Credit Score
What’s the highest possible FICO credit score?
850
Define Debt-to-Income (DTI) ratio
Monthly debt payments ÷ monthly gross income
or
The amount of your monthly income that is used to pay debt payments
What types of debts are eligible for settlement?
Unsecured debts: credit cards, personal loans, medical collections
What is the difference between secured and unsecured debt?
Secured has collateral; unsecured does not.
What percentage of your FICO score is based on payment history
35%
A client earns $4,000/month and has $1,200 in monthly debts. What’s their DTI?
30%
What happens in the first 4–6 months of a debt settlement program?
Funds accumulate and negotiations begin.
Name one con of a payday loan.
High interest—up to 300% APR or more
Debt Spiral continues, behavior changes are not made
What is credit utilization, and how does it impact a credit score?
It's the ratio of credit used to available credit; it accounts for 30% of a FICO score.
Why can getting a consolidation loan raise your DTI?
Because the new loan payment may be higher than your current minimums.
Why do clients need to miss payments in this program?
Clients need to document a hardship for settlement, a creditor won't settle if an account is current
What is one major downside to filing for bankruptcy that clients should be aware of?
It can stay on a credit report for 7–10 years and may impact future job, housing, or credit opportunities.
What’s one thing a client can do to immediately help their credit utilization ratio?
Pay down revolving balances.
True or False: DTI takes into account your monthly grocery and gas expenses.
False
What’s one emotional trigger that makes people say yes to enrollment?
Overwhelmed, falling behind on payments, struggling to make the minimums, want to avoid bankruptcy, needs a clear path to being debt free
How is Credit Counseling/Debt Management different from Debt Settlement?
Credit Counseling requires full repayment of the debt (usually with lower interest), while Debt Settlement negotiates to reduce the total amount owed.
What does FICO stand for?
If a client adds a $945 loan payment to their existing $1,731 debts and earns $6,167/month, what is their new DTI?
$2,676 ÷ $6,167 = ~43%
List three key steps in the debt settlement process
Stop paying creditors, save funds, negotiate settlements
Which debt payoff method targets the smallest balance first?
Snowball method