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2 This page intentionally left blank Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

3 This page intentionally left blank Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

4 Table of Contents CreditSmart Module 9: Restoring Your Credit 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 Instructor Training Introduction to Module 9: Restoring Your Credit Module Overview Glossary Topic 1: Reasons for Financial Difficulties Overview Financial Difficulties Start the Discussion Topic 2: Warning Signs of Credit Problems Overview Warning Signs of Credit Problems Start the Discussion Topic 3: How to Cope With a Financial Crisis Overview How to Cope With a Financial Crisis Start the Discussion Topic 4: Restoring Your Credit Overview Restoring Your Credit Start the Discussion Topic 5: Steps to Restore Your Credit Overview Prepayment Penalty Terms Knowledge Check Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

5 Knowledge Check Module Conclusion Module Summary Appendix A: Glossary Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

6 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit Continued on next page

7 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 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

8 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 Discussion Knowledge Check 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. 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. 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

9 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 Provide an overview of workshop materials Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

10 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 ing: 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 more information Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

11 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

12 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

13 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

14 Topic 2: Warning Signs of Credit Problems Overview This topic discusses several warning signs of credit problems. Time 15 minutes Warning Signs of Credit Problems 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. Start the Discussion To start the discussion with your participants, ask some open-ended questions. Here are some examples to get you started: 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

15 credit cards? Topic 2: Warning Signs of Credit Problems, Continued Start the Discussion (continued) Instructor note: Define the following terms: Warning Signs of Credit Problems Term Net Monthly Income Loan Mortgage Definition Your take-home pay for one month after taxes. It is the amount of money that you actually receive in your paycheck. 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. 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

16 Topic 3: How to Cope With a Financial Crisis Overview This topic discusses ways to manage during times of financial difficulty. Time 15 minutes How to Cope With a Financial Crisis 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. 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 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? Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

17 Topic 3: How to Cope With a Financial Crisis, Continued Start the Discussion (continued) Instructor note: Define the following terms: Term Definition How to Cope With a Financial Crisis Lender Creditor Debt Credit Counseling 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 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. 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. Counseling that helps people manage money and credit and prepare them for homeownership. Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

18 Topic 3: How to Cope With a Financial Crisis, Continued Start the Discussion (continued) Term Spending Plan Credit Repair Companies Definition 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 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

19 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 Restoring Your Credit The Basics First, contact former creditors with whom you ve had a good payment record. They may be willing to reopen your account and reestablish 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 Start the Discussion To start the discussion with your participants, ask some open-ended questions. Here are some examples to get you started: 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? Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

20 Topic 4: Restoring Your Credit, Continued Start the Discussion (continued) Instructor note: Define the following terms Restoring Your Credit Term Secured Credit Card Credit Reporting Agency Definition A secured credit card is a credit card that is backed by collateral (usually cash). 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 Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

21 Topic 4: Restoring Your Credit, Continued Start the Discussion (continued) Term Bank Definition 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. Term Co-signer Savings Account Definition Restoring Your Credit (cont.) 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. An account where you keep money for safekeeping or as an investment that earns interest. Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

22 Topic 4: Restoring Your Credit, Continued Start the Discussion (continued) Restoring Your Credit (cont.) Term Credit Repair Organization Act Definition 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

23 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

24 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit Continued on next page

25 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. 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 Knowledge Check Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

26 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. Instructor note: Knowledge Check 2 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

27 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

28 Appendix A: Glossary Term Definition Bank Co-Signer Credit Counseling Creditor Credit Repair Companies Credit Repair Organization Act 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. 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. Counseling that helps people manage money and credit and prepare them for homeownership. 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 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. 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: Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

29 Appendix A: Glossary, Continued Term Credit Reporting Agencies Debt Lender Loan Mortgage Net Monthly Income Savings Account Definition 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 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 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. 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. 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. Your take-home pay for one month after taxes. It is the amount of money that you actually receive in your paycheck. An account where you keep money for safekeeping or as an investment that earns interest. Continued on next page Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit

30 Appendix A: Glossary, Continued Term Predatory Lending Prepayment Penalties Refinancing Savings Account Terms Thrift Definition 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 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 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. An account where you keep money for safekeeping or as an investment that earns interest. The provisions, conditions, and requirements pertaining to the loan as stated in the loan agreement. 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 Freddie Mac CreditSmart Instructor s Guide Module 9: Restoring Your Credit