If you’ve ever taken time to read our About Page, you’d know that I used to have a pretty horrific FICO score (525) before I started taking my finances seriously. This was around 2005, right when Hurricane Katrina hit and gas prices soared. At the time I was driving a 1978 full-size Ford Bronco (which I still have) and spending about $80/week on gas and getting about 15mpg.
I decided it was time to buy my first car at 25 years old. This was a scary prospect for me, because it was a massive debt, larger than I had ever had before because I never went to college so I had no student loans. In fact the only debt I had at the time was a department store card, which was a balance of about $300 and had already went to collections because I was unemployed not long before that so I couldn’t pay it. This, of course, contributed to the 525 FICO.
Trying to Buy a New Car
Due to the gas prices, I decided to try and buy a new car. I went all over to various dealerships, but learned very quickly that with my credit score, age, and lack of good credit history that this was a pretty hopeless endeavor. Everywhere I went I was denied. Do you know how big of an eye-opener that is? You, Ms. Crystal, are incapable of buying a car. Something that thousands of American’s do every day, but you, you suck, so no you can’t buy a car.
Enter Capital One, Stage Left
This may not have been my best idea, but it really worked for me despite not really recommending it for everyone. But I received a car loan offer in the mail from Capital One for about $14,000 to use wherever I wish. The interest rate was about 11%, which was high but doable given that I had limited options. I decided to take it and went around looking a pre-owned/used cars, eventually stumbling across the car I’ve been driving the last 6 years since. In a sense, Capital One saved my butt here by giving me an offer that really wasn’t all that great, but it got my foot in the door on getting my credit history back up to snuff.
I promptly came home after my car purchase, stared at it in the driveway for a few minutes and had a panic attack because “WHAT DID I JUST DO??”. It all turned out fine, because I made sure never to be late on a payment and because of my continued progress towards financial stability that I’ll be outlining below, I paid it off 2 years early.
So now I had a way to start establishing credit and creating self-discipline.
In my personal finance workshops that I teach, the first step I always encourage is for people to simply start keeping track of their accounts. I tell them I don’t care how it is done, excel spreadsheet, MS Money (my choice), Mint.com, just some way for YOU to track what goes in and comes out of your accounts.
This was my next big eye-opener, you know after realizing I couldn’t buy a freakin car. Seeing exactly what amount of money I was wasting each month because I was actually keeping track now.
One of the reasons I like using MS Money is it will let me review monthly reports automatically. I can pull up nifty pie charts on how much money I spend on food, utilities, etc. So I know where the big coin suckers are. What I didn’t realize, was that over the last 2 years I had spent $3,000 on Schwans Food Delivery service, which was totally an unnecessary expense, but I hadn’t realized just how much I was wasting on it. And I wouldn’t have if I didn’t actually start keeping track and seeing where everything added up.
So I started reducing the extra expenses. Don’t need em, I’d rather have the money now that I know how much I could be saving. Have you ever totaled up how much you are spending on fast food, cigarettes, or Starbucks? I betcha it’ll be an eye-opener too!
I actually started making a game out of how much money I could save and how much I could reduce expenses. I started doing $0 days, where in 2009-2010 I didn’t spend ANY money on 201 out of 365 days.
I did another year experiment where I kept track of how much money I saved through coupons and discounts, and realized I saved over $2,300 JUST by taking a few moments to be a conscious shopper. This was a very popular blogging series that I may just pick up again here soon on my personal blog.
Now that I’m not spending so much, I obviously have extra money. But certainly I could get MORE money, right? Right!
In 2008 I took on the experiment of seeing how much money I could save or bring in from selling junk. This totaled over $8,000 worth of crap I sold or money I made on the side through discounted rates or some other such nonsense.
I’ve always said that Clutter and Unused Items sitting around your house are just dusty money. If you aren’t using it, if it’s not useful, then it’s wasted money. Sell it, get rid of it, open up the windows, and stop collecting and hoarding unnecessary items.
Another thing I had to do in order to improve my credit score, was wait for my ONE BAD ITEM to go away. This happened in 2011, after 7 years of having the delinquent item on my report, which automatically drops off after 7 years.
So if you DO have some negative items on your credit history, which by the way you can get a free copy of your credit history from http://annualcreditreport.com (which is the ONLY place to get it free), then you will have to be patient and wait for them to drop off. They WILL drop off, but just don’t start racking up any additional negative items and make sure you pay everything ON TIME.
Tip from me: Don’t get all 3 bureau reports at once. Space em out every 4 months. That way you can get a report every 4 months in case something BIG happens to your credit history, you don’t have to wait a whole year to potentially find out about it in case it’s reported to multiple bureaus.
Keep those Old Cards Open and Empty
I have a Sears card from 1999. I don’t use it, heck I don’t have the physical card anymore, but it’s credit history that is reported to my account. Establishing a long history is good for your credit, so it doesn’t hurt to keep those old cards open, just don’t use em if you can’t handle having a credit card. You certainly don’t want to default on your oldest credit card and have them close it, that could be bad 🙂
Open up New Credit
My credit score REALLY jumped when I opened up a new credit card just for using for travel plans. Because my credit score by this time was already awesome, they gave me a huge credit limit of $12,500, which I will NEVER hit, but still having that amount of credit available really shot my credit score up. The amount of credit you have available affects your score, so while credit is the devil, if you’re going to work on your FICO score like I did, having a lot of it available is a good thing. Just be CAREFUL and don’t use it. I don’t keep a balance on this huge credit card, because damn that would be scary.
Keep some balance on Credit
I hate having a balance on my credit card. But for a time there it was a good thing. Having a good credit used vs credit available ratio gave me another small boost to my FICO score. Now I am working to pay it all off because my mortgage also helps with that and will be around for a while. But having a little bit of recent credit use also helps, just pay it off as soon as you can, or if you’re like me, pay off your balance every month so you aren’t racking up more debt.
Really, the key things you can do as a consumer to fix your credit score is this:
1. Don’t ever be late on a payment. There’s no reason for it. If you are a blown refrigerator away from devastation, start putting $50/month into an emergency savings fund NOW so you can take care of it without having to sacrifice a credit payment somewhere else.
2. Keep your oldest card open and don’t use it. If it’s one of those cards that requires you to use it once a year or they’ll close it, buy gas on it once a year and pay it off immediately.
3. Keep a little credit around when trying to get your FICO bearings, but once you’re better established, pay that crap off.
4. Keep a decent credit availability, but only if you’re disciplined enough not to max any of it out (or better yet, not use it at all). The better your FICO, the more people are willing to give you lots of credit. But that could be bad for people who can’t handle having a lot of credit, so make that judgment yourself.
5. Be patient and wait for your bad score items to drop off your credit history. For regular credit, this is 7 years of negative items. For bankruptcy, I think it’s what, 13 years now? Yeah that’s a long time to wait, but what other choice do you have? Keep having crappy credit? I’d rather wait and build up good credit again.
6. Finally, just start keeping track of your damn self. Know what you’re wasting money on, be creative on how you can bring in more money, even if it means just having a big fat yard sale or creating a side hustle. But if you don’t know where your money is, then you don’t have a shot in figuring out how to use it.