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2 2013 Freddie Mac | CreditSmart® Instructor’s Guide | Module 9: Restoring Your Credit

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CreditSmart® Module 9: Restoring Your Credit

Table of Contents

Welcome to Freddie Mac’s CreditSmart® Initiative ......................................................................... 6

Program Structure ....................................................................................................................... 6

Using the Instructor Guides ......................................................................................................... 7

Lesson Concepts and Icons ............................................................................................................... 8 How to Access the WBT ............................................................................................................... 8

Tips for Instructors ........................................................................................................................... 9 Workshop Preparation Tips ......................................................................................................... 9

Before the Workshop Begins ....................................................................................................... 9

Adult Learning Tips .................................................................................................................... 10

Instructor Training ..................................................................................................................... 10

Introduction to Module 9: Restoring Your Credit ........................................................................... 11 Module Overview ....................................................................................................................... 11

Glossary ..................................................................................................................................... 11

Topic 1: Reasons for Financial Difficulties ...................................................................................... 12 Overview .................................................................................................................................... 12

Financial Difficulties ................................................................................................................... 12

Start the Discussion ................................................................................................................... 13

Topic 2: Warning Signs of Credit Problems .................................................................................... 14 Overview .................................................................................................................................... 14

Warning Signs of Credit Problems.............................................................................................. 14


Topic 3: How to Cope With a Financial Crisis ................................................................................. 16 Overview .................................................................................................................................... 16

How to Cope With a Financial Crisis ........................................................................................... 16


Topic 4: Restoring Your Credit ........................................................................................................ 19 Overview .................................................................................................................................... 19

Restoring Your Credit ................................................................................................................. 19


Topic 5: Steps to Restore Your Credit ............................................................................................. 23 Overview .................................................................................................................................... 23

Prepayment Penalty Terms ........................................................................................................ 23

Knowledge Check ....................................................................................................................... 25


Knowledge Check ....................................................................................................................... 26

Module Conclusion ......................................................................................................................... 27 Module Summary....................................................................................................................... 27

Appendix A: Glossary ...................................................................................................................... 28


Welcome to Freddie Mac’s CreditSmart® Initiative

This consumer financial education and outreach initiative is designed to help

consumers build and maintain better credit, make sound financial decisions, and understand the steps to successful long-term homeownership. In this guide, you’ll find everything you need to lead participants through real-life scenarios, group discussions and activities that will encourage them to apply these lessons to their daily lives. By sharing the CreditSmart resources with others, you’ll help them increase their financial understanding, gain life-long money management skills, and show them how to avoid costly mistakes.

Program Structure

The CreditSmart Curriculum includes 12 complete financial education modules that can be completed in two ways – self-paced online or in a classroom setting.

Module Title

1 Your Credit and Why It Is Important

2 Managing Your Money

3 Goal Setting

4 Banking Services: An Important Step

5 Establishing and Maintaining Credit

6 Understanding Credit Scoring

7 Thinking Like a Lender

8 Avoiding Credit Traps

9 Restoring Your Credit

10 Planning For Your Future

11 Becoming a Homeowner

12 Preserving Homeownership: Protecting Your Home Investment

Continued on next page


Welcome to Freddie Mac’s CreditSmart® Initiative, Continued

Using the Instructor Guides

The Instructor Guides can be used alone or as an adjunct to the Web-Based Training (WBT) program. Even if participants choose not to experience the program online, gaining familiarity with the WBT will help you present the material more effectively. The most up-to-date content can always be found online at www.freddiemac.com/creditsmart/consumer_training.html. Each of the twelve CreditSmart modules has its own Instructor Guide which follows the organization of the Web-Based Training (WBT) available online, and includes much of the same content. Each Instructor Guide includes:

A glossary of all the relevant terms introduced in the module

A module introduction which includes

An overview

Learning objectives

Sample discussion questions to start the lesson

“The Basics” – a list of bullet points outlining the key concepts of the lesson

A lesson summary of all the key concepts in the lesson

Activities, knowledge checks, discussion questions, and handouts

http://www.freddiemac.com/creditsmart


Lesson Concepts and Icons

Each module topic will present several key concepts. These concepts are introduced

to your participants in a variety of ways described in the table below.

