Wednesday, March 7, 2018
How I Repaired My Garbage Credit
It is drilled into our heads at a young age that your credit score will follow you around like a bad habit. It always amazes me that despite this, many of us do things that can damage our credit score, including myself. Little things like paying bills on time and living within your means all add up to make you a more attractive borrower. My credit score was a dumpster fire. I did more damage to my credit score in 5 years than most people do in a lifetime. I am going to tell this story, not for kudos or any sort of pat on the back. I will tell this story because I think it shows that repairing past damage is possible. You can make your life better and you can dig yourself out of a hole. Today I am going to show what I did to ruin my credit score when I was younger and what it took to repair it when I finally got my act together. First, I will tell you exactly what goes into making your credit score.
What comprises your credit score?
Many different parts of your personal financial history go into making your credit score. Overall it is a compilation of how you treat your payments, debt, and ability to borrow. Your credit score can range from 300 (very poor) to 900 (perfect credit).
1) Payment history
This includes your account payment information including any late payments or completely neglected payments. This is why paying bills on time is important.
2) Amounts owing
This is how much you currently owe on your accounts. This includes the amount of credit you are using on revolving credit accounts. Yes, having a maxed-out credit card hurts you. This is why you should keep your credit amounts low.
3) Length of credit history
How long ago did you open your credit accounts and how long has it been since you used them? This is why developing a pattern of good credit use is important.
4) Types of credit used
These include revolving credit like credit cards and lines of credit, but installment accounts as well. Certain installment accounts look worse such as consumer proposals.
5) New credit
This part is about how many times you inquire about getting new credit. When an institution attempts to check your credit, there is a mark left behind. Too many credit checks are not good for your credit rating.
What did I do to ruin my credit score?
You name it, I did it. My first venture into credit debt was when I went off to university. My bank was more than happy to give me a credit card with a $500 limit. That amount seems trivial to me now, but back then I didn’t even have $500 in my chequing account. Sure enough, 2 more credit cards came in the mail and I even obtained one on campus at Brock University. I got the free t-shirt, woohoo! In total, I had 4 credit cards with a combined limit of $3000. It was what happened next that really gave me the kick in the butt. Back when I went to university there was no tuition rebate and I had taken out the full amount of student loan possible. $6000 for each year of university for a grand total of $24K after 4 years. During university I barely scraped by, working full-time to pay bills and keep up with an ever-growing Jim Bob Ray’s habit, a local bar for those of you not familiar with London Ontario. By the time university was done, I had defaulted on all 4 credit cards, thinking I would pay them whenever. The calls from creditors didn’t bother me. I would tell them “Joe didn’t live here anymore.” I had also messed up with Roger’s Cable at that point too, owing them a few hundred dollars.
12 Signs You Are Dating a Deadbeat – Budget Boss
When it came time to pay back my student loan I did my best to avoid the government. Just a tip for all of you out there: You can’t avoid the government! They know where you live, they know where you work, they know everything about you. After about 2 years of ghosting the student loan people, they finally threatened to garnish my wages. I gave in and made a payment arrangement with them to pay back the loan. By that time my credit was absolutely shot. On the credit rating scale of 300-900, my credit rating was “Get the F*** out of here.” When I applied for any sort of credit at that point, which I tried to do a few times, the Price is Right loser sound effect would come out of the banker’s computer.
How did I improve my credit?
By this time, I was 25 years old and I figured since I can finally grow a beard, I better get my act together. Truth be told, the reason I decided to get my finances in order was that I had literally run out of options. No bank would lend me money, no cable company would get me a contract, no landlord would rent me a place. Bill collectors had all but given up on me, except the periodic threatening letter in the mail. I had a roughly 50K hole to dig out of between private and traditional loans. I concluded that I was going to have to literally work every minute I could to get out of this hole, so that’s what I did. From the age of 25-30, I went ghost, working stiff ghost. For those 5 years, I barely went out, I worked 3 jobs for most of it, and I saved every penny I could. During that time, I was able to climb out of the debt hole I created but also save some money too.
6 Steps to Repair Your Bad Credit – The Balance
At the age of 30, I requested my credit report. On it was weird names of companies I had never heard of. These were the collection agencies that owned my debts from when I was a kid. I called each of them up one by one and told them I was paying them back. All in all, there was 6 companies and about $7500 in debt to pay off, including the provincial portion of my student loan which had gone to collections as well. They were quite surprised to hear from me, to say the least. After I handled those, it was time for the big boy, the federal student loan. I walked into the Bank of Montreal and handed over 25K in cash to the teller and asked her to pay the student loan bill. As she was counting it in the machine I almost puked about handing over this amount of money. When she was done counting it she asked very nonchalantly if I would like anything else. I said, “just a receipt, please.” No round of applause, no balloon, none of my professors came out and hugged me, nothing. It was over, finally, but I didn’t feel like celebrating.
I started to feel better about my savings being chopped in half the next day though when I went to my bank and applied for a credit card. I was approved! The only card I was able to get before that was a pre-paid VISA, with my own money. For the first time in almost 10 years, someone thought I was a worthwhile borrower. My credit rating had gone up to a respectable, yet still putrid, 550. This time I had no debt, no items in collections and all my bills were in my name finally. Over the last few years, I have been paying bills early, maintaining a zero balance on my credit cards and guarding my score with my life.
Where am I now?
Last month I went on to Credit Karma to check my credit score and for the first time ever, it passed 700! I was so insanely happy I almost jumped out of my chair! 700 is the benchmark for a bank to take you seriously. I can now qualify for traditional loans like a mortgage. On top of that, I now have assets including my Tax-Free Savings Account, Retirement Savings Account and straight up cash sitting in my bank account. My debts range from $0-400 every month and are wiped clean by the end of every month. I am back to being a normal human with normal credit and I cannot explain how good that feels. I went from 50K in the hole to 50K in the positive in 5 years. My 100K swing didn’t come without pain, or frustration or even some loss. I lost friends and even the person I loved most. Looking back there is a lot I would have done differently but I cannot change that now. All I can do is move forward and try my best not to repeat the mistakes I made in the past.
5 Reasons to Cut Your Credit Card….And 5 Reasons Not To – Budget Boss
I write this post during Anniversary Week because I think it is important for everyone to know that righting your ship is possible. You can fix your credit. You can build up savings even if you have massive debt and no money. You can become a normal person again. Going through that experience has given me a fear of debt that will never allow me to get into that position again. I have repaired what once was a terrible credit score. I now sit at a very respectable 740! It only took 2 plus years after I paid off debt for my score to recover from the 500 range. It was hard work and it wasn’t fun, but it needed to be done. If only repairing relationships were as straightforward as that. We all have the power in us to make our lives better and that is what Budget Boss is all about. Take control of your money and take control of your life.
Thanks for tuning in today as Anniversary Week at Budget Boss continues. Don’t forget to tune in tomorrow when I discuss the scariest money situations I have seen over the past year. If you would like help repairing your credit score, please feel free to contact me at joe@budgetboss.ca. Have a great day Bosses!
“Redemption is not perfection. The redeemed must realize their imperfections.” – John Piper
Email – joe@budgetboss.ca
Follow Budget Boss on – Facebook LinkedIn Twitter Instagram Pinterest Quora