Credit As An Asset
Student Workbook
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For observational purposes only. Do not distribute or
reproduce. Contact [email protected]
for more information about how to use this workbook.
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Acknowledgements
Bank On Louisville could not have launched this workbook
without the help of several key partners.
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Credit Builders Alliance led development of workbook
content. Credit Builders Alliance is a non-profit
organization that creates innovative solutions to help
community-based nonprofits serving low- and moderateincome individuals improve their capacity to help their
clients build credit and financial access in order to increase
their financial capability and stability.
Finally, we thank the experts who contributed to the
content, layout, and review of this guide:
Debbie Belt
Sarah Chenven
Kathy Cooter
Sheila Etchen
Janet Fulton
Adam Hall
Tina Lentz
John Nevitt
Re’Donna Thompson
Erin Waddell
Caitlin Willenbrink
Deborah Williams
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The Corporation for Enterprise Development also
supported the development of this workbook through a
generous Assets and Opportunity Network technical
assistance grant.
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CBA serves as a unique and vital bridge between its 400
nonprofit member organizations and the major credit
bureaus. CBA’s core services — CBA Reporter and CBA
Access — provide nonprofits with both the ability and
critical technical assistance necessary to report loan data
to the CRAs and to pull low-cost client credit reports for
the purposes of financial education, outcome tracking,
and underwriting. In addition to these core services—
which are essential to helping individuals and families
build credit histories and scores—CBA offers nonprofit
practitioners hands-on credit building trainings, innovative
tools, and forums for sharing with and learning from each
other.
Welcome
Who We Are
Bank On Louisville is an engine to collaboratively
strengthen our community's economic well-being
through improved access to mainstream financial
education and services.
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Bank On Louisville works with people who don’t use,
don’t have, or cannot open an account with a
traditional financial institution. Our goal is to connect
you with financial services and education that help you
manage your money better and keep more of it by
avoiding expensive services like check cashers and
payday lenders.
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What is Credit As An Asset?
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Bank On Louisville is brought to you by Louisville
Metro Government, Department of Community
Services, Advocacy and Empowerment Division, in
partnership with over 100 private, non-profit and
government stakeholders.
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Credit As An Asset is a workbook for people who want
to gain new information and tools to build or rebuild a
good credit history. This workbook will help you think
about your relationship with credit and why credit is so
important, and plan how you will make financial
products work for you to help increase your financial
stability in the short-term and your financial security in
the long-term.
Table of Contents
Section One: Getting Started……………………………………………….5
Section Two: What is Credit?……………………………………………….6
Section Three: Why Does Good Credit Matter?…………………………...11
Section Four: Introduction to Credit Building…………………………….13
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Section Five: 5 Steps to Building Credit…………………………………...15
Resources…………………………………………………………………..32
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Sample Dispute Letter……………………………………………………..33
Glossary of Credit Terms…………………………………………………..34
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Your Turn
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You’ll see the pathway pattern on the front cover and
throughout this workbook. When you see a single piece
that says Your Turn, like the one at right, you’ll be
practicing a new skill through a learning activity.
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When you see the entire pathway, like the one at left,
stop, think about and respond to the questions you find.
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The pathway pattern is a reminder that achieving financial
stability is a pathway with many steps. This workbook with
learning activities, questions, and tips in it is a resource you can
return to again and again as your move along your own
pathway to financial stability.
You’ll also see words in bold—these are important terms to
know. Definitions of these words can be found in the Glossary.
Credit As An Asset is a great next step to get on solid financial
footing. Once you complete Credit As An Asset, you will decide
other steps on your journey to achieving your financial goals.
Bank On Louisville can help you take those steps.
Section One: Getting Started
Where Do You Want to Go With Your Credit?
First and foremost, it’s important to think first about why credit matters. Your relationship
to credit is personal and significant to you. It affects your access to financial products and
services like credit cards and car loans, as well as how much you pay for them. Credit can
also affect your ability to get a job, an apartment or a home mortgage, and even a cell
phone contract or car insurance!
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Good credit is key to becoming financially stable. Good credit sets the stage for long-term
financial security through asset building. But before you start to address or build your
credit, it’s smart to study up on the issues and options and choose what fits you best.
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Why is good credit important to me?
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Credit As An Asset will help you learn how to build your credit. It will help you think about
your relationship with credit and commit to everyday credit building behaviors. When you
think about how you relate to credit, you can set goals and plan for your financial future in
the way that works best for you.
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Pur
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How will having good credit get me where I want to go?
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Section Two: What is Credit?
What do you want to learn about credit?
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Start with YOU!
What do you think of when you hear the word credit?
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It also can mean your record of
paying back your loans and credit
card bills on-time — the record that is
kept on your credit report and
measured by your credit score.
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Credit can mean a product like a loan
or a credit card.
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The term credit can be confusing
because it has several different
meanings.
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Good Credit is an Asset
Lots of people think of credit as a bad thing. It’s true that if you use credit too much, it can
lead to debt, and lots of it. However, credit is not the same thing as debt. Debt is the amount
of money you have borrowed and must pay back, while credit is your ability to borrow
money or gain access to a purchase without paying for it up-front, in full.
Having more debt than you can repay is a liability. But credit can be a tool to help you get
and stay ahead financially. Having good credit – also known as being creditworthy – is an
advantage. Good credit is an asset, in the same way that a home, a savings account, or a
college degree are assets.
Let’s examine some definitions to compare two meanings of “credit”:
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
credit products

