Lesson 1 of 0

In Progress

Essentials of Wise Credit Management

Essentials Of Wise Credit Management

Wise Credit Management is a free Bible-based class that teaches how credit really works by showing factual information directly from the Credit Bureaus and FICO®, and simplifies the subject to show everyone how to build good credit or handle bad credit. The class is fairly comprehensive and focused on getting good credit to qualify for a good mortgage rate and terms. WiseCreditManagement.com is a free community for members to take the class, join local groups (online or in person) for mutual support, and to find local professionals who volunteer to use their skills to assist members to success.

I am not a lawyer or Credit Repair Organization.

Home ownership is the way most Americans build wealth and a lack of education about credit is a huge contributor to the growing “Wealth Gap” in our country. Wise Credit Management is focused on teaching how to get good credit and qualify for a good mortgage rate and terms.

My work is protected by the “fair use” section of U.S. Copyright Act.

How Credit Affects Real People

Is a credit score just a number? How does it affect your life? Can numbers that only a computer can come up with determine where you live and how much you pay for your housing, transportation and insurance?

Imagine being in your early 20’s working a restaurant job while you attend college. You don’t know anything about credit and never consider building or monitoring your reports. When you graduate you have a great job lined up and things are going well, until it’s time to find a place to live. You are turned down for several rentals but don’t understand why. Then you try to buy a reliable car but are denied financing, and that’s when a car salesman tells you that you only have bad credit. So, you have to settle for a “buy-here-pay-here” car that is overpriced and unreliable, leading to unexpected repair bills that you may not be able to afford because you don’t even qualify for a credit card.

To make matters worse, the person you are in a relationship with has bad credit as well. When you try to start your life together and begin a family, you can’t get approved for good housing or reliable transportation, so you have to settle for overpriced housing in a bad area while paying for vehicles that barely run to get you to work. In that scenario, it is easy to see how you could wind up with a broken-down car and a repossession on your credit report. Then, you lose your job because your car didn’t get you to work. With no money, no transportation and no job, you fall behind on your rent.

Imagine the stress that puts on a young relationship. The frustration over money is sure to lead to tension, fights and could cause the relationship to fail.

Take Control

The above scenario is both a nightmare and all too common. Now let’s just imagine for a moment how much differently things might go if you understood credit and got started building good credit. By investing about $50 every month into secured loan payments you can build credit and get approved for credit cards while you are still working your way through college. Because you take an active interest in your credit, you discover that your credit report has an error which gives you a bad credit score. To fix the error, you simply file a dispute with the credit bureau and the bad credit on your report is gone. So you are building good credit with a clean report before you graduate.

When you graduate and want to move to your own place, buy a reliable car and start your life, it will be easier to get approved because you have a clean credit report with a good score. What if the person you are in a relationship with also began to build good credit despite having bad credit? It may take some time, but eventually bad credit can be handled, leaving only the good credit you established. Soon thereafter, you can consider becoming a homeowner, which is the most common way to build wealth and the focus of Wise Credit Management.

Stewardship

Living the Christian life is not easy. Often, we have to do things that are difficult to get where we are supposed to be. Just as Moses led God’s people out of Egyptian slavery and Joshua led the people into the Promised Land, it may take generations of your family to see the fruits of your labor and be a very difficult journey. We are on a mission to not only make our own lives better, but also to improve the lives of our family and children yet to be born. We have a stewardship, a responsibility to learn to manage things in our lives as well as possible and to teach our children how to get the best life for themselves. In Wise Credit Management we focus on turning you into a homeowner as soon as possible. In the Bonus Lesson called Wise Path To Wealth, we see how your first home can lead to generational wealth. You can pass real estate ownership down to your children’s children. First we will get you started down the path that will lead to your first home by freeing you from “Financial Slavery.”

The Wise Credit Professional

My name is Jason Johnson and I graduated from Baylor University with a Finance Degree in 2002, and thereafter I attended Texas A&M Commerce’s Real Estate School. I had licenses as a Mortgage Loan Officer/Broker, Real Estate Agent, and Insurance Agent. I focused on first-time homebuyers and helped many people make the transition from renting to owning.

During my life I have also made several very good investments in real estate. It has been a blessing to own and manage rental properties and I have been on the right side of recent market conditions that allow me some freedom to choose what I do with my career.

One of the biggest impediments to becoming a homeowner is bad credit or no credit history. I would work with people as well as possible, but I always wished there was a program that I could give people, which would teach the principals of good credit and the various ways to handle bad credit. I was also upset by the fact that many people are being taught not to have any credit to avoid debt. Having a good credit score is helpful in so many areas of life and should not be avoided as if you have a spending addiction.