Activity An activity usually involves class participation, whether it is a game, exercise, or worksheet completion. Typically after an activity you will have the opportunity to lead a discussion.

Discussion

Discussions allow you to introduce key concepts while involving your participants in the conversation and making the information relevant to them. Sample questions are included in each lesson to help you guide the discussion.

Knowledge Check

There are short knowledge checks throughout each topic designed to start discussions or quickly test participants’ knowledge of certain concepts.

How to Access the WBT

The CreditSmart Web-Based Training (WBT) is available free of charge in both English and Spanish and can be accessed online at www.freddiemac.com/creditsmart/consumer_training.html.



Tips for Instructors

The following tips and suggestions will help to ensure the successful delivery of the

CreditSmart curriculum.

Workshop Preparation Tips

Select handouts and exercises for each topic in advance to help enhance your presentation and discussion with participants.

Determine if you will need other instructional materials such as overhead transparencies, slides, flip charts, handouts, and videos.

Arrive at the workshop location early to set up.

Decide how the room should be set up (e.g., classroom style, lecture).

Make sure that all of the necessary equipment, such as a computer and projector is available and working.

Provide a sign-in sheet and allow space (e.g., side table, counter, etc.) for handouts and resource materials.

Set up refreshments, if provided.

Provide adequate signs directing participants to the workshop location.

Greet and welcome participants individually as they arrive.

Begin the workshop promptly.

Distribute and collect evaluation forms before the end of each workshop.

Confirm that all participants have signed the sign-in sheet to ensure credit for attending the workshop.

Before the Workshop Begins

Welcome participants and introduce yourself.

Review logistics (session length, restroom location, breaks, etc.).

Provide a brief history of the CreditSmart curriculum, which you can find a www.freddiemac.com/creditsmart.

Provide an overview of workshop materials.



Tips for Instructors, Continued

Adult Learning Tips

Adults learn in different ways; therefore, you will want to use different techniques, vary your presentation style, and be sensitive to how your students are responding.

Relate the content to what your students already know. Doing so will make your workshop more effective and will help to ensure participants retain more information.

Be sensitive to those with special needs and/or learning disabilities.

Use ice breakers, activities, exercises, and/or videos to break up the flow of your presentation.

Supply handouts and local and/or national articles that highlight the topic being presented.

Poll the audience to gauge participants’ level of knowledge of the topic being presented.

Research available community credit counseling resources in advance to ensure that consumers have access to appropriate referrals, as necessary.

Instructor Training

Freddie Mac provides CreditSmart instructor training for anyone who is interested in teaching the CreditSmart curriculum. Select one of the options below:

Contact Freddie Mac by emailing: [email protected].

Attend a CreditSmart Train-the-Trainer workshop hosted by Freddie Mac. This instructor training series includes a comprehensive review of the CreditSmart curriculum, plus instruction on best practices in conducting effective classroom training. Visit http://www.freddiemac.com/creditsmart/for more information.

http://www.freddiemac.com/creditsmart/


Introduction to Module 9: Restoring Your Credit

Module Overview

This module will help participants prepare for the unexpected by offering some tips on how to most effectively deal with financial difficulties. Learning Objectives

After completing this module, participants should be able to:

Describe four reasons for financial difficulties

Recognize warning signs for credit problems

Manage through a financial crisis

Use tools to restore credit and credit rating

Module Topic:

Reasons for Financial Difficulties

Warning Signs of Credit Problems

How to Cope With a Financial Crisis

Restoring Your Credit

Five Steps to Restore Your Credit

This topic includes activities to help simulate real-world scenarios with your participants.

Glossary

A Glossary is included in Appendix A of this guide, and contains definitions and descriptions of terms and phrases related to this module. A Glossary is also included in the Participant Presentation. Encourage your participants to use the Glossary during and after the class to become more familiar with the terminology.


