Over the years I’ve had lots of readers share with me their personal story towards better credit. I thought it would be awesome to feature some of these stories on Better Credit Blog to provide inspiration to others (some of these stories are simply amazing).

So I’m going to give away TWO $25 Amazon Gift Cards to the best/most inspirational credit improvement stories. If you’ve recently had some success with your personal journey, I’d love to hear from you. Here are some questions to answer:

• What was your credit score when you started?
• What techniques worked for you?
• How has this blog helped you?
• What have been some of your successes and failures?
• What is your long term goal?

That’s it! Send me your story AND comment below telling me that you sent your story. This is very important!

I look forward to hearing your stories. This giveaway will last all week and I’ll pick the winners on Friday, March 16th. We’ll pick a date to feature your story on the blog after the winners are picked.

I got online today after an awesome vacation in the Caribbean with my wife to find my February statement from FreeCreditScore.com in my inbox. In February I finally met my longterm credit score goal of 775. Wow… it was sort of a shock. Don’t get me wrong, it feels great, but when you finally hit a goal you’ve been working towards for literally years, it’s almost unbelievable.

It got me thinking about the past few years and all the ups and downs I’ve been through on my personal journey. In particular, I started thinking about how having bad credit affected my self-esteem. Bad credit is something that’s always looming in the background of your life. Maybe you don’t think about it all the time, but when you do, it feels terrible. For me, it was like this mark on my reputation that said “This person cannot be trusted”, even though I knew this wasn’t the truth.

So I suppose in that sense, it does affect your self-esteem. Nobody wants to feel like they can’t be trusted, or they are a deadbeat who doesn’t pay their bills –especially when the whole picture isn’t clear on a credit report. After all, your credit report doesn’t tell the story behind the negative marks. If they did, I’m not sure lenders would care, but if lenders actually knew you I’m sure it would be a different story.

Back when my credit score was in the low 500′s, I applied for my first secured credit card designed to help people rebuild credit. It was an Orchard Bank Classic Mastercard and I was approved. This was the card I used to really kickstart my credit improvement journey. Within months, my score was up 50 points.

The thing is, because this card is designed specially for people with bad credit, they pretty much approve anyone (as far as I know). Nonetheless, this approval, for me, felt great. After being declined again and again, this little approval gave me the confidence I needed to continue my credit improvement journey. Funny thing…

I would love to hear your stories and comments. Can you relate?

There is a lot of outdated crap on the internet about how to build credit when you don’t have any and I’m tired of hearing the same stuff over and over. I’m going to tell you the best way to build credit. It’s actually pretty easy if you follow these steps. These techniques also work if you’re trying to rebuild credit.

Forget About Co-signers And Authorized Users

Back in the day you used to be able to build credit by becoming an authorized user on your parent’s credit card or having them co-sign on a car for you. While you can still do this, it’s not going to help build your credit much. Your credit score is no longer affected very much by this. Nonetheless, you still hear countless people tell you that’s the first thing you should do. They aren’t lying to you, their info is just outdated. That’s OK This happened fairly recently… a couple of years ago.

Don’t Apply For A Major Credit Card Yet

Chances are, if you don’t have any credit history, you’re not going to be accepted for a major credit card like American Express, Discover, Chase, Citi, etc. The thing is, when you apply, however, you’ll suddenly have credit history –history showing that you applied for a credit card. This is called an “inquiry” and multiple inquiries lower your credit score.

Now, sometimes one of the major credit card companies will send you a pre-approval offer even if you don’t have any credit, and the truth is, you might get accepted. However, I wouldn’t recommend going this route. There are a few reasons why that I’ll get into in a sec. Main point: hold off on applying for that shiny new American Express card.

Start With A Secured Card

Think of a secured card as a debit card that builds credit history. In other words, you aren’t actually getting a line of credit –you have to “secure” the card, you have to deposit the money like a debit card. However, unlike a debit card, every month it gets reported to the credit bureaus. There are several reasons why this is a great way to build credit. First, you can’t get yourself in too much trouble. When you have an American Express card with a $5k credit limit on it, you have to be really careful and responsible with it. That’s why they don’t just hand them out to anyone. You have to prove yourself. I know it’s easy to say, “Oh I’d be responsible with it, I’m not an idiot.”, and I’m not saying you are, but it’s very easy to get into trouble unless you have experience with credit.