the credit industry
Section Two: What is Credit?
Credit Products
When you use credit, you are borrowing money.
The money you borrow is called principal.
The person or business that loans you the money is
called a lender or a creditor.
Creditors lend money to make money. You must pay
the creditor a price to borrow the money.
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The price you pay to borrow money is called interest.
Interest is often quoted as the percentage of the
loan that you pay each month while you are borrowing the principal. Interest rates can be fixed
or variable. Fixed means the rate will stay the same for as long as you have the loan. Variable
means it may change.
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Lenders calculate and explain the yearly cost of interest on a loan as an annual percentage rate
(APR). Most creditors also charge fees for things like late payments, balance transfers, and cash
advances.
Terms of the loan are the things you agree to when taking out a loan. These include interest rate,
kind of interest rate, fees, length of the loan, where or when payments are due, and more.
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
installment loans
revolving credit
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There are two major types of credit:
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With an installment loan, you are approved for a specific loan
amount taken out for a specific period of time. You pay back the
total amount of the loan over that period of time.
With revolving credit, you are approved for a credit limit. You can borrow any amount up to the
credit limit. What you pay back each month varies depending on how much you have borrowed
during the month. A credit card is a good example of revolving credit.
Credit can also be secured or unsecured. A secured loan means there is another asset—like your
car or your house—pledged against the loan. This pledged asset is called collateral. If you do not
pay the loan as you agreed to, the lender can collect the collateral.
For example, if you borrow money to purchase a car, the car you are buying will be used as the
collateral for that loan. If you don’t pay it back the lender or creditor can take the car back.
Unsecured means there is no asset or collateral. Student loans and credit cards are examples of
unsecured loans.
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Section Two: What is Credit?
The Credit Industry
The credit industry is driven by:
Consumers (that’s you!)
borrow money and use
credit products


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Creditors
use credit scores to determine which
consumers they will loan money and
offer credit products to

Credit bureaus
collect consumers’ credit information
from creditors and store it on credit
reports
report consumers’ credit information to
creditors in the form of credit scores
keep report consumers’ credit
information on credit reports
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The three largest credit bureaus in the United States are Equifax, Experian, and TransUnion.
However, there are also a number of other specialty credit bureaus that meet the needs of
specialized creditors like landlords, insurers, employers, and even payday lenders.
Credit bureaus only collect and report information. They do not make credit decisions.
Only creditors make decisions about whether to offer credit to consumers.
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Both creditors and credit bureaus have to comply with the Fair Credit Reporting Act (FCRA) law
passed in 1970.
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The FCRA ensures that:
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Consumers have a right to see their credit report and dispute any information on it
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Creditors and credit bureaus must verify a consumer’s credit information if the
consumer disputes it, and must respond to any disputes within 30 days
or
Creditors have to report consumer credit information accurately and consistently
to the credit bureaus
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A credit history or credit file is a record of how you use credit. Your credit history is made up of
information that your creditors have reported to the credit bureaus, such as your payments on
debts and whether those payments were on time.
A credit report is a snapshot of your credit history at a certain point in time. Your credit report
changes over time.
A credit score is a number calculated from the information on your credit report. Credit scores
are used to determine whether a creditor will offer you a loan or other product, and how
much interest you will pay for that loan or product.
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Section Two: What is Credit?
Even if you have never taken out a loan or used a credit card, it’s possible to have a
negative credit history. That’s because certain kinds of payments aren’t included in
your credit history, such as:

Your on-time payments on rent, utilities, or bills

Your payments on payday loans, pawn shop loans, or rent-to-own items
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These payments will usually only show up on your credit history if you don’t pay them
and your creditor reports them as charged-off debt or sells them to a collections
agency.
Here are a couple more things to remember about credit reports, scores, and history:
Your creditors may not provide information about you to all three credit
bureaus. All credit reports have the same general information on them, but
your credit reports may show information differently, or not show certain
information at all, depending on the credit bureau providing the report, and on
the kind of creditor that requested your report.

If you have no credit history, you will not have a credit report or a credit score.