Topic 1: Reasons for Financial Difficulties

Overview This topic discusses four main reasons for financial difficulties.

Time 15 minutes

Financial Difficulties

The Basics

There are a number of major reasons for financial difficulties including:

Poor money management (overspending, compulsive buying, purchasing things you can't afford)

Loss of income (job loss, divorce, death)

Emergency and/or unexpected expenses (car repair, house repair, medical expenses, etc.)

Fraudulent use of your credit card - identity theft

You always need to be as prepared as possible to deal with the unexpected.

Owing more than you can repay is painful and it can negatively affect your money situation for years.


Topic 1: Reasons for Financial Difficulties, Continued

Start the Discussion

To start the discussion with your participants, ask some open-ended questions. Here are some examples to get you started:

Have you ever felt like you had too much debt?

What are some resources you can use to help manage your debt?

What are some signs of having too much debt?

Reasons for Financial Difficulties


Topic 2: Warning Signs of Credit Problems

Overview This topic discusses several warning signs of credit problems.

Time 15 minutes


The Basics

It’s easy to fall into the trap of financial instability, but while it may seem difficult at first, it isn’t impossible to get yourself out of the trap.

Avoid loans and credit cards with high interest rates.

Don’t take on monthly loan payments you can’t afford.

Stay within your credit limit. Track your credit card charges throughout the month.

Be aware and recognize the warning signs that might be a signal of pending financial and credit problems.

Some warning signs that might be a signal of pending financial credit problems include:

Inability to pay your bills on time and paying late fees.

Difficulty deciding which bills to pay each month.

Being forced to use credit cards for routine purchases that you would normally make with cash or checks.

Being frequently at, near, or over your credit limit.

Thinking your financial condition is beyond help.



Do you ever spend time worrying about the amount of money you owe?

Do you only pay the minimum amount due on your credit cards each month because that’s all you can afford?

Have you paid late penalty fees more than twice within the last year?

Do you spend more than 20% of your net monthly income to pay for your


credit cards?

Topic 2: Warning Signs of Credit Problems, Continued

Start the Discussion (continued)


Instructor note:

Define the following terms:

Term Definition

Net Monthly Income

Your take-home pay for one month after taxes. It is the amount of money that you actually receive in your paycheck.

Loan Money you borrow from a financial institution with a written promise to pay it back later. With a loan, financial institutions will charge you fees and interest to borrow the money.

Mortgage A mortgage is a document that is signed by a borrower when a home loan is obtained and gives the lender the right to take possession of the property if the borrower fails to make loan payments.


Topic 3: How to Cope With a Financial Crisis

Overview This topic discusses ways to manage during times of financial difficulty.

Time 15 minutes


The Basics

Before you can look at ways to resolve a financial situation, you must first determine and understand the cause.

Not all expenses are created equal. There are certain bills that need to be paid before others.

Establish which bills are the most important and look for expenses that you can cut out of your budget.

If you’re having trouble with credit cards, medical bills, or another major expense, the first thing you should do is call your lender.

Calling your credit card company when you are having difficulty paying the bill can result in a lower interest rate, and in some cases may even lead to a temporary delay in making payments.

Be honest and don’t give up. If you tell the truth to your creditors, you’ll ensure a good relationship and positive resolution.

Pay yourself first. Put yourself on “the payroll.” Always set aside money for savings.



Have you ever been blindsided by an unexpected financial emergency and don’t know what to do?

What are some of the steps you can take to resolve a financial crisis?



Topic 3: How to Cope With a Financial Crisis, Continued



Instructor note:

Define the following terms:

Term Definition

Lender

Lender is the term used for the person or entity that is providing credit or a loan to a borrower at specific terms and conditions. The term lender can generally be used interchangeably with the term creditor.

Creditor

Creditor is the term used for the person or entity that is providing credit or a loan to a borrower at specific terms and conditions. The term creditor can generally be used interchangeably with the term lender.