Recently I went through a time when I decided to make some changes to my life and my career. I prayed about it and asked God what he wanted me to do. Quietly it came to me that I always wanted someone to make a class that taught principals of credit management, and there is a definite gap between what people need to know and what is being taught. I believe God put it on my heart to build the class I always wish I could send people to. I received it as my calling to build a free credit management class focused on biblical wisdom, factual information and professional guidance. I believe these core elements will help people make great improvements to their quality of life and the wellbeing of their family. Through the success of my real estate investments and by God’s grace I was able to develop the class I believe will serve our community.

Professional Members

Wise Credit Management is a free class with a supportive community (funded by Sponsors and Affiliate Links) that combines biblical wisdom, factual information and professional guidance to give students the knowledge to make wise decisions, and a Professional Member Directory where students can find professionals willing to help. I hope you find and speak to any professional who dedicates time to teaching this class for your benefit. They signed up for the directory because they are willing to help you.

This class can also provide valuable training for professionals who always want to improve their knowledge and skills. Many licensed professionals do not know the details of credit reporting and scoring, which you will learn in this class. That is one good reason to work with a Professional Member, they probably possess a deeper understanding of credit than other professionals, making them better equipped to help you accomplish your goals.

The reason for a summary called Essentials Of Wise Credit Management

Many people I speak to just want the basics or a summary without a detailed explanation of credit reporting and scoring. This lesson is ideal if you prefer basics. If you want more details, this lesson will be like an Executive Summary, or the main points with details in the Lessons that follow.

ESSENTIALS BY TOPIC:

HOW DOES THE CREDIT SYSTEM WORK?

Proverbs 13:16 ~ Every prudent man acts with knowledge, but a fool lays open his folly. ~

Having the knowledge to understand how the credit system works and can work for you if you use it correctly.

Your credit history with most lenders is reported monthly to credit bureaus
The three main credit bureaus are: Experian, TransUnion and Equifax
Lenders decide who to lend money to based primarily on your credit history from these bureaus
Lenders need a non-biased way to determine the quality of each applicant’s credit report
FICO® and VantageScore offer the most widely known credit report scoring algorithms
FICO® Scores are used by about 90% of lenders, making them the industry standard and VantageScore is easily available to most consumers but not widely used by lenders to make credit decisions
Lenders use FICO® Scores because it uses statistics and past consumer data to accurately predict how likely you are to default on a loan in the near future
One bad account on your credit report (even if it is not your account) will give you a bad score
Lenders will use any score your credit report produces (even if the information is wrong)
You must take the responsibility to monitor (and if necessary to correct) your own credit report
You can get your credit reports for free at Annualcreditreport.com
Credit scores are produced by an algorithm using the data from your credit report, data from each report can be different, which means you usually have a different credit score from each bureau’s credit report
There are different credit scores for different purposes, for example FICO® 8 is widely used in basic consumer lending and the FICO® models 2, 4 & 5 are used for mortgage lending
You can monitor your credit reports with FICO® 8 scores for free on Experian.com, while CreditStrong and Discover both offer TransUnion FICO® 8 scores to their members for free, and myFICO.com offers the Equifax FICO® 8 for free
To my knowledge, there is no free service that allows you to monitor your mortgage credit scores, however you can pay FICO® to provide you with periodic updates at myFICO.com
35% of your score is based on your most recent 24 month payment history
The more accounts you have open, active and in good standing, the better
30% of your score is based on your current Utilization Ratio (the amount you currently owe divided by the total amount you could borrow on existing accounts)
Lower balances on your accounts give you the highest scores
15% of your score is based on how long your accounts have been open
The longer you have had open and active accounts the higher your score will be
10% of your score is based on credit seeking behavior, recent “Hard Inquiries” to check your credit report
New inquiries affect your score the most during the first 6 months, then reduce to zero effect after 12 months but remain on your report for 2 years
10% of your score is based on the “Mix” of different types of credit accounts (term-loans, auto loans, mortgages, bank-issued credit cards, store cards, etc.)

BUILDING GOOD CREDIT

Luke 16:10 ~ He who is faithful in what is least is also faithful in much… ~

Building good credit must start somewhere. Show you are willing to use small accounts appropriately by making payments on time and not using too much of your credit limit, however small it is.