If you have less than three credit accounts listed on your credit report, or you
have only accounts that are in collections listed on your report, you are
classified as having a thin credit history.
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If you have no credit history or a thin credit history, creditors see you as a risk
and are less likely to offer you a loan or credit product.
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Reflect on your learning
What information do you still wish you had?
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What are two things you heard or read in this section that surprised or interested you?
Section Two: What is Credit?
Your Turn
Test your knowledge! Match the correct credit term with its definition.
Definition:
_
A. Collateral
B. Credit Score
A number calculated from the information on your
credit report that allows a creditor or other business
to quickly decide whether or not to do business with
you.
C. Revolving Credit
D. Debt
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E. Installment Loan
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A person or business that loans you money
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An asset you pledge in order to borrow money
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A record of your credit history at the particular
moment in time at which the credit report is pulled
F. Creditor
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Money you borrow and can access up to a certain
credit limit
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The money you owe
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A company that collects consumer credit
information
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Ability to borrow money with the promise to repay
it at a later date
H. Credit Report
I. Credit
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A loan you pay the same monthly amount for over a
set period of time
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_
Credit Term:
Section Three: Why Does Good Credit Matter?
Good credit increases cash flow and creates opportunities to save
With a good credit score, you can get better terms and lower
interest rates on loans and credit products. So a good credit score
can save you thousands of dollars over your lifetime. The money you
save by not paying high interest and fees is money you can save for
other assets, like paying for college.
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People with good credit scores may pay $200,000 less over a
lifetime for financial products and services than those with no
or poor credit scores.
Calculate how much someone with a good credit score could save over time.
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Your Turn
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The tables below show sample loan terms for two asset purchases (a car and a home),
depending on the customer’s credit score.
$10,000 auto loan: 5 year term
500
17%
$249.00
620
11%
720
3%
$217.00
What is the potential savings over 5
years?
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$182.00
Score
Interest Rate
Monthly Payment
<620
N/A
N/A
620
5.6%
$1,153
760
4%
$960
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$100,000 mortgage: 30 year term
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Monthly Payment
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Score
What is the potential savings every
month?
What is the potential savings every
month?
What is the potential savings over
30 years?
Why is the mortgage not available at all to the person with a credit score under 620?
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Section Three: Why Does Good Credit Matter?
Good credit improves access to high-quality financial products
Credit and loan products are designed to help you meet your short-term financial
needs and to build assets by purchasing a home, earning a college degree, or starting a
business, for example. Having a thin credit history, or none at all, can make it difficult
for you to qualify for high-quality, affordable credit and loan products.
Good credit improves employment and housing options
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You may be required to go through a credit check when applying for a job—good
credit may increase your chances of employment.
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1 in 4 Americans have gone through a credit check
when applying for a job. According to a recent study,
1 in 10 are denied a job due to negative information
on their credit reports!
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A landlord will check your credit report for previous
housing collections items and other indicators of how
responsible you are at managing money. If you have a
good credit history you may more and better rental
options.
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Good credit buffers economic shocks and smooths income
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You may need credit to weather economic shocks such as unexpected expenses or a
sudden loss of a job. In these instances, credit can help you stretch and smooth your
income to meet your basic needs.
Reflect on learning
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Without a good credit history, a bank or credit union may not offer you a small dollar
loan or credit card in an emergency, and you may have to turn to high-cost payday
lenders to obtain credit instead.
What are two ideas you heard in this section that you will hang on to?
What is one action you will consider taking now because of what you learned in this section?
Section Four: Introduction to Credit Building
What are some challenges you have had with managing your credit? If you have not used credit,
what is keeping you from doing so?
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Start with YOU!
What are three words to describe your current relationship with your credit history, report, and
score?
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What is credit building?
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If you don’t have active trade lines, you won’t be able to build a good credit history or
improve your credit score.
You should have at least one, and ideally three, active trade lines on your credit report
that you are regularly paying on-time.
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You build your credit when you have positive, active
lines of credit — also called trade lines — on your credit
report.
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Credit building is the process of establishing and
maintaining a credit history. You build your credit when
you make on-time, monthly payments on a financial
product, such as a loan or a credit card, which your
creditor then reports to the major credit bureaus.
What is credit repair?
Credit building is not the same as credit repair, although they are related. Here are some ways
you can repair your credit:
 resolve errors on your credit report
 pay off debt that is in collections
 reduce active debt balances and prevent active debt balances from becoming delinquent
If you already have credit and debt, these two strategies are connected, but different. You will
need to do both to improve your credit report and scores. If you have no credit (and
therefore no debt), only credit building will help you establish a credit report and scores.
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Section Four: Introduction to Credit Building
What is an active trade line?
To build credit, trade lines on your credit report must be active:
they must be used regularly and paid on-time, every time.
Creditors report both installment credit (car loans, student
loans, mortgages, etc.) and revolving credit (credit cards or
lines of credit) to the credit bureaus.
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To build credit with an installment loan, the loan must carry a
balance and require a monthly payment. While paying off debt
is a good thing, once you pay off an installment loan in full, it is
no longer an active trade line and will not continue to build
credit.
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If you can, consider using a credit card to buy one tank of gas or groceries once a month
and then pay it off in full at the end of the month. Don’t use the card more than you need
to or for non-essential purchases.
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Revolving credit is a tool to continue building credit. In order to build credit with a revolving
credit product, you must use it at least once every six months—ideally, though, you would
use it once a month. You don’t have to keep an outstanding balance on the credit product—in
fact, it’s better if you pay off the balance in full at the end of every month or statement cycle.
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What are two ideas you heard in this section that you will hang on to?
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When you make on-time payments on services like your utilities, cell phone and rent, those
payments may be reported to the credit bureaus. If they are, they serve as alternative positive
credit data and therefore help you build credit. Ask your utility company, phone company, or
landlord if they report your payments to any credit bureaus.
What is one action you will consider taking now because of what you learned in this section?
Section Five: Five Steps to Build Your Credit
In this section, we will explore five steps you can take to get started on your credit building
journey:
1.
2.
3.
4.
5.
Connect Credit Building to Your Goals
Understand Your Credit Profile
Get the Good Stuff Going!
Deal With Debt
Make Credit Building Count
Step 1: Connect Credit Building to Your Goals
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Begin by thinking about your financial goals in general, using the questions in the chart below.
What do I want my financial life to look and feel like...
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In 5 days?
In 5 months?
In 5 years?
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Some specific goals I want to achieve are:
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What credit building goals will you set in order to achieve the financial life and goals you
described?
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How will a good credit history, reports, and scores help you reach
your goals?
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Section Five:
Four:Five
Introduction
Steps to Build
to Credit
YourBuilding
Credit
Step 2: Understand Your Credit Profile
Request Your Report
Credit reports and scores are key tools that you can use to work towards the goals you set.
Review and understand what is on your credit report to determine what you should do to
build your credit. As you begin to build credit, review your credit reports regularly to see the
progress you’re making along the path to financial stability.
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You can request one copy of your credit report from each of the three major credit bureaus,
once a year. You can also get a copy of your report for free if you have been denied credit, or
are unemployed, have been the victim of identity theft.
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Here are three ways to request your credit reports from TransUnion, Equifax, and Experian:
Visit www.annualcreditreport.com

Call 1-877-322-8228
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Send a written request to:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5821
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Here are some other tips for when and how to request and review your credit reports.
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Review at least one of your credit reports if you have plans to apply for a job or make a
major purchase in 6-12 months.

