Ah, the credit score. It can decide so much in your life. Whether you can get a reliable car that gets you from A to B. Whether you will ever buy a house. And so much besides.
A few years ago I needed—needed—to buy a car. I didn’t want anything fancy. Fancy cars are awfully expensive to maintain, and they cost a lot upfront, besides. But the car I was driving had had its final go after a trip from NorCal down to Los Angeles and back. I was quite fortunate that it only died on me about 3 miles from home. I was able to limp it back into my driveway.
Several months later, I knew I wanted something around three years old that had reasonable mileage on it. Also, I needed it quickly and I had a $7k down payment. Problem was, everywhere I went, nobody wanted to get me into a $10-14k car. Why? Because I had no credit history. Yup, even with my sizeable down payment, credit history was clutch.
How I Messed Up My Credit
How did this happen, you ask? In my early 20s I had credit cards that I decided were optional to pay off. I had medical bills pile on top of that. I was awful with credit. No role models were around to teach me or give me a real understanding about how credit worked.
Making it worse, I was ashamed of my ability to handle credit. I also didn’t trust myself with credit anymore, so I stopped using it altogether. I avoided credit cards and never took loans. There was a period of six years where I didn’t use credit at all.
By the time I really started looking at my credit, my score was in the upper 500s. And I only really noticed because it was impacting my ability to get a car that I desperately needed.
There Was a Steep Learning Process
When I finally decided to take control of my credit score and rebuild credit, I took to the internet. At the time, there was some good information out there. A lot of how credit worked still seemed really hazy to me, though.
I couldn’t figure out why I could get my credit report for free but couldn’t find my score on it. Or the secret sauce to getting my credit up. Or how to go about building credit without first borrowing someone else’s good standing.
Hell, I still don’t know why sometimes my credit score goes down when positive things happen on my report. This irritates the crap out of me.
So many questions.
But the Story Has a Happy Ending
All in all, it took me about 6 or 8 months to get my score into the upper 600s. And just recently I got the happy news that my score went over 800 for the first time in my life. 801, baby, yeah)! This was a huge win for me! I feel compelled to share how I got there so that others don’t have to struggle to figure it out like I did.
My goal is to motivate you so you can see how rebuilding your credit can be done. You’ll also want to read up on how credit works.
If your score is low and you are serious about working on fixing it, read on. I’m sharing every step I took to get my credit where I wanted it.
I do want to clarify that this is the information I used to fix my own score. I know there are other methods out there. Some use credit consolidators. But this worked for me in my situation. I basically had no credit, and most of the credit I did have was not in good standing.
Step 1: I Ripped Off the Band-aid and Actually Looked at My Credit Report
This was tough for me. I knew it was bad, but I was afraid to look and see just how bad it really was.
There are three major credit reporting bureaus: Experian, TransUnion, and Equifax. Typically, they would charge you for a copy of your credit report. Such a report contains all of the information that creditors have reported to them about you in the last 7 to 10 years. It would also include any judgments against you.
The U.S. government requires these bureaus to give you a free copy of your credit report each year. This is fair, because otherwise how would you be able to check for identity theft or dispute errors? Not everyone can afford to buy their own credit report, after all. And people with poor credit are especially disadvantaged here, compared to people who are more likely able to afford a copy of their report.
Anyway, the only place to get your free reports from these bureaus is from AnnualCreditReport.com. In recent years I have seen other websites pop up that promise you a free copy of your reports. I would never trust them. The Federal Trade Commission (FTC) sends you directly to annualcreditreport.com and that is the only one I trust.
Step 2: I Disputed Bullshit on My Report and Paid Off Non-Bullshit
I had a charge on my report from a cable company for a house I lived at many years before. I had no idea that I even had the debt, but it was negatively impacting my credit every single month. The total was only something like $60-70, I think. I had no recollection of it, though, so I sent in a dispute to each of the bureaus. The company had been reporting to all three bureaus. To dispute the debt, I had to do so on each bureau’s individual site.
Apparently, when you send in a dispute, they send dispute information to the company in question. The company then has a certain length of time to respond. I can no longer remember how long. If the creditor doesn’t respond timely, the credit bureau will remove the item from your report. That is what happened in my case, and the offending debt was removed.
I had two companies that had charged off my debt. That means the company had taken my debt as a loss. One of those had been sold to a collection agency. The debt was for about $500 and I paid it off over two monthly payments of $250.
I had a hospital ER bill that had also been avoided for some time. I called the hospital in question and worked out a payment plan with them. They even lowered my balance for me. If I recall, they dropped the amount owed from around $1,200 to about $700, but my memory may be faulty.