It is easier now more than ever before to build good credit, even when starting with bad credit
When starting with no credit, you will likely have a “N/A” or “No Score”, rather than a zero
A “Thin File” is when you do not have many accounts on your credit report
A good way to begin building credit is to have 2 term-loans and 3 revolving accounts (credit cards)
There are non-qualifying loans available that allow you to receive the loan proceeds when you are done paying off the loan, but it builds your credit while you make payments
- Credit Strong offers secured term-loans with low monthly payments with 2 to 10-year terms
- Self Inc (formerly Self Lender) offers secured term-loans with low monthly payments and the ability to qualify for a credit card after 3 months which will be secured by the money you used to pay down your loan
There are credit card companies that offer very low limits to people with no credit
There are credit card companies that offer very low initial deposit requirements to people with bad credit
- Capital One
- Discover
- Credit One (for bad credit)
- Blue Sky (for bad credit)
- Khol’s store card
- Firestone store card through CFNA Financial
If you have someone willing to make you an Authorized User, the account should report all their history to your credit report, which would give you that credit history and benefit your credit report
FICO® does not calculate a score for you until you have 6 months of credit history
VantageScore will calculate a score for you almost immediately after any credit is established
Starting with no credit, the strategy of getting 2 term-loans and 3 revolving accounts will likely bring your FICO® Score up to 650 after 6 months, and close to 700 after 1 year

HOW TO MAXIMIZE YOUR CREDIT SCORE BEFORE APPLYING FOR A MORTGAGE

Galatians 6:9 ~ Let us not grow weary while doing good, for in due season we shall reap if we do not lose heart. ~

Building a good credit score takes time and consistent effort. Don’t get discouraged; keep managing your credit responsibly and you’ll reap the rewards.

How can you get an 850 credit score? An 850 credit score requires exceptional credit management. Here are the key factors:

Have about 5 term-loans
Have 6 to 11 revolving accounts with a 1% utilization rate on each account
Have a healthy mix of account types
All your accounts need to be over 4 years old with an average of about 10 years
You cannot have a single late payment or derogatory account

Based on a study of credit reports that achieve the maximum credit score of 850, the most impactful things you can do to increase your credit score in the shortest time is to:

Reduce the Utilization Ratios on your revolving accounts to 1% on each account
Try keeping a small balance on at least one credit card account (AZEO – All Zero Except One) to show responsible usage, however there are different opinions on this strategy that we will cover in Lesson 5
Keep old accounts open and active
Try not to open any new accounts within 90 days of the date you wish to apply because applying for and opening new accounts will reduce your score
New revolving accounts could decrease your Utilization Ratio, but your average age of accounts decreases and you will likely have a “Hard Inquiry”, which will temporarily lower your score
Remove any derogatory marks (if applicable) – recent late payments and collections will drop your score by 60 points
Paid off third-party collections and past late payments still hurt your mortgage FICO® Scores
Collection accounts that are still owned by the original creditor are allowed to be reported as past due “over 180 days” for 7 years, which reduces your score more than a third-party collection account that decreases in impact over time
Paying off collection accounts that are still owned by the original creditor and included in your Utilization Ratio will reduce your Utilization Ratio and increase your score

WISE DEBT REDUCTION – The innovative approach to paying down debt while building an emergency fund and increasing your credit score

Proverbs 22:7 ~ The rich rule over the poor, and the borrower is slave to the lender. ~

Debt creates financial slaves, but paying down that debt will allow you to break free from the burden of high-interest payments and become financially empowered.

Good personal finance principles always include an “Emergency Fund” that you can use in a time of crisis
Good personal finance principles and Wise Credit Management principles include paying down any revolving lines of credit as quickly as reasonably possible
Building an emergency fund and paying off credit cards can seem like opposing goals, however a paid-off credit card can act as a temporary emergency fund
As you pay down the balance on your credit card(s), your temporary emergency fund will increase
As you pay down the balance on your credit card(s), your credit score will increase
Stop spending at least $100 per month on something you like (but do not need) to pay down a credit card that you can use to pay unforeseen emergency expenses
The biggest step is to determine what is more important to you, this thing you like (maybe eating out or cookies & ice cream) or paying down your debt so you can qualify to own a home
The next step is to prove to yourself that paying down debt is more important by choosing to pay $100 on your credit card and making a peanut-butter sandwich instead of paying $100 to eat at a restaurant
Be aware, some credit card companies use a technique called “Chasing The Balance”, which means they lower your limit as you pay down the balance and therefore you are not building an emergency fund or increasing your credit score by paying down the balance of that card (focus on a different card)
This is most likely to happen if all your cards are maxed out and/or if you have bad debt or late payments on your credit report

HOW TO HANDLE BAD DEBT

Deuteronomy 15:1 ~ At the end of every 7 years you shall grant a release of debts. ~

If you have heard anything about bad credit you have probably heard of the “7 years rule”. It may surprise you to learn that concept dates back to biblical times and correlates with our current credit laws.

