Trying to repair your credit without preparation and organization is like trying to mop the ocean shore before the tide comes. A pointless waste of time and energy. Debts--even if they’re old ones--are still debts. And most of the time, you’ll have to pay the piper if you want to see your credit score start climbing. We’re talking spending cold, hard cash. In the words of Joni Mitchell, “Be prepared to bleed.”
In Part 1 of Homebuying for Brokeasses, I revealed the score I had when I began the credit repair process in August of 2012. At a 520, I knew I had work to do. But as I read through page after page after page of all the skeletons from my financial closet, I grew more weary of how to proceed. I chose instead to focus on my current financial situation (see Part 2), and put the report in a drawer. And there it sat for months, lying in wait like a swarm of bees. Just waiting to pop back up and ruin my day.
Three months later, determined to end harassing phone calls from creditors, I started thinking about using a professional credit repair service to help me. But as I started researching the credit repair industry, specifically going to each of their sites and reading about the services they provide, I decided against it. It’s a widely-held opinion that credit repair services can do more harm than good. Many report that the dispute letters that these businesses submit on your behalf aren’t totally on the up-and-up. And some services are simply scams.
After checking out the services that repair services offer, I thought I could potentially handle it myself for free--minus the law firm letterhead, that is.
I also realized that I’d have to spend some money to get where I needed to be. Which I get. I mean, I spent the money to begin with, didn't I? Better it go to the people I genuinely owed rather than a third party working on my behalf.
GETTING THE BALL ROLLING
I began by analyzing my credit report line by line. Here’s a sample credit report to take a look at. It will help you get familiar with “credit bureau language” and how to interpret it. In my case, I had several low-limit credit cards and store cards that I let slip out of my grasp when I was a brokeass and didn’t give a shit, and some medical bills leftover from before I had health insurance.
Each item falls into a category detailing the status of the debt. These statutes include:
Open accounts. Open accounts are exactly that: Accounts that are current with credit lines still available or balances that are actively being paid down. Credit will reports will detail how many late payments there are, if any.
Closed accounts. These are accounts that have been paid and closed. These tend to stay on your credit report for a length of time that varies depending on who you ask. Seven years is the most popular answer.
Active collections. These are past due accounts that have not gone into charge-off status yet. Obviously, you should pay down any account before it goes into collections. For those of you that don’t know what collections are, you may be reading the wrong blog.
Charge-offs (sometimes listed as C/O on the report) are debts that have gone unpaid for six months or more and have gone past collections to the point where the original account holder has written it off as unlikely to be paid. You still owe the money, but to whatever third party bought the debt, not the original debt holder.
So here’s a quick overview of how I broke my report down.
There were about ten items in negative status. Charge-offs, closed, and active collections.
In a Microsoft Word spreadsheet, I began documenting each negatively reported item into a spreadsheet I created. You can find it here.
Additionally, I made note about each of the items I had questions about; items I thought I paid off, or items I was unfamiliar with and set these aside.
I added up all the total amounts owed and came up with one big scary number: every dollar I owed that was in negative status.
Just to make it even scarier, I added in the current accounts I was already paying off (credit cards).
Adding in the average for my current monthly bills really put things over the top: The biggest, scariest number of all. So scary it would henceforth be known (in my head, and now here) as The Number.
I damn near fainted.
I’m not going to embarrass myself with the number. But to make up for it, I will embarrass myself with a super awkward photo of me looking exactly the way I felt when I saw The Number... 25 years ago.
So the number was scary, but I took it in stride. 75% of it was student loans that I’d already started paying off. There were more than a few medical bills leftover from my pre-insurance days, an AT&T bill that is a false charge that I couldn’t get to go away and has been following me for YEARS and a couple hundred dollars owed on a store card I used to buy “dress clothes” for a job I ended up not getting (then closed the account before I could take the stuff back). Three additional items were charge-offs that were very close to “falling off”* my report. I chose not to address the older charge-offs unless I absolutely had to.
THE BIG PAYOFF
Clearly, I wasn’t about to let The Number put me in a corner. Based on the budget I’d already put myself on, I devised a plan to pay down one item at a time. I set up a second checking account with a different bank and added funds to it--$200.00 from my savings, $100.00 from my each paycheck once per month. The theory was that when I had enough funds to pay down a single debt ready to go in this specific checking account, I'd pay it. Using this plan, I contacted and paid off all my medical bills, the stupid AT&T thing and that store card over the course of six or seven months. Pretty much everything but the biggest chunk, my student loans (I have a payment plan for that). I'd continued to work on the smaller, lingering items when I had extra cash.
While I waited for the payoffs to take effect, I worked on tracking down information about the questionable stuff I found on my credit report. There were two addresses in Ohio connected to my name and social security number that were definitely not me, and three charge-off items I was pretty sure weren't me. Unfortunately, my identity was stolen when I was twenty, and I was sure that some of these charges and addresses were as a result of this. So I went through the appropriate steps to make the address changes without any issues. It doesn't seem like an incorrect address would be a big deal, but you want your report to reflect your finances as accurately as possible. It's an easy fix. Don't skimp on the details.
Addressing the charge-off accounts that weren't mine was more difficult, and would come back to haunt me in a big way down the road. I'll get into all of that in a future post.
But even with some negative stuff still lingering, my credit score hit 590 just a month after all the checks were cashed. This was it. I was pulling it off! I managed to work my way from Very Poor to Poor on the credit spectrum! From a 520 to a 590 in about a year. The cash I'd dished out to get there was a small price to pay to know I was that much closer to my home buying goal, and The Number was no longer a big, scary thing. I also saved myself money in not hiring a credit repair service. I still had a long way to go, but this was by far the biggest leap forward I'd made insofar.
So 590 it reached. And 590 it stayed... and stayed. For the entire summer of 2013... nothing more; stalled 40 points below where I needed to be. This wasn't going to get me a house.
So what's a girl supposed to do to push to the next level? The answer might annoy you.
In the next chapter of Home Buying for Brokeasses, I'll talk about the necessary idiocy of taking on more debt to improve your credit.
*After seven years from the original date of delinquency, your charge-off accounts should disappear from all credit reports. So something that first went delinquent in 2007 should fall off this year.
Obligatory disclaimer: Always keep in mind that I am no way, shape or form a financial expert. All my advice and suggestions should be taken with many grains of salt. Everything I write is based solely on what worked for me. Consider seeking professional credit counseling before making any big financial moves.