Once you have a handle on your credit reports, you should stagger and pull one report
every 3-4 months to keep an eye out on credit regularly.

Other free sites like creditkarma.com and credit.com offer credit report information, and
even access to certain credit scores. Although they are legitimate and can be good tools,
they are not a substitute for traditional credit reports – and always beware of marketing
that tries to sell you something you may not need.
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If you are requesting your credit report for the first time ever or it has been a long time
since you requested it, request and review it from all three of the major credit bureaus at
the same time.
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Section Five: Five Steps to Build Your Credit
Step 2: Understand Your Credit Profile
Read Your Report
Although credit reports from each of the
credit agencies may look different, they
contain the same basic information. There
are typically four main components:
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1. Identifying information, such as
your name, Social Security Number,
current and previous addresses,
telephone number, birth date,
current and previous employers, and
your spouse’s name if you are
married.
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2. Your credit history, such as how much credit has been made available to you and your
history of paying it back. The report will also show gaps in your credit history: times
when you were not using any credit products at all.
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3. Negative information about you that is in public records, such as bankruptcies,
foreclosures, tax liens, and late child support payments. This information stays on your
credit report for seven years or longer.
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Chapter 7 bankruptcies stay on your credit report from 10 years. Tax liens stay on your
credit report for seven more years after you pay them off. Civil lawsuits, judgments and
arrests will stay on your credit history for seven years after they are recorded by the
court.
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1. A list of inquiries from creditors and other authorized parties who have requested and
received your credit report, including yourself. Most inquiries remain on your credit
report for two years. An inquiry can be either “hard” or “soft.”
A hard inquiry happens when you apply for any type of credit, and will be listed on your
credit reports. Hard inquiries may lower your credit score somewhat because someone
who has recently applied for new credit is seen as a potentially riskier borrower.
A soft inquiry happens when you request to see your credit report, when one of your
current creditors performs a routine check, or you receive credit offers without applying
for them. Soft inquiries will not impact your credit score and will not show up on your
credit reports.
Read your credit report carefully to look for errors in any of the above components.
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Section Five: Five Steps to Build Your Credit
Your Turn
Use the sample credit report handout to answer the questions on this
page.
Whose credit report is this? What other personal information can you tell about them?
Has the person ever declared bankruptcy?
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Has the person had an account in collections?
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If yes, what is the account?
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How many credit accounts does this person have open? Which ones are active?
What is the balance on each account?
Is this person paying their active accounts on time? How many are late? How late are they?
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Section Five: Five Steps to Build Your Credit
Your Turn
Order your credit report from at least one credit bureau. Review it
and use this form to check it and make sure all information listed
on it is correct.
Experian
TransUnion
Equifax
Date you reviewed your report
Is your name correct? Check aliases they may have listed for
you, too.
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Is your social security number correct?
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Are your previous addresses correct?
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Is your address correct?
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If something is listed in the collections section, has it been
noted as closed in the accounts section?
Check the account name, account number, loan amount, and
current balance. Are these correct?
Check payment pattern. Are there payments outstanding? Are
there payments marked as late? Are these correct?
Do you need to dispute it?
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Review each entry in the accounts section. Do they all belong
to you?
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Do you have anything listed in the collections section? If yes, is
this correct?
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Is there anything listed in the public records section? If yes, is
this information correct?
Section Five: Five Steps to Build Your Credit
Step 2: Understand Your Credit Profile — Dispute Errors
According to the Federal Trade Commission, 25% of all credit reports contain incorrect
information or errors. Some errors are harmless, such as misspelled names or addresses. But
some errors may signal identity theft or have a serious impact on your access to affordable
credit products, rental housing, employment, and more.
It’s important for you to check your reports to make sure the information on there is correct. If
there is any incorrect information, dispute it!
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To dispute information you believe is incorrect, you must do so in writing to the credit bureaus.
There is a sample dispute letter on page 37 of this workbook. Here are some additional tips for
disputing incorrect information on your credit report:
Be clear and concise. Use simple language to explain your dispute.

Tell your story! The more information that you provide the better. As long as it is
relevant, include details in your own words that support your case.

Provide documentation. Provide a copy of the credit report that lists the information
that you would like to dispute. Include copies of any other materials (cleared checks,
receipts, statements) that help to support your case. Never send originals!

Send your dispute letter by certified mail to one or all of the major credit bureaus.

Make and keep copies of your correspondence with all creditors, as well as the
disputes that you submit.

Follow up! Credit bureaus generally have 30-45 days to respond to your claim. If they
do not respond within 30 days, call them, or send another letter. Use this simple chart
to keep track of your disputes:
Date dispute sent
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Follow-up date
Date resolved
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Disputed account
name/number
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
If you are the victim of identity theft or fraud, file a report of this crime with your local
police department, and provide a copy of the policy report to each credit bureau.
20
Section Five: Five Steps to Build Your Credit
Step 2: Understand Your Credit Profile Understand How Credit Scores Work
There is far more than just one credit score out there,
but the ones most widely known and used are the FICO
(Fair Isaac) score and VantageScore. All credit scores
compare the information in your credit report to what
is on the credit reports of thousands of other people.
Do
A credit score is the easiest way for most traditional
lenders to determine who may qualify for their credit
and at what rates.
td
no
FICO scores and VantageScores generally range from 300 to 850. A higher score means you
are a lower credit risk. If you have a higher score, a creditor is more likely to offer you a
loan. Lenders have different standards for how much risk they will accept. Here is a very
general idea of what a lower or higher credit score means:
FICO Score
Prime (Fair/Good)
Under 620
No access or unfavorable rates and terms
620 – 780
Reasonable or good rates and terms
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780+
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Super-prime (Excellent)
Meaning…
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Subprime (Poor/Low)
p
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Range
Better or best rates and terms
uc
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Other factors like your current income, how much debt you have, and how stable your
employment has been, can also influence a creditor’s decision to offer you a loan.
Most credit scores take the following factors into account:
or
e
Your scores vary depending on your recent credit activity. The credit bureaus only calculate
your score when a lender requests to see it. So any score they calculate will be based on
the information in your file at that credit bureau, at that moment in time only.
More
influential
Less
influential
History of regular,
on-time payments
21
Debt balance/
credit utilization
ratio: how much
of your current
available credit
you are using
Length of
your
credit
history
Mix of
credit
types
Hard
inquiries
Section Five: Five Steps to Build Your Credit
While FICO, VantageScore, and other credit scores treat these factors differently, there are a
some credit best practices that will improve your credit score no matter what:
Make regular payments on time.