The Fair Credit Reporting Act states that “Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years” are not to be included in credit reports
The Statute of Limitations determines how long a creditor has to file a lawsuit against you for debt, and it is different for each State
Even if the debt is legitimate, you still have rights under the Fair Debt Collection Practices Act
Generally, debt collectors cannot threaten to arrest you or threaten to take your property illegally, they cannot misrepresent the amount you owe, charge fees over what the contract allows or misrepresent themselves as an attorney or government agency
Yes, debt collectors violate the law all the time because people do not know or enforce their rights
You also have the right to dispute information on your credit report, which requires the bureau to do an “Investigation” for accuracy
Disputing is how we make sure debt collectors are accurately reporting our credit history
To dispute a debt you can create an account with the bureau, call the bureau or write a letter with your information and details about why the debt should not be on your credit report (details will be provided later in the book)
Sometimes you have to keep disputing and prove your point, but disputing can work
Credit Counselors are usually non-profit companies that set up Debt Management Plans (DMP) to help repay bad debt and they are compensated by credit card companies
Credit Repair Organizations are usually for-profit professionals that charge around $100 per month and usually have a background in personal finance with thorough knowledge of credit reporting laws and usually they are “experts” at disputing
Consumer Protection Attorneys (Credit Lawyers) specialize in credit law, disputing, debt negotiation, settlement, and can sue if necessary to enforce your rights

James 3:2 ~ We all stumble in many ways. ~

Financial setbacks happen, but there are ways to recover from bad credit and move towards a brighter financial future.

Bad credit should not ruin your life
People get into financial trouble for many reasons, oftentimes it is outside their control
Debt Management Plans (DMP) are good for people who are behind on credit cards or struggling to make minimum payments
A DMP usually creates 1 payment to the Credit Counseling Company which must be made on time for the next 60 months to completely pay off the debt
Being in a DMP will not hurt your credit score, however sometimes credit card companies will close your line of credit leaving the balance due, which could negatively affect your utilization ratio
Chapter 13 Bankruptcy protection is good for people who are facing foreclosure or repossession because it can stop creditors from seizing those assets
With Chapter 13 you keep your assets and a court appointed trustee will review your assets and debts to determine a repayment plan
You will have a strict monthly payment and must make all payments on time
Chapter 7 Bankruptcy protection is good for people who can pass a “Means Test”, which basically looks at your income compared to your State’s median income
If you qualify for Ch. 7, you can only keep exempt assets like equity in your primary home and a reasonable car, retirement accounts, and personal items
Under Ch. 7, all unsecured debts are dismissed except some debts like Student Loans and Child Support
If you are in a situation where Bankruptcy protection is an option, please consult with an attorney for appropriate advice

Psalm 30:5 ~ Joy cometh in the morning. ~

This class places an emphasis on creating a brighter future for yourself and your family. Going through great financial difficulty will have a detrimental impact on your credit scores, however there are ways to recover.

You can recover from Bankruptcy very quickly
FHA will lend after 24 months from discharging your Ch.7 Bankruptcy, and you can also buy a home while still in Ch. 13 Bankruptcy, with court approval
If you are in a bad place, use the legal protection offered by the court and our society to recover
The time it takes to recover will vary depending on your circumstances

Identity Theft

Genesis 27 ~ Jacob went to his elderly father and said, I am your son Esau, to steal the blessing and inheritance. ~

This is the first known case of identity theft. Jacob deceives his father to steal Esau’s rightful inheritance. This story illustrates the point that identity theft has been around for thousands of years and will continue to be. The best thing is to protect yourself and recover as quickly as possible.

It can happen to anyone, and pretty much anyone else can do it to you
Assume your identity is already compromised
Initial problems can include “Hard Inquiries” that pop up on your credit monitoring, accounts or addresses on your credit report that should not be there, charges on your accounts that you did not authorize, letters from companies you have not initiated contact with, etc.
You must be your own investigator to find out what accounts are compromised
You must notify the fraud departments of any accounts that are affected
File Fraud & ID Theft reports with the credit bureaus, FTC & local police
Dispute all transactions you did not authorize
File an extended fraud alert and actively monitor all your accounts and credit reports
To limit the damage before or after an incident, you can place a Freeze/Lock on your consumer credit files with each company (including Experian, TransUnion, Equifax, Innovis, LexisNexis, etc.)

