MEDIA BACKGROUNDER: APRIL IS FINANCIAL LITERACY MONTH

CreditSmart Students' Frequently Asked Questions About Credit

McLean, VA – April is designated as Financial Literacy Month. Many articles have been written about the growing financial literacy problem in the United States. Credit records affect everything from renting an apartment to buying a home, paying for a college education to purchasing a car. Poor credit histories limit the ability of many consumers to attain financial security, particularly those in under-served communities – including low-income consumers, minorities and immigrants. Without good credit, it's difficult to save money, become a homeowner and accumulate wealth.

That's why Freddie Mac, one of the nation's largest residential mortgage investors and a company dedicated to making homeownership possible for millions of families across America, developed the CreditSmart® and CreditSmart Español consumer education curricula. CreditSmart® is designed to help consumers understand, build and maintain good credit.

More than 57,000 people have participated in CreditSmart and CreditSmart Español classes since its launch in 2000. CreditSmart is used in numerous communities across America and is taught to consumers by college instructors, nonprofit counseling agency staff, consumer and community group staff, police officers, employers, lenders, real estate professionals and mortgage brokers.

Listed below are the 15 questions asked most often by CreditSmart students.

How does a credit score affect the purchase of a home?

Credit scores are driven by the record of paying bills and other debts reported to a credit bureau. Statistical studies have consistently shown that individuals with higher credit scores are less likely to be late with a payment and pose less risk of loss to a lender. A lower risk of loss translates into a lower cost of doing business, which in turn enables the lender to offer financing at a lower rate of interest. This means lower monthly payments and potentially significant interest savings over the life of the loan. For example, reducing the interest rate on a $100,000 30-year fixed rate loan from 7% to 6% would reduce the monthly payment of principal and interest from $998 to $889.
What are the most common barriers to getting credit?

The most common barriers include a history of late bill payments, incorrect information on your credit report, too much debt, the types of debt owed and a lack of credit history. This is why it is vital for individuals intent on building a strong credit history to pay their bills on time, pay them in full, and to check their credit reports annually and correct any mistakes immediately. In addition, judgments or liens, defaults or foreclosures, collection accounts, charge offs, bankruptcies are also common barriers to getting new credit.
If I catch up on my late payments does that mean those late payments will not show up on my credit report?

No. Each time you make a payment late, you run the risk of the creditor reporting the late payment to the credit bureau. If you catch up, your credit report must show that you are caught up – but it will also show that you were late.
Is it beneficial to sign up for a debt management plan to improve my creditworthiness?

Debt management plans are usually arranged by Consumer Credit Counseling agencies. While such plans may be appropriate for some individuals they will have an impact on the overall costs. Some future lenders may view a person who enters into a debt management plan as an individual who cannot manage credit.
If I have a good reason for not paying a bill, will it be overlooked?

Contact the creditor if you experience a crisis, like losing your job or becoming seriously ill. You may receive a grace period or payment plan from the creditor, but never assume such an agreement is automatic.
When I pay bad debt, doesn't it go away?

No, because credit reports provide a history of your credit, bad debts, charge-offs and late payments can stay on your credit report for seven years. You can, however, provide your own explanation of the situation for inclusion in the report received by future creditors.
What is my risk if I co-sign for a loan?

Any time you are a co-signer or joint account owner, regardless of whether you've paid your share, both parties can be held completely responsible for the payment.
Why do I need to check my credit report every year?

You should check your credit report on an annual basis to be sure that there are no errors and to be sure there have been no attempts to steal your identity. Getting a copy of your credit report may be free or may cost you only a small amount of money. The fee to see your report is much smaller by comparison than the damage caused by an error or an identity theft.
Is it true that if I check my credit score, my score will be lowered because it is another form of activity on my credit history?

No, if you order your own credit report, your credit history is not affected. In fact, you should check your credit report annually. Nationally, everyone can gain access to a free credit report at www.annualcreditreport.com. You are allowed a free credit report from each of the three reporting agencies (Experian, TransUnion and Equifax).
If I have an unsatisfactory credit report does it take seven years to correct it?

No, you can improve your credit score over a shorter period of time because recent entries to your credit report carry more weight. So you should keep working toward better credit.
Is it true that you should comparison shop for credit?

Yes, you should always comparison shop for credit to find the lowest interest/APR (annual percentage rate). Knowing your credit score will also help you negotiate when shopping for credit.
I've had challenges paying medical bills. Will this affect my credit?

Yes, it will affect your credit. Many individuals think that doctors and hospitals will not pursue payments for their services. However, many will transfer the debt to a collection agency which will have a negative impact on your credit report.
If I can't make a full payment on the due date, but I pay a portion of the amount due, will this prevent my credit history from being negatively impacted?

No, you must pay the minimum amount required by the due date. Otherwise your creditor may report the payment as late.
How do I correct mistakes on my credit report?

If you believe that any one of your credit reports contains mistakes and you wish to correct the mistake, contact the company that developed the report. The three credit reporting companies are Equifax, Experian and Trans Union. They are required to complete an investigation of your disputed items generally within 30 days and provide you written notice of the results of the investigation within five days of its completion. This notice should also include a copy of your credit report if it has changed based upon the dispute.
What is the difference between a Chapter 7 filing and a Chapter 13 filing?

Chapter 13 filings allow for a repayment plan. Chapter 7 expenditures are written off. Both of these actions will appear on your credit record for as long as seven years and will significantly lower your credit score.

Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than four million renters in America.

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