate credit restoration. Most of the time the debt can be taken care of at a reduced settlement price. Once the debt is settled, 85
  86. 86. some companies will waive the reporting entirely, even though they don’t have to. Even if the reporting is not waived, the account will be updated to reflect that the account was honorably settled, and that is very reassuring to future potential lenders looking at the credit report. There’s the hard truth – and don’t let anybody tell you anything different. Paying our debts in full and on time is not just the right thing to do. It will also push your credit score into the treetops. • Be careful when applying for new credit. When you apply for credit, an inquiry from the company you applied with will post to your credit report. Excessive inquiries can negatively affect your credit score. If you’re trying to restore your credit, you don’t want to retard or off-set the progress you may be making by having too many inquiries showing up in your credit report. More than about six per year and they can start counting against you. They can affect your score for one year but will appear in the report for two years. Lenders view excessive inquiries as a definite red flag indicating that the consumer is desperate for credit. 86
  87. 87. • Contact a creditor before defaulting on an account. If you fall behind on payments to a creditor, ignoring the problem will not help. Call the creditor and try to work out some arrangement to keep the account from going into collections and/or to prevent civil litigation. When a creditor sells a debt to a collector, the creditor loses money. When a debt collector buys a debt from a creditor, both the debt collector and the original creditor can report the account in your credit report. Instead of one derogatory account, you’d have two. That’s not fair, but that’s the way it works. In today’s economy, many creditors are much more flexible in working with consumers than in years past. If the creditor takes legal action against you, the end result will be a judgment being added to the Public Records section of your credit report. If you don’t communicate with the creditor, he has no other options available to him in order to recover the debt. It’s best to face the problem head-on and open a line of communication with the creditor. • Open a secured credit card with bank or credit union. You will need revolving credit to 87
  88. 88. maximize your credit score, and you may not be able to qualify for a normal credit card just yet. A good alternative would be a secured card. Find a bank or credit union that offers them and then apply. Here’s how it works - you make a deposit with the bank for the amount of the limit on the card. Your deposit secures the balance on the card so the bank can’t lose. Now, begin using the card every month for small purchases you were going to pay cash for. When the bill comes in, you will pay it as soon as it arrives. You will not wait for the due date. Now you have full benefit from your balance to limit ratio, you’ve established a saving account that is drawing interest every month, and every month your credit report is reflecting an ontime payment being made. • Execute your plan of action and begin protecting your credit score like you protect your own child. You’ve formulated your action plan and you’ve gotten your Round 2 it. The only thing left is to execute the plan and begin doing those things in a methodical, consistent manner that will build your credit– day in and day out. Don’t be impatient. A bad credit 88
  89. 89. report is sometimes years in the making. Start now – today – this minute. It is unrealistic to believe that all those derogatory accounts will be swept under the rug in a month or so – I don’t care what any of these so-called “credit repair” companies have told you. It does not happen like that and believe me, the credit bureaus are not necessarily on your side. Stay committed to your goal and things will begin to change. It may be slowly at first, but then the change will accelerate. You’ve got to stay in the race if you want a chance at winning the gold medal. And in this race, the medals aren’t really made of gold. They’re made of sacrifice, hard work, determination, and that very difficult to find ingredient called courage. 89
  90. 90. Epilogue How High Will You Rise? We started this little E-Book talking about Mozart. I want to bring our time together to an end by telling you a story about the greatest literary detective of all time – Sherlock Holmes. I’m often asked by clients, “How high will my score go?” You may be thinking that same thing right now. Allow me to let Sherlock Holmes answer that question. Holmes didn’t just solve sensational murders and robberies. He worked on all types of cases during his career. One of my favorites involved the theft of an exam paper at a private boy’s school in England. The paper had been stolen from the professor’s office and all signs pointed to a young man who maintained his innocence. Holmes was called in to investigate and within an hour, Holmes knew that the professor was accusing the wrong boy. What bothered Holmes most was the guilty boy. He had been an example of hard 90
  91. 91. work, honesty and integrity and was loved and respected by all the students and faculty of the school. Holmes was in the professor’s office about to explain that the accused boy was innocent when the guilty boy walked in. Chocking back his grief and with tears in his eyes, he admitted his guilt and said that he just couldn’t stand by and watch an innocent student punished for his mistake. The professor explained that the school had no choice but to permanently expel the boy and Holmes was afraid that this would mark the young boy for life. Holmes tenderly put his hand on the young man’s shoulder and said, “Son, we’ve seen how far you can fall. Now let us see how high you can rise”. The boy left the school, enlisted in the British Army, fought in the Boer War in South Africa and was awarded the Victoria’s Cross for bravery and valor in battle. He went on to become the most decorated soldier in the history of the British Empire and was eventually knighted by the Queen of England. What a wonderful and magnificent example of error and redemption. And so I’ll end this little treatise by repeating to you those words 91
  92. 92. of Sherlock Holmes. “We’ve seen how far you can fall – now let us see how high you can rise”. If you’ll take these principles I’ve written about to heart, then I believe that the sky is the limit. Good luck and God bless you along the way. Sincerely, 92
  93. 93. David was a member of the Houston Police Department from 1973 until 1987. In 1987, he went into business with his brother, Dennis. Working together, they built a sales network of over 200,000 sales representatives in over 30 countries world-wide that has produced in excess of $400 Million in sales. Since 2007, David has been President and CEO of N-2 Focus Solutions™. “Strive to live a good and honorable life so that when you’re old, you’ll be able to think back through the years and enjoy your life once again.” ©Copyright 2013 | David G. Clifton | N-2 Focus Solutions™ | All Rights Reserved 93