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If you’re looking for ways to repair your credit, here’s my story about how I fixed mine and bought a house.
Repair your credit
My Story
Not all that long ago, I was recently divorced, broke, and had terrible credit after many years of money mismanagement. I was a regular Spenderella. I think spending money on things I didn’t need was a way to make me feel better about being in a marriage that I knew wasn’t working.
After my divorce, I decided to take charge of my life again. I wanted to go back to grad school, get a better job and buy a house. And no more stressing over unpaid bills!
I’d always dreamed of buying a house. But when I took a long hard look at my current situation, I knew I had a major uphill battle. Collections, undergrad student loans in default, past due utility bills. You name it, and I was dealing with it.
But I was determined to get myself out of the mess I’d created for myself!
First Steps
The first thing you have to do before you can even start thinking about how to repair your credit is to check your credit score and report. You have to know what you’re dealing with. More banks and credit card companies are providing a free credit score to their customers. But there are a few places online where you can check it too. The site I trust and recommend is Credit Karma. It’s totally free and has a lot of calculators and simulators for you to use.
Once you have an accurate picture of your credit and what you owe, you can move on to making a plan. For me, this meant getting my student loan out of default. Luckily, student loan servicers are more than happy to take your money. Once I explained my situation, they were really helpful in getting meback on a payment plan and in good standing.
If you have anything that’s delinquent, your first priority should be getting that account(s) current. It doesn’t matter if it’s a credit account or not. There are consequences to being delinquent and those usually end up costing money. You don’t need a setback to undo all the hard work you’ve already put in. And sometimes, if you call your creditor you can sweet talk them into removing any late marks or fees.
Mortgage companies look hard at late payments so if you’re looking to buy a house, make sure you get these taken care of. If you can’t get it removed, make sure you don’t miss any more payments. The more recent the late payment, the more it hurts your score.
Clean up your report
After any delinquencies have been taken care of, review all the account information on file for you. Credit bureaus are required by law to investigate any items on your credit report that you dispute. Back in the old days, you had to send certified letters to each of the 3 credit reporting agencies (TransUnion, Experian, Equifax). But now Experian and Equifax only accept online disputes.
Here are the links to each CRA for disputing credit report items:
So next steps are to submit disputes for all bad items on your credit report with all 3 credit bureaus. The hope here is that they discover there was some sort of error and the bad account will come off your credit report.
Pay down your debt
After the credit reporting agencies have concluded their investigation, your credit report should only contain accurate items that you truly owe. Now you can focus on paying your debt down. I set up a portion of my budget each month to pay things off. My credit was so bad I didn’t have any credit cards or loans but I did have smallish collection accounts that were still outstanding.
Credit utilization is a big factor in your overall credit score. If you’re using a lot of your available credit, lenders get nervous because it looks like you’re living beyond your means. So ifyou have 3 credit cards and all have a limit of $3000, and you’re carrying a balance of $2700 on all of them, you have a credit utilization of 90% (2700*3)/(3000*3), which is bad. Get your utilization rate lower and your score will get higher almost immediately.
Getting new credit
Like I mentioned before, my credit was so bad I couldn’t get approved for a credit card. But if you’re really trying to repair your credit, using credit responsibly is a key part of that.
So what in the heck are you supposed to do if you can’t get any credit? Or maybe the issue you have isn’t that you have bad credit but no credit at all?
Get a secured card from a reputable lender. A secured credit card is one where you have to fork over a deposit equal to the amount of credit being given to you. I knew I was never going to be approved for a traditional credit card but I needed some way to start establishing a good payment history. After researching different options I ended up going with a secured card through Wells Fargo.
I had to pay a $200 deposit to Wells Fargo, and in turn, they issued me a credit card with a $200 limit. Sad, huh? But I used it for small things, paid it in full every month, and was never late. After a year of good usage and payment history, Wells Fargo converted into it a “real” card and returned my depositwith interest.They also increased my credit limit to $500.
A word of caution. Be wary of any company who offers to give you a credit card with a certain limit but says they’re going to charge you fees up front that will reduce your credit by 50% or more. Right off the bat, you’re getting a credit card with a balance which is a terrible idea. You’re much better off to go with a bank, credit union or even Capital One has a good secured card.
Keep going!
After you’ve been paying down your debt and making on-time payments for a few months, your score will be slowly getting better. You can start looking for another card or two to apply for. When I was in the rebuilding phase, I spent a ton of time on the forums at myFico. There are a lot of people who are in the same boat and there’s a lot of good information folks have shared about their own journeys.
It may take a little searching, but you can find out which cards you’re more likely to be approved for based on your situation. Using the info I found on myFico, I applied and was approved for my first 2 department store cards, and 2 rewards credit cards.
Don’t look back
After living in the darkness of bad credit for so long, it was an amazing feeling to come into the light and not feel dread and resignation at the thought of applying for credit. But don’t ever let yourself slip back into bad habits and get yourself in a bad situation again! I have never missed a payment on any credit card or loan since I took that first step all those years ago.
Sign up for a budgeting app like Mintto keep control over your budget. Consider signing up for automatic payments too so that you never miss a payment.
It only took me a little over a year to clean up my credit report and improve my usage and payment history enough to raise my credit score enough to qualify for a mortgage. When I received my pre-approval for a mortgage, I couldn’t believe it! It was the best feeling in the world and it was something I’d accomplished on my own, without help from anyone.
Having bad credit costs more in the long run, in the form of higher interest rates and fees. Save yourself the money and anxiety that comes with having bad credit and make a commitment to fix it!
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