Another reason why a secured card is great for building (and rebuilding) credit is that you can get one with a relatively small deposit minimum. Many secured cards have deposit minimums as low as $200. You can find a great secured card here. I personally recommend an Orchard Bank Secured Card. I got one of these several years ago when I was rebuilding credit and it worked out very well for me.

Lastly, it should be noted that most of these cards have an annual fee. That’s just something you’re going to have to deal with for a year or so. It’s a small price to pay for good credit. Trust me, because not having any credit can cost you thousands in the long run.

You Need To Have Perfect Payment History

Once you get your secured card, make sure you pay it every month. Don’t mess this up! Also, don’t make the mistake of not using the card. You need to use the card in order to show that you can responsibly use credit. Remember, that’s the goal here. With that said, you don’t have to use it for every purchase you make. You can simply use it a few times every month. For example, using your secured card for gas purchases is a great way to go about this.

You will need to build your credit history with this card for about 6 months to a year. So, unfortunately it does take awhile to build credit, but there is no way around this. Don’t believe people/websites that claim you can do it faster –you can’t. These people aren’t smarter than the folks at FICO. They are liars and crooks.

Now It’s Time For The Big Leagues

Now that you’ve had your secured card for a year or so and it has perfect payment history, you’re ready to apply for a major credit card. You have many options but don’t expect to receive a huge credit limit. That’s OK! You’ve made progress and you should be proud of yourself. Having a major credit card on your credit report is great for your credit score (unless you pay late). In other words, major credit cards are “worth” more than charge cards or secured cards when it comes to your credit score.

So which major credit card should you apply for? Like I said, you have a lot of options. I wouldn’t try for an American Express or Discover –their credit history requirements are generally higher than say, Citi or Chase. You can find a great Citi Credit Card here.

Keep On Making Payments On Time

You’ve got some great experience handling credit with your secured card over the past year so pass those good behaviors over to your new major credit card. Credit cards can be great if you use them wisely. That’s one of the reason why I said I don’t recommend getting a major credit card in the beginning. You need to slowly move towards it. Then you’ll “get it”, and everything will be great.

I wish you all the best luck and let me know how it works out!

Also, if any of you want to share your experiences, please do so below!

I wrote a post awhile back on how to remove late payments from your credit report and it was insanely popular. There are also some great tactics for getting a collection removed that I wanted to share with you.

1. Carefully look for ANY inaccuracies with the collection entry on your credit report

Get a copy of your current credit report and vigorously verify that all the information is being reported correctly. You should be checking every little piece of data. More than likely, you’ll find a mistake somewhere, and when you do, you can dispute the collection and write a letter to the credit agencies requesting that they remove the collection. Now, this doesn’t mean that they will –they might simply correct the inaccuracy. However, if they can’t verify or obtain the correct data, they might just delete the collection altogether.

You should check the following things:

• Account number
• Balance
• Date opened
• Account status (e.g., Closed)
• Payment status (e.g., Collection)
• High Balance
• Credit Limit
• Anything else that appears to be inaccurate

2. Contact the original creditor about the collection

I can’t speak from personal experience on this one, but several people have told me they’ve had success contacting the original creditor. Most of the time when a debt goes into collections, the debt is actually sold to the collection agency (or they get some kind of bounty for getting you to pay). However, some creditors have internal collection departments –they are usually under a different company name so you’d never know.

By contacting the original creditor, you will probably need to offer the pay the full amount due to make any headway. Even then, many will simply say, “Sorry, it’s already gone to collections”. However, if the collection agency is actually an internal dept. of the creditor, they may agree to have the collection removed if you pay in full.

Try it and let me know how it works.

3. Demand that the collection agency validate the debt

It’s no secret that collection agencies can’t be trusted. An article published by Kiplinger entitled, Confessions of a Debt Collector, attests to this. You don’t know what kind of silly fees they are adding to your original balance. Are the fees even legit? Who knows…

Luckily, you have the right to demand that they validate the debt under section 809 of The Fair Debt Collection Practices Act. If they can’t validate it, they have to stop contacting you and remove the entry from your credit report. The only downside to this is that you have to request validation within 30 days of their initial contact. Don’t put this off –if you get a collection letter in the mail, sit down and write a short, stern letter stating that you are requesting debt validation. If you don’t hear back from them, you can probably assume they couldn’t fulfill your request.