Keep debt balance/credit utilization ratio low — use 30% or less of your available credit.

Don’t close old accounts in good standing if you don’t need to.

Maintain a mix of active trade lines — both installment and revolving

Don’t apply for a lot of credit in a short period of time unless that credit is for a specific
asset like a car or a house.
Do

no
Your Turn
ist
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Use the following tool to determine if you are a good candidate for
credit building right now, or should consider another action before you
begin credit building.
Do any of the following appear on your credit report? If so, check the box.

Recent late payments on current active debt (last 6-12 months)

Debt balance/credit utilization ratio over 30%

Accounts in collections that may lead to judgments or garnishments

Public records reflecting money judgments or garnishments
or
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3 or more open, active credit accounts
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
If you checked one or more boxes:
If you did not check any boxes:
Go to Step Four: Deal with Debt to make sure
that you are ready for credit building by
taking a closer look at your outstanding debt.
Go to Step Three: Get the Good Stuff Going.
You are a very good candidate for credit
building now! Remember that you may
have no credit or a thin credit file, so you
may seem like a risky borrower to lenders.
But stay focused on the positive: it is easier
to build good credit than repair bad credit.
Once you have assessed your budget and
debt situation, revisit Step Three: Get the
Good Stuff Going. You may still be a good
candidate for credit building now or in the
near future!
22
Section Five: Five Steps to Build Your Credit
Step 3: Get the Good Stuff Going!
Once you determine that credit building is the right next step for you, you need to plan how
to get, and keep, your credit building strategy going! As you plan your credit building
strategy and choose a credit building product, ask yourself:
Do I need to activate existing open accounts, get delinquent accounts current, and/or
add new active accounts?
Do
td
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What credit-building financial product can I afford? What credit-building financial
product am I eligible for?
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Are there financial products that are linked to money management tools, matched or
incentivized savings opportunities, and/or ongoing credit building?

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Many credit building products are starter products: small dollar loans that last for a few
months or a year, or secured credit cards with low security deposit requirements. These
products often have graduation features that let you transition into a more traditional credit
product such as a mortgage or a no-fee, low-interest unsecured credit card, after you have
used the starter product successfully.
Remember, some credit builder products, like a secured credit card, can be used to
purchase items already in your budget such as gas or groceries.
Before you open a credit building card or loan, create a realistic budget and decide how
much of your monthly budget you can devote to monthly payments.
Your Turn
23
Complete this sentence: The maximum monthly credit payment I can
afford is ___________ dollars.
Complete this sentence: My ideal monthly credit payment is __________
dollars.
Section Five: Five Steps to Build Your Credit
Next, consider your strategy and select your product.

If you have credit accounts that are delinquent but not in collections (such as a loan you
missed a payment on), make payments and become current on those accounts before you
apply for new credit.

If you have credit accounts that are inactive (such as a credit card that you just don’t use),
activate those accounts before applying for a new credit account.

If you have no or just one active credit account, identify and apply for a product that
would be helpful to you.
Do
Your Turn
Use this table to compare products and identify what kind of product to
apply for if you have no or few active credit accounts.
no
Product #1
Eligibility Requirements
or
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Do I need money
to open the
account? If so,
how much?
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What kind of ID
do I need to open
the credit
account?
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Type of product
(installment,
revolving, etc.)
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Name of product
Product #3
td
Creditor name
Product #2
Basic Information
Do I need a
minimum credit
score to open the
account?
24
Section Five: Five Steps to Build Your Credit
Product #1
Product #2
Affordability and other terms and requirements
Product #3
What is the interest
rate? Is it variable or
fixed?
Are there other fees
to open the
account?
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Can I pay off the
balance without any
pre-payment
penalty?
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Is there minimum
limit on the credit
amount available? A
maximum?
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What is the product
term (is it for one
year? Is it ongoing?
etc.)
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What are the late
fees?
p
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What will my
monthly payment
likely be? How much
will go to principal
and how much to
interest?
no
When is the monthly
payment due?
Do
Is there an annual
fee to have the
account? If yes, how
much?
Section Five: Five Steps to Build Your Credit
Product #1
Product #2
Product #3
Flexibility
When and how will I
receive monthly
statements?
Can I negotiate
statement dates?
Do
Are there different
options?
no
Graduation options
or
Do the creditor’s
employees speak
my language?
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Accessibility
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Does this creditor
have other products
I can use that will be
of value to me? If so,
what are they?
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Are there other
features that can
help me graduate to
another product?
Can I make
transactions and
payments online?
Is there a grace
period?
26
Section Five: Five Steps to Build Your Credit
Step 4: Deal with Debt!
If you have a lot of active debt or debt in
collections, we recommend that you address
these issues first before you begin to build
your credit. Make a plan to pay off your debt.
Paying off your debt is a critical step in
working towards future credit building goals.
Do
Active debt is any outstanding balance you
owe on a credit product that has not gone
into collections. If you are already making
payments on your active debt, you’re likely
already building your credit!
no
Here are other tips for dealing with active debt:
td

If you have a lot of debt from an installment credit product like a car loan, pay more
than the minimum monthly payment to decrease that debt load. This will reduce your
total interest owed.

