The Better Credit Blog

My Fifth Mistake: I started applying for credit too quickly

Many people are under the impression that once they fix (or remove) all of the bad records from their credit report (such as charge offs and late payments), they will have good credit. While ridding oneself of negative credit report records may relieve a great burden, the truth is, until you have gained sincere, long-lasting positive accounts on your credit report, your credit will never be “good” –it will simply be static and hover around 620 - 650. Therefore, an important step in credit repair is building NEW credit.

My mistake, of course, was that I went a little mad and applied for too much credit, too quickly. In my previous article regarding inquiries, I illustrated how this can damage not only your current credit score, but also your ability to obtain new credit. I also mentioned that it’s a good idea to apply for new credit in “bursts”. While this is absolutely true in order to minimize lowering your credit score due to too many inquires (inquires within a 2-week period are counted as one), it does little good if you already have a sour credit. This is true because you have to slowly build the creditor’s confidence.

Applying for multiple credit accounts right after you have cleaned up your credit report will do little good because creditors want to see previous positive accounts. Therefore, you must begin with one credit account (such as a credit card for people with bad credit), keep it for 6 months to get some positive history, and then apply for more credit. This is how to successfully build positive credit history and ultimately increase your credit score.

This may seem ridiculously obvious to you, but trust me, once your credit score begins to improve, you will be presented with an unfathomable urge to apply for more credit. This will hurt you in the end. Get a secured credit card, keep it for 6 months, and then start applying for a “real” credit card.

(1 votes, average: 5 out of 5)

My fourth mistake: I closed credit card accounts

Many people will close credit card accounts in an attempt to rid themselves of temptation. Some people may even believe that closing credit card accounts will improve their credit score. I made this mistake. In fact, closing credit card accounts seemed logical to me at the time. I thought, “Ok, I have a bunch of credit cards, I have paid them off, and I don’t want to be tempted to use them again so I better close these accounts.” I also said to myself, “Hey, this will improve my credit score too! The magic FICO credit score generator will see that I am acting responsible by closing credit card accounts after I paid them off!” This couldn’t have been farther from the truth. Three months after I closed 3 out of 4 of my credit cards, my credit score dropped about 100 points.

Remember: your credit score is largely based on how well you manage open credit accounts. If the account is closed, there is nothing to go off of except the account history (which is probably bad if you closed the account). An excellent credit score reflects that the individual has had long term, well-managed credit accounts. Also, while it is true that too many open credit card (revolving) accounts can hurt your credit score, the key is to shy away from opening too many accounts, not closing the accounts. Never close an open credit card account –it will hurt your credit score.

What if I can’t control my spending?

Easy: throw the card in the garbage (cut it up first) and forget that it ever existed. Therefore the account is still technically open and is reported on your credit report –you just don’t have access to it. The key to building great credit more than anything is time. Open 2 or 3 credit card accounts and keep them open for at least 7 years. If you have bad credit and can’t get a normal credit card, get a secured credit card from here.

Attempt to reopen charge off accounts

Another technique you can try if you have already closed a credit card account is to contact the creditor and ask if they will consider reopening the account. You can be certain that they will recheck your credit report, so this usually only works if you have showed some improvement. You can also attempt to send them a small down payment to show that you will honor your agreements. This will only work with small creditors –Citibank, Capital One, Chase are too big to take notice.

Here is how I got Capital One to reopen my account after I paid off the balance and closed the account: First I got two other credit cards (one secured and one gas card). I kept up on the payments for one year. After the one year was up, I called their customer support and asked if they would “kindly consider reopening my account based on the recent steps I have taken to improve my credit score and the accounts I have in good standing as of right now.” They checked my credit report and a few weeks later I received a new Capital One credit card with a $500 limit.

Take home points:

1. Never close credit card accounts that are in good standing.
2. Avoid bad credit by not opening too many credit card accounts. (2 or 3 credit cards is plenty)
3. If you can’t control your spending it’s better to throw away the credit card than to close the account.
4. Attempt to reopen closed credit card accounts by contacting the creditor after you have proved that you can be trusted.

(1 votes, average: 5 out of 5)

My third mistake: I dealt with creditors over the phone

Never call a debt collector and arrange to pay them over the phone. To better ingrain this into your head please refer to the visual representation below.