If you guys have any tactics you’ve been successful with that I didn’t list here, please share! I’m sure other readers would love to hear them.

Click Image to Enlarge



Source: Budgetable: The Bad Credit Survival Guide

Reader’s Question

My husband has three old credit cards from college that he racked up, then didn’t pay for years. A few years ago he started with a debt free counseling program that took a lump sum every month and paid each card a certain amount, with the agreement with the card issuers that he would not have fees or interest rate changes while on this program.

He was told that he has a zero credit limit on these cards, and once they are paid, they will be closed. We are receiving a good tax return this year, and plan to pay off the cards. What we really want to know, is what should we try to get them to mark the accounts as on his credit report to have a positive or least negative impact on his credit score? I’ve heard that we should ask for closed at consumer’s request. Is this good?

My Response

Closed at consumer’s request will work fine. The account history is what is really going to affect your credit score (as long as it’s not marked as a charge-off).

First of all, this isn’t a “bash Dave Ramsey” post. Rather, I greatly admire Dave Ramsey and his overall philosophy on personal finance.

I’m sure most of you have heard of Dave Ramsey (he seems to be everywhere these days), but for those of you who haven’t, Dave Ramsey is a popular financial guru –he has a radio show as well as a TV program on the Fox Business channel.

Dave teaches what he calls “The Baby Steps“. The Baby Steps comprise of 7 steps that Dave believes anyone can take to achieve wealth (or as he calls it, “financial peace”). Dave outlines these steps in great detail in his book, The Total Money Makeover.

I first read his book about a year ago and I have been listening to his free podcast on iTunes for about 4 months. I definitely recommend this book to anyone who is just starting to get a handle on their personal finances.

The process Dave uses in The Total Money Makeover is to take the reader through a journey as though they are completing each baby step during the read. Before discussing the particulars of each step and the subsequent reward, Dave methodically strives to hammer one idea into the reader’s head: Your money problems are your fault and it’s only through self-decipline in handling money matters that you can achieve financial peace. Basically he says that his steps will only work if you change your behavior in regards to money. I couldn’t agree more.

I am not going to review each one of Dave’s baby steps in this post (you can get them from his website), but I want to touch on the first two and express what I believe to be inconsistent (and potentially unhelpful) advice. I’d also like to open the discussion up so please comment or email me with your thoughts.

Dave’s first baby step is to save $1000 in an emergency fund –that is, money that should only be used if you find yourself in dire straits while you’re working on baby step 2.
[ad#inline-page]
As a prelude to outlining baby step 2, Dave suggests that you get intense and do something drastic: cut up all your credit cards (he calls this a “plasectomy”). He tells the reader to close all credit card accounts that are paid off and pay off any credit card account with a balance as quickly as possible and then close the account.

Baby step 2 says to pay off all your debt (except the house), smallest to largest. At this point, he is assuming the reader has sworn off credit completely –forever.

This is where I find several inconsistencies. First of all, there is a big fat elephant in the room which Dave cannot avoid: closing all of your credit card accounts is going to ruin your credit score.

Dave’s response to this is simple, but in reality, misleading and unhelpful to most people. Dave says that people ought not concern themselves with their credit score. After all, having sworn off credit himself, he doesn’t even have a FICO score.

Dave claims that if you use his baby steps you will become rich, and I believe him. However, it should also be noted that even he admits this process takes decades. Do you want to pay an extra $50 per month on your car insurance until you become rich because you don’t have a FICO score? I don’t. Your car insurance premium is only one out of dozens of problems that will arise in your life with a poor (or no) credit score.

Do you ever want to get a decent rate on a mortgage? This is debt that Dave permits, by the way, because even he realized that most people cannot simply save $150,000 or more. Nonetheless, there is no such thing as a mortgage lender who doesn’t at least look at your FICO score. I dare anyone to find one, honestly.