If you don’t have enough money to make your payments on time, examine when your
payments are due and when you receive income. Call your creditor to see if they can
switch your payment date to a date closer to when you have income.

If you don’t have enough money to make a payment, call your creditors to explain
what’s going on, and see if you can work out a short-term arrangement to decrease or
skip your payment.

If and when you are able to pay off your credit, do not close old revolving credit
accounts even if you are not actively using them. In addition to being important to the
length of your credit history, it might reduce your total credit utilization ratio.
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If you use revolving credit products like a credit card, manage your debt there by
avoiding using more than 30% of the total credit that’s available to you.
p
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
Don’t ignore warnings or bills you can’t pay. If a creditor
threatens to sue you, respond to any court documents.

If you have debt that is already in collections, it can never be
“active” as defined above. Unlike making on-time payments
on your active debt, paying off debt in collections may not
improve your credit scores.
27
Section Five: Five Steps to Build Your Credit
Avoid establishing an ongoing payment relationship with a debt collection agency. When
dealing with an account in collections, if possible, it’s best to try to settle it in one lump
sum of 30-50% of the debt you owe, rather than create an ongoing payment plan.
When you make a lump sum payment, it will decrease your credit scores for a short time,
and then the account activity will age and the negative impact on your scores will lessen
over time. But if you establish a payment plan, the negative impact could be reactivated
every month when your payments on the debt show up as recent activity on your credit
report, which will spread out their negative impact over time.
Do
Here’s a map to help you figure out some possible routes for negotiating a lump sum
payment with a creditor:
td
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or
If they are unwilling to negotiate, try hanging up and
redialing the creditor again. It may be possible to reach
another representative willing to negotiate. If that doesn’t
work, and you can afford to do so, pay the account in full
and then request a receipt. Or, you can move onto another
collection account and try negotiations with them.
uc

If the creditor makes a counter-offer — such as “We can’t
accept $200, but we would accept $250” — decide whether
you can afford that or not. If you can, make the payment,
and then request a receipt.
d
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This is Mr. Smith and I recently
became aware of several collection
accounts on my credit report. I am
working with several collection
agencies to settle these accounts.
According to my records, I owe you
$300. Will you accept $100 as
payment in full, or should I give that
$100 to another collection agency?
ist
If they reject the offer, ask, "What will you accept as a
payment in full?"
p
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This is Ms. Smith. I recently became
aware of a collection on my credit
report, account 12345. I currently
have $200 I can apply toward this
debt. Will you accept that as
payment in full on this account?
If the creditor accepts your offer, request that they mail, fax,
or e-mail you a receipt verifying that the debt has been
settled in full after you make the payment.
no
Save up your lump sum payment,
and then call your creditor. Here
are two examples of what to say:
After you settle collections accounts, it’s a good idea to send a letter to each of the
credit bureaus to speed up their correcting the outstanding debt information.
In some cases, a payment plan may be the best option to avoid wage garnishment. In
these cases, try to establish a payment plan with the original creditor and not the
collection agency. Also try to negotiate the total amount before negotiating the monthly
payments. Be sure to get an agreement in writing before making the first payment, and
get a receipt for each payment you make. And make all payments on time!
28
Section Five: Five Steps to Build Your Credit
Use the tools below to make a plan to deal with your debt.
Your Turn
1. Using your credit report, make an inventory of active debt and debt in collections.
Determine how much you owe each creditor and how much you owe in total.
Name of
creditor
Amount
owed
Minimum
monthly
payment
$
$
In
collections?
Type of
collateral
pledged
Do
$
$
$
$
$
$
no
TOTALS
Monthly
payment
due date
Amount I will put
towards my debt
$
Monthly payment
amount or total
payoff amount I
can make
$
$
$
$
$
Why is this payment important
to me? Why does it make sense
for me?
or
Amount
owed
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Name of
creditor
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3. Prioritize your repayments.
When will I get the
funds? When will I use
them for a payment?
rib
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Anticipated
amount
p
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Source of
funds
td
2. Figure out how much you can afford to pay each month, and brainstorm other ways
you can save money to pay off your debt.
4. Organize and plan out your payments. We suggest using a calendar to keep track of
due dates and when you made payments.
29
Section Five: Five Steps to Build Your Credit
Step 5: Make Credit Building Count!
Credit building takes time and dedication. Make sure you check in on your progress over time,
and then celebrate your successes, no matter how small!