Here is what I did wrong:

I gathered all of my debt collection letters and started calling collection agencies. This was a big mistake. Tip: If possible contact the original creditor. For example, if you have a debt from a Capital One credit card, but are getting letters from a 3rd party collection agency, attempt to contact Capital One first. Click here to see my article on how to do this –in this article I will show you how to negotiate to get charge offs completely removed from your credit report

It is my experience that while many times it may appear as though a debt was sold to a collection agency, the original creditor still owns the account and are simply using the 3rd party collection agency to collect the debt. Therefore you can still cut the 3rd party agency out and contact the original creditor directly. Keep in mind: a debt has only been sold to a collection agency if the debt has a ‘Collection’ status on your credit report.

Always communicate with creditors via certified mail. This means that the creditor is required to sign for the letter before the post office will give it to them. The post office will also send you verification once it is signed for. I recommend paying the extra couple of bucks to get a copy of the signature once they have received it in case you ever have to go to court (many times creditors will claim they never received your letter). You can do this completely online. Download one of my example letters, edit it to fit your needs and go to the USPS website and upload the file.

A few things will happen if you contact a debt collector over the phone (particularly a 3rd party collection agency).

• You will be welcomed by the rudest people on the planet. If you do have to speak to one of them, try to remember that most phone debt collectors are under 25 and make $7 an hour –they don’t care about your problems. Some collection agencies hire employees as young as 16 years old.
• Collectors will say almost anything to get you to pay over the phone. Also, when you deal over the phone and they lie, you have very few legal protections. I will speak in another post about The Fair Debt Collection Practices Act and my bad experience attempting to get any protections under this.
• Resist! They will push hard for you to pay right there. They will ask for your bank account information so they can setup automatic deductions. In my case, they threatened a lawsuit if I didn’t pay them right away.

Remember that most of the tactics executed over the phone by collectors are done to scare the shit out of you. Keep in mind that collectors will say such things as, “Do you know what you have done? Do you know what is going to happen to you? Do you even realize how much trouble you are in?” In another words, they will make it sounds as though paying off the debt is the most important thing in your life, and while it may seem as though it is, never fall for this –it’s not the most important thing in your life.

I fell for this. I setup for automatic payments to be deducted from my bank account. I cannot tell you how many problems this caused me. Never give out your bank account information

Take home points:

1. Never make a deal over the phone. Request for everything in writing.
2. Always communicate with creditors via Certified Mail.
3. As difficult as it may be, never buy into their scare tactics.
4. Never give out your bank account information.

(3 votes, average: 5 out of 5)

My second mistake: I didn’t check my credit report

Everyone will tell you this, but I am going to tell you again: Don’t do anything until you have your credit report in your hand and you’re looking at it.

I didn’t do this and later it came back to kick me in the ass. I went around the house and grabbed all of the letters from creditors and started paying off the small ones first –the debts I knew were for a large amount had been left unopened for months because I was too nervous or depressed about the situation to open them. If you are reading this, there is a good chance you know the feeling. The same goes for phone calls from creditors

Here are some reasons why you should check your credit report before paying any debts.

• Some of the debts may have not yet gone to collections.
• Even if some of the debts have gone to collections, there is a chance that the debt has not yet been added to your credit report. (keep in mind that once a debt has been added to your credit report, by law, it can stay on there for 7 years –even if you pay it off. I will talk more about this later.)
• Most debts (unless they are for an extremely small amount) can be negotiated –this brings up a whole new topic that I will cover in another post, so for now just note that point.

I will briefly speak to each point listed above.

1. Any debt that has not yet been to collections SHOULD BE PAID FIRST. I cannot say this loud enough. It’s pretty easy to find out if a debt has gone to collections without having to call them –just check your credit report and then look through your letters for two separate companies demanding payment for the same debt. Dealing with deceptive and nasty debt collectors should be avoided at all costs.
2. If a charge has gone to collections but hasn’t been added to your credit report (an unlikely scenario in all honestly), pay it. The point here is that why pay off debts that are already on your credit report (and likely will be for 7 years) before you pay off debts that have not yet been added to your report?
3. Negotiations skew into a topic that is very important: negotiate with creditors. This point is so important that I will dedicate a whole (or a couple) posts to it. For now keep in mind that sometimes you can get a creditor to remove a debt from your credit report completely by simply negotiating!. However, if you can’t wait for some ungodly reason check out my resources section. I have created some sample credit removal letters in Microsoft Word format to guide you.

How do I get my credit report?