At the time, I wasn’t making very much. Ultimately it took me about six months or so to pay off those debts. The other bad lines of credit I had had stopped reporting. I simply waited those out for the existing reporting to fall off my credit. That included some late payments on an old car loan. It was just under two years for the most recent of those to fall off, as they were all quite old. Remember that I hadn’t used any credit in a long time due to my fear of it.
Step 3: I Used a Secured Credit Card to Begin Rebuilding My Credit
While I was waiting for my bad credit items to fall off my report, I went to my credit union to request a secured credit card.
I was so certain that my credit would disqualify me for a regular card. So I just asked for the secured card upfront. I was ashamed of my credit score. It was like I wanted them to know that I knew how bad my credit was and that I was working to fix it.
Looking back, I should have just asked for a regular card first. If they said no, I then could have asked for the secured card.
What is a Secured Credit Card?
If you’re wondering, a secured credit card works just like a regular credit card. Secured cards are nearly always issued by a bank or credit union where you do your banking; however, the bank or credit union will require you to have a certain amount of funds in savings. They’ll freeze those dollars in your account. This way, the card has guaranteed funds to pay back the money should you default on payment.
It’s a fantastic tool that allows you to build a good account on your credit report. The tradeoff is, of course, that you have to have money in your account that you can’t touch. In my case, my bank allowed me to choose my own credit limit. They required that I have four times the credit limit in frozen funds in my savings account.
I opted for a $500 card and had my credit union freeze $2,000.
If you need to take advantage of this option, your bank may allow you to select an even lower limit card. For example, $200 or $250. Or your bank may require less security money than mine did. Everything I read online indicated that it was more typical to have 1.5 to 2 times the credit limit in frozen funds. Talk to your bank to see what the rules are.
Even if you have to save $2,000, it’s worth it to be able to rebuild your credit. Secured credit cards let you do this without needing a co-signer on a loan or other credit card.
I designated my secured credit card as a gas purchasing card ONLY. And I only bought gas when I already had the money for it in my checking account. I would buy the gas on my credit card and then I would pay it off later the same day or the next day. This kept me accountable to my secured card. Keeping this regimen gave me a full year of positive credit history on one account.
It was enough to get me started.
Step 4: After a Year, I Got a Regular Credit Card
After a year of gently using my secured credit card and paying it off after every use, I called my credit union and asked if I could turn my secured card into a regular card. I wanted to unfreeze my money!
Unfortunately, their secured and unsecured credit lines run separately. I had to shut down my secured credit card completely if I wanted my savings money to be unfrozen, then open a new line of credit with a regular credit card. It kind of sucked because my credit history length took a hit when I did this. But I definitely did not want the secured card for a long period of time.
They were more than happy to give me a credit card, though, after seeing how well I handled my other card with them. They issued me a card with a $2,000 credit limit. AND, my credit union card had and continues to have a really really good interest rate compared to any other card offer I’ve ever gotten. This has remained true even as my credit score has improved dramatically.
Most credit cards charge an API of 19-25%, which to my mind is outrageous. My credit union’s card is under 12%.
It was official—the training wheels were off, and I was building credit like a real live adult!
Step 5: I Opened a Few More Lines of Credit
When Kyle and I got engaged, we paid for a lot of our wedding using credit cards. We opened them for just that purpose. I’m not going to lie. It kind of sucked and stagnated my credit score for a long time.
I was hovering in the high-600s for a couple years. I had a hard time breaking past that plateau, mainly because the balances were quite high on those two cards. Plus we weren’t making good progress on paying them off.
It’s not that we weren’t paying them on time every month; we just weren’t paying much more than the minimums, at least not until we got serious about paying off our debt. This resulted in a high debt-to-credit-line ratio that was holding our scores back tremendously.
Step 6: I Began Aggressively Paying Off Debt
I did get my car, by the way, before we got married. I put about $9,000 on a five-year loan on top of putting $7,000 down on the car. By paying more than the required minimum, I paid it off in four. Additionally, I made extra payments wherever I was able. Once, when I was between jobs, I had to fall back on the minimum payment for a couple of months. That made me grateful for taking the longest loan period.
The two extra credit cards we opened for the wedding ended up being good for my credit in the long run. Once we started aggressively paying down our credit card and loan debt, I started seeing continuous improvements in my credit score. And as of recently, I officially got into the 800s club.
It’s taken about five years, but my score has gone from the upper 500s to just over 800. I absolutely could have done that faster if I’d gotten serious about my credit sooner. Or if we’d opted not to have a fancy wedding where we put about $14,000 on credit. (We paid the remaining $7k out of pocket).
In the next several years I anticipate seeing my score change a bit as I take on some mortgage loans. But I’ll always know that I can get right back to my 800+ credit score if I put in the effort.
It’s empowering to know that I am a complete badass at finances when I choose to be. And you can too!