Check your credit report and scores every three to six months.
Your Turn
Use the following tool to revisit your credit report and conduct a follow up
credit report assessment to identify changes and progress as revealed by
your credit report.
Do
If not, what more do you need to do to
get your payments current and to
make them on time moving forward?
Is your credit utilization ratio at 30% or
less?
Do you need to dispute anything?
30
or
Are you paying these on-time?
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Do you have active trade lines?
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What more do you need to do deal
with accounts in collections?
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Do you have anything listed in
collections?
rib
What do you need to do to address
records?
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Is anything listed in the public records
section?
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What changed?
td
If you disputed anything on your
previous report, did it get resolved?
12 month follow up
no
Date you reviewed your report
6 month follow up
Section Five: Five Steps to Build Your Credit
If you want to track improvements on your credit score over time, remember that you will
probably have to pay to view your score.
Also, while improvements evidenced on your credit report will most likely be reflected in a
higher credit score, note which score you are accessing and make sure you are comparing like
scores. Remember that a creditor or other business will likely not see the same score you see
when they review your score.
Here is a tool you can use to compare credit score improvements over time:
Experian
Equifax
Do
Score name
TransUnion
What was my previous score (if any)?
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How much did it change?
p
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Date pulled
td
What is my current score?
no
Date pulled
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As you improve your credit, think about how to leverage your successes to achieve your goals.
With an improved credit score, you could:

Request that your car or home insurance company reduce your annual premiums

Refinance expensive debt you currently have and get a lower interest rate
e
or
Apply for an affordable credit product you may need
uc

If you take any of these actions, do so responsibly, and think ahead about how they will affect
your credit report and score. But whatever you do, remember:

Be confident!

Ask for exactly what you want, but be prepared to negotiate.

Make your credit building efforts work for you!
Taking control of your credit is possible. With access to the right products, making on time
monthly payments can be possible and can make all the difference in establishing or
reestablishing good credit scores. Once you start to build your credit, reviewing and leveraging
improvements to your credit report and scores is not only empowering, it can save you money,
help you access the housing or job you want, and get you on the road to financial stability.
31
Resources
For another overview of how to access your free credit and how to dispute errors on it, visit
http://www.consumer.ftc.gov/articles/0155-free-credit-reports.

For more information, including a helpful video, on disputing credit report errors, visit
the Consumer Action website link here: http://www.consumer-action.org/modules/
articles/rebuilding_good_credit_leaders_guide1#Topic_03.

If you are the victim of identity theft or fraud, the Federal Trade Commission’s online guide
will help you learn more about how to deal with the problem: http://
www.consumer.ftc.gov/features/feature-0014-identity-theft.

For more information on what creditors and debt collectors can and cannot do if you owe
them money, visit Ask CFPB at http://www.consumerfinance.gov/AskCFPB.

Creditors have a certain amount of time to collect debt legally. After that they can no
longer pursue you for it (the statute of limitations will expire). However, if you make a
payment you may be starting that statute of limitations over again. Again, this does not
mean that you do not want or need to deal with your debt in collections, just that you
should be aware of your rights as a consumer. Visit http://www.nolo.com/legalencyclopedia/statute-of-limitations-state-laws-chart-29941.html to learn more about
Kentucky’s debt collections.

Test your knowledge of credit scores with this simple 20-question quiz:
www.creditscorequiz.org

Read a report on the importance of credit history and successful saving: http://
americasaves.org/images/newsletters/creditscore.pdf

Explore alternative credit data reporting opportunities. Alternative credit data refers to
information, such as on-time rental payments, that is usually not on a traditional credit
report. Alternative credit can be helpful to those that are new to the credit or those that
may have poor credit and need to have positive information added to their report.
Currently many companies and landlords report poor payment history to the credit
bureaus, particularly in cases where accounts go to collections, but very few reward
positive payment behavior by reporting on-time payments. Fortunately there is now a way
for these renters to benefit from the same credit building opportunities afforded to
homeowners. Experian and TransUnion offer renters the opportunity to include on-time
rent payments as valid trade lines on traditional consumer credit reports. This data is
reported either directly by landlords or by credible online rental payment processors – and
it could be an opportunity for you to build credit without taking on additional debt or
incurring the burden of an additional monthly expense. For more information about credit
building through rental payment reporting, contact [email protected].
Do