The good news is that most people can get one free credit report every year (in some states it’s two). Check your state here

Also, and this is important: there is only one website that is truly authorized to provide this free credit report, and it is www.annualcreditreport.com. I am sure you have seen that commercial for freecreditreport dot com (I won’t even dignify this wretched company with a link). It has that corny idiot saying something like, “I happen to be thinking of a number. Do you know what it is? It’s my credit score, and it happens to be a 740!” As a matter of fact, I read a few weeks ago that they got themselves in big trouble for deceptive practices –if you look at the bottom of their new commercial there is a disclaimer that says (and I’m paraphrasing), “the credit report is free but you have to pay us a monthly fee for some other crappy product”.

If you have already used up your free credit report or for some reason you can’t get it at www.annualcreditreport.com, I recommend getting one from one of the 3 credit reporting agencies: Equifax; Experian; or Transunion. I will talk more about the 3 credit reporting agencies in another post. Personally, I would go with Equifax for the simple reason that it is the most popular, and thus is probably the most accurate (because this will likely be the first credit reporting agency a creditor will report to). Also, if you are doing this for the first time, I recommend paying the extra money to get a 3-in-1 report. All of the credit reporting agencies offer this report, and for the extra $10 or so you will get a credit report that shows entries from all 3 agencies.

You can get your credit score or credit report over the phone, if you are worried about security

Here are the phone numbers:

• Equifax: 1-800-685-1111
• Experian: 1-866-200-6020
• TransUnion: 1-800-888-4213

Take home points:

1. Get a copy of your credit report before you do anything.
2. www.annualcreditreport.com is the only truly authorized website to get your free credit report.
3. Pay debts that haven’t be added to your credit report first.

Got your credit report?

Continue to My Third Mistake >>

(1 votes, average: 4 out of 5)

My first mistake: I put off getting started

I am tempted to say, “Well, you’re here reading this blog so you have begun the process of improving your credit score.” I’ll keep it in these deceptive quotes however –for two reasons. First, it’s too cliche. Second, it’s pretty much bullshit when it boils down to any real progress. I am not telling you to stop reading this blog and learning from my mistakes, I am simply attempting to illustrate my first mistake: I kept telling myself, “I don’t have any money right now to pay off any debt –what can I do?” Once I woke up I realized there was something I could do, so I got another job.

I won’t give you a pep rally or a guilt trip, I’ll use math to get my point across (a point that took me a long time to realize):

debt + interest = more debt
more debt + time = hard times

A Glorious Story of Credit Salvation

I’ll tell you the story real quick behind how I finally got this concept and said to myself, “Ok, it’s time to act and just get it over with.” I was working for this guy that lived up in the mountains (Colorado). He had about one stupid “build a website and get rich” idea a week, so he paid me to construct prototypes that would later be clumsily built in India.

During the course of my employment with this fellow, he was going through an ongoing dispute with a “potential” buyer of a heavily wooded lot next to his. Apparently my employer had cut down a dozen or so trees on the lot this man was going to buy. My employer claimed he was cutting down the trees to protect his property (and the neighbors) from wildfire –he claimed it an altruist act. While I understand there may be some logic in executing this strategy, I can also attest that my employer used that wood for his fireplace.

One day while my employer was out and I was quietly working away, a knock came at the door. “Knock, Knock” –like that. I answered the door and it was a man with a summons for my employer. A lawsuit had been brought forth by the gentlemen interested in the formally wooded lot. I could not accept this summons on behalf of my employer and as common knowledge has taught us one must be served in person before expected to appear in court.

At the time I wished that I had never showed up to work that day, because for the next two months, about twice a week, a man would come to the door with the summons and my employer would beg me to go downstairs and tell the man that he was in Mexico on vacation. On the last day of my employment, the man came to the door and I, again, obliged my employer in making up an excuse for his absence. When I went back upstairs he said (projecting humor, but in all seriousness), “I am a prisoner in my home!” I sort of blew my lid because it seemed so ridiculously obvious to me and I yelled, “Man, are you an idiot?! It’s not going to go away! It will just get worse and eventually you’ll have to deal with it!”.

I got fired, but on the drive home down the mountain, I realized that I was doing the same thing with my debt/credit situation.

Take home points:

1. The longer you wait, the worse everything will get: debt, stress, life in general.
2. Do what you have to do to get started even if it means temporary discomfort.
3. Don’t cut down your neighbors trees.

Onward to My Second Mistake >>

(1 votes, average: 5 out of 5)