The only thing worse than having bad credit is having truly crappy credit. What’s even worse than that is having truly crappy credit and the inability to even qualify for anything that would help you begin to improve your credit.
Stephanie and I have both been there, myself most recently. After my husband and I split, I checked my credit on my own for probably the first time ever. I was horrified, and I’m pretty sure I just sat and cried for awhile. It was something like 534 and riddled with collections, a gross lack of positive payment history, and even a tax lien against my home; the home I had just been awarded by the court and had two years to refinance in my name. OK, to say that I just sat and cried for awhile would be a terrible understatement. Stephanie can attest to that. But I’m here to tell you that, if you’re there, you don’t have to stay there. There ARE ways to find yourself out of what feels like a bottomless pit.
How I Got There
Looking back, it’s clear that it was a slow but steady progression of circumstances that got me to the dreaded 534. It probably started when my ex-husband (then my boyfriend) and I moved in together. First, we didn’t talk about our respective debt prior to signing that one year lease. I knew that, given my own debt, I could afford my portion of the upcoming rent and joint bills. It never occurred to me to ask if he could. He had far more debt that I realized, but we began to tackle it and were just about to be free of it when I came home one day and he announced, “Great news! I was laid off today!” He was actually giddy. You see, he was just about to finish real estate school and this meant that he could begin pursuing real estate full time. I was less than thrilled with the idea.
So, into real estate he went and thus began the real struggle. Months would go by without closings. And the debt began to climb again. Fast forward 10 years. We had filed and completed a Chapter 13 bankruptcy, had at least two cars repossessed, had our power shut off more times than I can recall (though the time it happened days after bringing a baby home was memorable), nearly lost our home, had my wages garnished, etc, etc, etc. The income from sales was never steady and, when sales did happen, the checks were spent paying off back debt practically before they were deposited. Yes, there were times of plenty (sort of). Even then, though, debt loomed over us. And the taxes. Oy vey!
During the last several years, he worked at a job that afforded a salary, and our financial lives got a little more on track. It became feasible for me to transition to working from home and, eventually, to bring in a lower than normal amount of income. In exchange, since he was the one with a “real” paycheck (vs being a contract or freelance worker like I was), he was the one that paid most of the bills. The accounts were in his name. If I was on an account, I was generally listed as “signer” or “co-borrower” or something similar to that. And, even when we hit upon hard times and I would ask if I needed to go back to work outside of the home, I was told, no, we were fine.
Like I said earlier, when we split, I was awarded the house. And the mortgage. And the second mortgage. And all the utilities. All of my side hustle amounted to less than just the mortgage payment so, clearly, I had to up my game, which I did. But the other sticking point was that he would only agree to allow me 24 months to get the house refinanced into my own name. Now, I may have stepped out of the “financial responsibility” game for most of our marriage, but I wasn’t stupid. I knew that a lending company wasn’t going to look twice at me with no credit and no “real” job history. I had a lot of work to do, and I needed to do it quickly because, if I failed at this, the ball would be in his court. He would either be able to refinance the loan himself and take the home out from under me or choose to sell it.
I know, you might be asking yourself, “Why not just sell it, take your equity, and move on?” It was an option. But this was my home. When we bought this home, I could already see my kids’ cars filling the driveway each year when they came back home for Christmas. I could see their friends coming by to say hi. I could see my grandchildren in this house. It was so much more than just a house to me. This was my home. And I was going to do whatever I had to do to keep it.
The Financial Four-Step
Getting oneself back into decent credit standing is a bit like a dance. It requires well-choreographed moves. And you, my dear, are your own dance partner. So, shall we dance?
STEP ONE – KNOW THY CREDIT SCORE
The first thing I did was pull my own credit. Not through an agency, though, because that can affect your credit score negatively! I went to Credit Karma and checked it for free (and you can check it as much as you want to for free without it harming your credit). Seriously, this is one of the best and most used tools in my financial toolbelt. Yes, it’s what led me to discover the ugly truths about my credit, but you NEED to do it if you ever want your situation to improve. A friend speaking at a workshop regarding how to improve one’s product offerings once said this, “Look, you can’t lose weight if you’re unwilling to get naked in front of the mirror. You’ve got to strip off the muumuu and really take an honest look at what’s there because you can’t change what you refuse to look at.” Looking at my credit and learning why it was ugly was my standing naked in front of the mirror moment. Actually, there were a lot of those moments over the following several months.
STEP TWO – USE WHAT YA GOT
One of the first things I began doing was saving every nickle and dime that I could. I channeled my inner Depression-era woman and saved and saved and saved. First, because I walked from the marriage with no savings to speak of (all of our retirement funds had been being liquidated by my “better half” without my knowledge). Second, because I needed it for step two of my plan. When I had amassed $500 (it could have been any amount; that’s just the goal I set for myself), I walked myself into my credit union and took out a secured loan.