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Sample Dispute Letter
Today’s date
Your Full Name
Current Address
Current Phone Number
Attention: credit bureau name and address
Dear credit bureau,
Do
This letter is a request to correct inaccurate information contained in my credit file. The item(s)
listed below is/are (insert appropriate word(s): inaccurate, incorrect, incomplete, erroneous,
misleading, and outdated). I have enclosed a copy of the credit report your organization provided
to me on (insert date of report here) and highlighted item(s) in question.
Line Item: name of creditor, account number or line item number
no
Item Description: write this exactly as it is found on your credit report
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Requested Correction: Describe exactly what you want the credit bureau to do. If you want an item
deleted, say so and explain why. If you want an item corrected or updated, provide the correct
information such as names, dates, amounts and so forth and any evidence to support your claim.
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In accordance with the federal Fair Credit Reporting Act (FCRA), I respectfully request you
investigate my claim and, if after your investigation, you find my claim to be valid and accurate, I
request that you immediately (delete, update, correct) the item.
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Furthermore, I request that you supply a corrected copy of my credit profile to me and all
creditors who have received a copy within the last 6 months, or the last 2 years for employment
purposes. Additionally, please provide me with the name, address, and telephone number of
each credit grantor or other subscriber that you provided a copy of my credit report too within
the past six months.
or
e
If your investigation shows the information to be accurate, I respectfully request that you
forward to me a description of the procedure used to determine the accuracy and completeness
of the item in question within 30 days of the completion of your re-investigation as required by
the Fair Credit Reporting Act.
I thank you for your consideration and cooperation. If you have any questions concerning this
matter I can be reached at (daytime phone number including area code).
Sincerely,
Signature
Your full printed name
For other sample dispute letters, plus letters for other
requests such as to stop calls from a collections agency,
visit the Federal Trade Commission’s website:
http://www.ftc.gov/search/site/sample%20dispute%20letter
33
Glossary
Here is a list of some terms that you may have seen throughout this book, and which you will hear a lot
as you build your credit.
Do
Annual percentage rate (APR) — A measure
of the cost of credit, expressed as a yearly
interest rate. Usually, the lower the APR, the
better for you. Be sure to check the fine print
in credit card offers for time limits. Your APR
could be much higher after the offer's
introductory period ends.
Collateral — Property that is used to secure a
loan or other credit that can be subject to
seizure on default. For example, Judy uses
her car as collateral for a $10,000 loan. If she
is unable to repay the loan, the bank can take
away her car.
Collections — When payment on a debt is
past due and the creditor sells the debt to a
collections agency, the debt is described as
being “in collections.”
Collections agency — Companies that
regularly collect debts owed to others. They
either own the debts (purchased from
creditors, such as car dealers) or they assist
companies in collecting debt from their
customers.
Credit — The ability to borrow money with
the promise to repay it at a later date. Credit
is not free. It allows you to buy things when
you don't have cash immediately available,
but you will be charged interest and fees for
using credit.
Credit building — The act of making on-time
monthly payments on a financial product
such as an installment loan or a credit card
that is reported by the creditor to the major
credit bureaus.
Credit bureau — See credit reporting agency.
Credit file — See credit history.
Credit history — A record of all of your creditbased transactions. If you have ever applied
for a credit card, an auto loan, or a loan from
a bank, then you have a credit history.
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Credit repair — A strategy for improving
one’s credit score and history by resolving
errors, paying off historical accounts in
collections, and reducing open and active
debt loads and preventing them from
becoming delinquent.
Credit report — A report detailing your credit
history. A credit report is a record of how you
have paid your debts. It tells creditors and
other businesses who you are, how much
debt you have, whether you have made
payments on time, whether there is negative
information about you in public records, and
what type of credit you are looking for. All
lenders use a credit report to determine your
credit history and evaluate your record of
repaying credit.
Credit reporting agency — a company that
collects and packages consumer credit
information from creditors and then sells it
back to them and others for a variety of uses
as authorized by the Fair Credit Reporting Act
(FCRA).
Credit score — A number typically calculated
from the information on your credit report
that allows a creditor or other business to
quickly decide whether or not to do business
with you. Like a test score, the higher the
score, the better your credit. A good credit
score will help you take out loans more easily
and even get better interest rates. All three
credit reporting companies (Equifax,
Experian, TransUnion) use the system
VantageScore to determine credit scores.
Creditworthy or creditworthiness — Having
an acceptable credit history and therefore
suitable to receive credit.
Definitions are adapted from the New York City Office of Financial
Empowerment’s Money Dictionary. You can find more terms related
to credit, lending, and other topics at this website: http://
home.nyc.gov/html/ofe/html/publications/dictionary.shtml
34
Glossary
Do
Creditor — A person or organization (such as
a bank) that lends you money on terms that
they set. Also called lender.
Debt — An obligation to repay an amount
you owe, also known as loans or liabilities.
Default — Failure to meet the terms of an
agreement. For example, Cindy and ZZ Bank
have a loan agreement in which Cindy pays
$50 for five years for borrowing $2,000 from
ZZ Bank. Cindy doesn't repay ZZ Bank and,
therefore, has defaulted on her loan.
Delinquent — Being late for a payment on a
loan or other liability. If a payment is due on
the 1st day of the month, and you don’t pay it
until the 10th, the account is said to be
delinquent or in delinquency until you have
made the payment. Some loans have grace
periods to allow for late payments up to a
certain point without causing delinquency.
The terms of your loan will spell out what, if
any, late fee you’ll have to pay on a
delinquent payment. Serious or prolonged
delinquency can lead to default.
Fair Credit Reporting Act — A consumer
protection law that imposes obligations on
(1) credit bureaus (and similar agencies) that
maintain consumer credit histories; (2)
lenders and other businesses that buy reports
from credit bureaus; and (3) parties who
furnish consumer information to credit
bureaus. The FCRA limits the sale of credit
reports by credit bureaus by requiring the
purchaser to have a legitimate business need
for the data, allows consumers to learn the
information in credit bureau files (including
one free credit report annually), and specifies
the procedure for challenging errors in credit
report data.
Fixed interest — A predetermined and
unchanging rate. For example, a 3% fixed rate
loan means the interest rate will remain at 3%
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throughout the time you have the loan.
Compare to variable interest.
Installment loan — A loan that is repaid over
a set amount of time with a set number of
scheduled payments
Lender — See creditor.
Liability — Amounts you owe to creditors/
lenders, such as a car loan or credit card debt.
Lien — The legal right of a creditor to keep or
sell the collateral property of a debtor who
fails to meet the terms of a loan.
Line of credit — An amount of credit
extended to a borrower. See trade line.
Interest — The amount a borrower pays to a
lender for use of the lender’s money. Interest
rates can be fixed or variable.
Principal — The original amount of money
borrowed. For example, George borrows
$1,000 from XYZ Bank. At the end of the
month he needs to repay them $1,200. $1,000
is the principal amount and $200 is the
interest and/or fees for borrowing the loan.
Revolving — Credit or a loan where the
borrower has the flexibility to decide how
often they want to draw on the credit and at
what time intervals.
Secured — A loan that is backed by property,
such as a house or car. In some instances,
secured loans can also be backed by cash.
Compare to unsecured.
Terms — Conditions and requirements
included in a loan agreement that specify the
loan amount, term, interest rate, and other
enforceable conditions agreed to by the
borrower and the lender.
Trade line — Also called line of credit.
Unsecured — A loan that is not backed by
collateral. Compare to secured.
Variable interest — An interest rate that may
change during the life of a loan. Compare to
fixed.
35
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