Debt

What is owed to a person or institution for obtaining merchandise or services without immediately paying for them. Usually, a debt is acquired through a loan or the use of credit.

Credit Counseling Counseling that helps people manage money and credit and prepare them for homeownership.



Topic 3: How to Cope With a Financial Crisis, Continued


Term Definition

Spending Plan A spending plan is an itemized list of all of one's expenses. Spending plans are tools commonly used to measure or gauge expenses against income.

Credit Repair Companies

Credit repair companies are private, for-profit businesses that claim to offer consumers with credit and debt repayment difficulties assistance in "fixing" their credit problems and/or "fixing" an impaired credit report.


Topic 4: Restoring Your Credit

Overview This topic discusses ways to restore your credit if you’ve experience credit problems

in the past.

Time 18 minutes


The Basics

First, contact former creditors with whom you’ve had a good payment record. They may be willing to reopen your account and re-establish credit with you.

Carefully review any credit offers you receive in the mail before you open a new account.

Consider obtaining a secured credit card.

Borrowing against your savings is another way to establish credit as long as the lending institution reports the loan to the credit bureaus.

Be careful when dealing with credit repair companies that may use deceptive methods to falsely improve your credit.

The Credit Repair Organization Act was established to protect you from unscrupulous practices by organizations that claim to repair credit.

Before the credit repair company can perform any services for you, you must sign a contract. You have the right to cancel the signed contract within three business days



If your credit has been negatively affected by a financial crisis, what are some of the steps you can take to restore your credit?

Have you ever used a secure credit card? If so, how can using a secure credit card help to restore your credit?



Topic 4: Restoring Your Credit, Continued



Instructor note:

Define the following terms

Term Definition

Secured Credit Card A secured credit card is a credit card that is backed by collateral (usually cash).

Credit Reporting Agency

A credit reporting agency is a company that collects and retains credit information on all persons using credit and provides that information in the form of a credit report to lenders or creditors for a fee. A credit reporting agency is also commonly referred to as a credit bureau.

There are three major credit reporting agencies:

Equifax

Experian

TransUnion





Term Definition

Bank A federally regulated financial institution that offers you a place to keep your money and uses it to make more money. Banks make loans, cash checks, accept deposits, and provide other financial services.

Restoring Your Credit (cont.)

Term Definition

Co-signer A co-signer is a term used to describe an individual who signs a loan or credit application with another person and promises to pay if the primary borrower doesn't repay the loan.

Savings Account An account where you keep money for safekeeping or as an investment that earns interest.





Restoring Your Credit (cont.)

Term Definition

Credit Repair Organization Act

The CROA, 15 U.S.C. § 1679, et. seq., prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations (CROs). CROs may not receive payment before any promised service is "fully performed." Services must be under written contract, which must include a detailed description of the services and contract performance time. CROs must provide the consumer with a separate written disclosure statement describing the consumer's rights before entering into the contract. Consumers can sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorney's fees for violations of the CROA. The states and the FTC may also enforce the CROA.


Topic 5: Steps to Restore Your Credit

Overview This topic discusses some steps to take to restore your credit.

Time 15 minutes

Prepayment Penalty Terms

The Basics

Prepare a spending plan.

Examine how much you owe on a monthly basis, to whom and whet it is due.

Contact creditors or third party debt collectors to whom payment is overdue and work out payment arrangements or offer to settle. (If you settle a debt and the savings is $600 or more, you may be required to pay taxes on the amount saved through settlement. Consult a tax advisor for information about your individual circumstances.)

Investigate where additional sources of money can be obtained to pay off debt.

Sell assets or personal belongings you do not need.

Consider getting a second job.

Steps to Restore Your Credit


Topic 5: Steps to Restore Your Credit, Continued

Knowledge Check

Instructor note:

Ask participants to turn to page 11 of the Participant Presentation. Ask them to select which items are steps to take to restore their credit.