If you’re not familiar with what a secured loan is, it’s a loan the bank gives you that is secured with your own money. So, I took out a loan for $500 on a 12 month term. Over the life of the loan, I think I paid a total of less than $15 in interest. Not a bad price to pay for bettering one’s credit. What the loan did for me, though, was establish credit in my own name AND create positive credit. I had a way of showing that I was credit worthy and making my payments on time (easy since it was automatically debited from my account) created positive payment history on my credit report, too. The key to this, though, is that, when you get the loan, you just put that money right back into your savings account and don’t spend it. I had planned on keeping that $500 in my savings anyway, so why not have it do me some good, right?
STEP THREE – BE A CARD SHARK
A note about credit cards…get rid of them. Well, most of them anyway. There was a point in time in my late twenties that I had amassed nearly 30 different credit cards. They weren’t necessarily all in regular rotation but damn! I had a card for EVERY major department store in our area, gas cards, VISA, Discover, … You name it and I likely had it. When the ex and I filed for bankruptcy, we were told to cut them all up. I know most people don’t follow the “rules” of a bankruptcy but we did. We cut up everything and didn’t establish any new credit. If we wanted something badly enough, we saved for it and paid cash. 15 years later, when we split, the only “credit” that we had to wrangle with was an account at a local tire company for an expense that the ex had previously told me was paid for in cash.
With that being said, though, a credit card or two is not a terrible thing to have and can actually boost your credit if you use it smartly. For myself, my goal was to receive a mail solicitation for one of those terrible high interest credit cards within six months of opening my secured loan. I still remember excitedly messaging Steph when I received one nearly six months to the day telling me that I had been pre-approved . I was sooooo scared of applying for that card online. What if I was rejected? But I wasn’t. I was approved for a whopping $200 limit with something like a 24% interest rate. And I was over the moon! I tell ya, the things that will make a single woman in her late 40’s happy!
The key to credit cards is how you use them, though. Credit agencies like to see that your keeping your debt to no more than 20% of your credit limit. That meant, for me, spending less than $40 on my card each month. So I did. I paid things like my gas bill with it. And then used the money I would have spent on the gas bill to pay the credit card bill but always leaving just the tiniest of balances owing because reporting agencies like that, too. And, after another six months, my credit limit was increased to $500 since I had been making my payments on time. Again, that increased credit limit looks good on a credit report.
STEP FOUR – HURRY UP AND WAIT
Repairing your credit doesn’t happen overnight. It takes time. And that, my friends, takes patience. Something that is not my strong suit, by the way. You must trust in the process, though, and trust that you are doing all that you can in the moment. The only thing that can repair what I can only describe as a HEINOUS payment history on our home loan, for instance, is time. Every month that ticks by, one ugly month of payment history drops off my report and is replaced by a new bright and shiny on time payment.
But, darlings, don’t sit on your laurels while you wait. If you’ve got ugly credit, it’s likely that you’ve got debt in collections or things on your report that may not be accurate. Tackle these in between making your other payments on time. Contact creditors that may have erroneous info on your report so that it can be corrected. Call those creditors and get yourself on a payment plan. Even if it’s only $10/month. If you’ve got a small chunk of money to throw at a debt but not quite enough to cover the whole balance, ask if they’ll work with you. Often times they can negotiate a lower payoff if you can pay it all at once or in a couple of big chunks.
The Big Win
For me, the big win came two years after it all began. Remember that 24 months I was given to refinance or lose my house? Well, I began working with an outstanding loan officer about a year prior to my deadline and, when I signed the papers for my refinance, my credit score was a solid 661. Was it as high as I’d have liked it to be? Not in an ideal world, but it was continuing to rise. And I gave myself a huge pat on the back for bringing it up nearly 130 points in two years.
I continue to work on my credit today. Good credit doesn’t just happen, ya know. I still only have that one horrible credit card, and I’m OK with that. I don’t abuse it. It’s a tool and nothing more to me. I still check my credit on Credit Karma on a regular basis. You just never know what might pop up. Plus, it’s a massive boost when you see that score raise even just one point. And I’m sitting at my desk writing this from my home. MY home.
If you’re in that hole, sister, there’s a way out. You’re going to have to dig in with every finger, and it might not always be a pretty climb, but you’ve got this. YOU’VE got this. So, put on your dancing shoes and start dancin’, lady!
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UPDATE: After refinancing my home, the prior 1st and 2nd mortgage accounts dropped off my credit history. So did the absolutely abysmal payment history that he had amassed for us. When they fell off my credit report, my score shot up another 70 points. Holy Mary! And, by continuing to employ smart financial decision making, I was able to travel more in the first few years of being separated/divorced that I had in the entire 21 years we had been together. All paid for in cash. I continue to build my savings and made my first substantial investment into a tech startup.