CREDIT FOR MORTGAGE APPROVAL

Proverbs 24:27 ~ Complete your outdoor work and prepare your field; after that you may build your house. ~

In King Solomon’s day, people likely lived in tents until they built their own houses. His advice was to first make sure you have a good source of income and make the appropriate preparations before you focus on yourself and spend resources on a better place to live.

There is a lot of work you should do before you attempt to buy (or build) a home
Begin by knowing your Mortgage Middle Score (the median score of FICO® 2, 4 & 5), which is available on myFICO.com
Automated Underwriting (AU) is the process of entering your application into a computer where it reviews the transaction and your credit history to either “Approve” your loan or “Refer” it to a human underwriter for further review
You want an AU approval because it makes the process simple and has a higher chance of closing on-time at the lowest interest rate
The Department of Veterans Affairs offers an excellent $0 down payment program available through most mortgage companies simply referred to as a “VA” loan, which can accept very low credit scores but over 620 is preferred to get approved through AU
Conventional loans are excellent for many buyers with either 20% down payment or a credit score over 700, however many factors go into which loan program is best
The US Department of Agriculture (USDA) offers an excellent loan for areas outside major cities that boasts a $0 down payment and has very lenient credit requirements, however for an AU approval you should have a 640 or higher score
The Federal Housing Administration (FHA) offers loans with lower credit score requirements and varying down-payment requirements (3.5% down with a minimum of a 580 score and 10% down with a minimum of 500), however FHA loans come with higher fees and stricter property requirements
Try to get your mortgage middle score as high as possible before applying because it could reduce your interest rate by as much as 2% ($100 per month for every $100,000 borrowed)
Always consult a Wise Credit Professional to determine the best program for your needs

WHAT CAN YOU DO TO INCREASE YOUR SCORE QUICKLY?

You should talk to a mortgage professional for specific advice, but here are some basic tips.

Within 30 days:

Pay down revolving debt to reduce your Utilization Ratio, but remember that your score will not improve until the next time the account is reported to the credit bureau
Ask your credit card issuers for a Credit Line Increase (CLI), which will decrease your Utilization Ratio (but only if it will not require a “Hard Inquiry”)
If possible, ask someone who has good history on a credit card account to add you as an Authorized User (the history on that account will reflect on your credit report and score)
Pay off any collection accounts still held by the original lender (first-party collections), because those accounts affect your Utilization Ratio and can be reported as +180 days late (for all 7 years) rather than a charge-off
Rapid-Rescore is a service your lender can request (and pay for) that has your file updated manually with different information and your credit report will be rescored based on the updated information on your credit report

Within 60 days:

Dispute “Hard Inquiries” that are less than one year old (as discussed in Lesson 7 and the DIY Disputing Lesson)
Pay off then immediately dispute collection accounts (please make a special note that your mortgage will not be approved or closed until the dispute is resolved, which may take 45 days or longer)

90 days or more:

Begin the process of disputing any and all accounts with inaccuracies, as discussed in Lesson 7 and the DIY Disputing Lesson
*Highly Risky* It is possible to take out a debt consolidation loan (which will decrease your score by opening a new account with a new “Hard Inquiry”) to pay off any outstanding revolving lines of credit (which will increase your score by decreasing your Utilization Ratio), so it will likely only result in a better credit score after 90 to 180 days AND if you make your payments on time AND do not charge more on your revolving accounts
*Highly Risky* If you qualify for a new credit card, you could open a new account (even with the “Hard Inquiry” and new line of credit) and see your credit score drop for approximately 90 days and then climb slightly higher afterward

JOIN THE WISE CREDIT MANAGEMENT COMMUNITY (IT’S FREE)!

As a member of Wise Credit Management, you get to join a network of people all working to build good credit themselves or professionals trying to serve you through their professional skills. When you sign up for the class (for free) you get access to mastery quizzes on topics covered in the lessons (don’t worry, they are easy but they keep you from making mistakes) and advanced level classes on important topics.

When you sign up as a member, you can benefit from the community of professionals and the various groups they sponsor. You will also have access to groups where you can learn from each other and ask questions that need answers and maybe can’t wait for the next group meeting.

Become a member, go through all the lessons and advanced topics, attend group meetings while you need to build your credit and most importantly, please share your success.

Make sure to tell the community what worked for you and how you did it. Obviously, never share personal information, but please tell everyone some basics about your situation and things like who you started new accounts with or which Professional Member you worked with to accomplish your goals.