Knowledge Check 1

Instructor note:

After participants have answered the question, review the correct answers:

Preparing a spending plan

Contacting creditors to work out payment arrangements

Selling assets or personal belongings you do not need


Topic 5: Steps to Restore Your Credit, Continued

Knowledge Check

Instructor note:

Ask participants to turn to page 12 of the Participant Presentation. Ask them to determine whether the following question is true or false.

Knowledge Check 2

Instructor note:

After participants have answered the question, explain that poor money management and loss of income are two major reasons for financial difficulties. In addition, emergency and/or unexpected expenses, defective goods and services, and fraudulent use of your credit card (identity theft) are major reasons for financial difficulties.


Module Conclusion

Module Summary

Summarize this module by reviewing the key points below with your participants.

Key points from Module 9:Resotring Your Credit:

Module9 Summary


Appendix A: Glossary

Term Definition

Bank A federally regulated financial institution that offers you a place to keep your money and uses it to make more money. Banks make loans, cash checks, accept deposits, and provide other financial services.

Co-Signer A co-signer is a term used to describe an individual who signs a loan or credit application with another person and promises to pay if the primary borrower doesn't repay the loan.

Credit Counseling Counseling that helps people manage money and credit and prepare them for homeownership.

Creditor Creditor is the term used for the person or entity that is providing credit or a loan to a borrower at specific terms and conditions. The term creditor can generally be used interchangeably with the term lender.

Credit Repair Companies Credit repair companies are private, for-profit businesses that claim to offer consumers with credit and debt repayment difficulties assistance in "fixing" their credit problems and/or "fixing" an impaired credit report.

Credit Repair Organization Act

The CROA, 15 U.S.C. § 1679, et. seq., prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations (CROs). CROs may not receive payment before any promised service is "fully performed." Services must be under written contract, which must include a detailed description of the services and contract performance time. CROs must provide the consumer with a separate written disclosure statement describing the consumer's rights before entering into the contract. Consumers can sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorney's fees for violations of the CROA. The states and the FTC may also enforce the CROA.

Source: http://www.ftc.gov/ro/chro/credit.shtm



Appendix A: Glossary, Continued

Term Definition

Credit Reporting Agencies A credit reporting agency is a company that collects and retains credit information on all persons using credit and provides that information in the form of a credit report to lenders or creditors for a fee. A credit reporting agency is also commonly referred to as a credit bureau. There are three major credit reporting agencies:

Equifax

Experian

TransUnion

Debt What is owed to a person or institution for obtaining merchandise or services without immediately paying for them. Usually, a debt is acquired through a loan or the use of credit.

Lender Lender is the term used for the person or entity that is providing credit or a loan to a borrower at specific terms and conditions. The term lender can generally be used interchangeably with the term creditor.

Loan Money you borrow from a financial institution with a written promise to pay it back later. With a loan, financial institutions will charge you fees and interest to borrow the money.

Mortgage A mortgage is a document that is signed by a borrower when a home loan is obtained and gives the lender the right to take possession of the property if the borrower fails to make loan payments.

Net Monthly Income Your take-home pay for one month after taxes. It is the amount of money that you actually receive in your paycheck.




Appendix A: Glossary, Continued

Term Definition

Predatory Lending Predatory lending is commonly defined as abusive lending practices that strip equity away from a homeowner. Common practices include targeting low- income people with poor credit or elderly homeowners, using high pressure sales tactics, and having little concern about the borrower's ability to repay the loan.

Prepayment Penalties Prepayment penalties are charges imposed by some lenders as a penalty for paying a loan off earlier than its original payoff date. Prepayment penalties are common among some of the subprime and/or predatory lending loan products.

Refinancing Refinancing a mortgage allows a homeowner to receive a new mortgage and use the proceeds to help pay off the old mortgage. However, there may be closing costs, fees, and/or points associated with the new mortgage, and prepayment penalties associated with the old mortgage.


Terms The provisions, conditions, and requirements pertaining to the loan as stated in the loan agreement.

Thrift A thrift is a federally regulated savings bank or savings and loan association that is similar to a bank and makes home loans. Thrifts were created to promote homeownership and must have a majority of their assets in housing-related loans.

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