Aside from the problem of ruining your credit score, the inconsistency really lies in the fact that prior to this, as we have discussed, Dave says that we need to become disciplined in money matters, yet at the same time he tells us that we lack the self-restraint to maintain an open credit card account without charging it off. The point is that anyone who lacks the ability to not use their credit card, more than likely also lacks the ability to save their $1000 emergency fund just for emergencies.

This all, of course, is a journey where we are suppose to acquire the skills to be successful with money, and this requires that we teach ourselves self-restraint rather than destroy the ability to be tempted.

Again, I wholeheartedly treasure Dave’s overall financial advice –it’s a real gem. However, I would kindly suggest that anyone who is starting with Dave’s Baby Steps, reconsider closing your credit card accounts. After all, with a little self-restraint taught by Dave Ramsey, it’s just as easy to put your cards in a dresser drawer and not use them.

Reader’s Question

We are a military family and move often. We had one open bank account in our old home town that we never used, but since we both had to be present to close, just have never closed. My husband paid a bill online a while back but clicked the wrong checking account and paid it out of this account by mistake, which did not have enough funds.

Since we never use the account whenever we get mail from them I simply throw it in the bank statement pile and never look at it. Then, I got what looked to be a debt collection notice, which I found wierd since we have great credit and aren’t over due on anything. Since the overdrawl had not been paid off in 90 days they closed our account. I of course paid it right away, but how bad will this bank account closure affect our current credit and for how long?

My Response

Hi [name removed],
It sounds like it never went to a collection agency and the notice was just from the bank. A bank closure itself does not negatively affect your credit –an overdraft fee that went into collections, however, does.

I think your best course of action would be to call the bank and kindly explain to them the situation just like you did in your email to me. More often than not you will find that small local banks are usually helpful with these types of situations. However, if you are dealing with a large bank such as Chase or Wells Fargo, your chances of resolving this are slim. Nonetheless, if in fact the overdraft did go into collections, it will remain on your credit report for 7 years and it will have a significant effect on your credit rating. It is for this reason, I strongly suggest you try to work with the bank as to ensure nothing is recorded on your credit report.

Reader’s Question

I have two negative accounts on my credit report that have been sitting there for a few years. Other than those, my credit report has only accounts that are on time. I have recently started to try and really jump my credit score up and was wondering if these were even worth putting my time and money into fixing, or will these slide off of my account eventually? I have always wondered when exactly the 7 year rule goes into effect. My first account was first reported in March of 2002 and was last reported on in 2007. My second account was first reported in April of 2005 and last reported in May of 2005. Does the 7 years start tolling from the first reporting date or the last?

My Response

Hi [name removed] -
Those two accounts are pretty old and I personally wouldn’t spend a whole lot of time trying to get them removed. They are so old that the impact on your credit is pretty small. I know it feels like an itch that you really want to scratch, but they will be gone in no time. Regarding the 7 year rule: In most cases it all has to do with what is actually being reported –that is, you are looking at 7 years for each negative entry. Therefore, if the first negative entry was reported in March of 2002, you are looking at 7 years for that entry. Each month a negative entry is reported, that entry will remain for 7 years. In other words, don’t look at the account as a whole when attempting to figure out when the account will be removed –look at each individual negative entry associated with that account and figure that that entry will remain for 7 years.

Hope this helps,
-Ashley

If you’re like most people, being on the opposite end of a collection call can be quite a defeating interaction. Collectors generally seem unforgiving and absolutely unwilling to hold a civil conversation. This all makes it very difficult to make any progress (let alone get the upper hand) during one of these calls. Nonetheless, it’s been my experience that when you equip yourself with the correct tools, controlling the outcome of a collection call can be very easy.

1. Collectors are trained to toy with your emotions for a very specific reason.

Do you ever wonder why collectors act so merciless about your situation and further, why they seem to go out of their way to embarrass and degrade you? The answer is simple, yet often overlooked. Collectors are specifically trained that the fastest way to get a person to pay is to exhibit behavior of such disgust and ruthlessness that the person simply says, “I cannot deal with this human anymore, I will pay them just to go away!”. If you keep this mind, these tactics will become transparent and ineffective.

2. Asking to speak to a manager will get you nowhere.

It’s important to realize that a “manager” at a collection agency (at least the ones that they’ll ever let you speak you), are not really there to make sure their collectors are treating customers fairly. Rather, the managers are there to make sure the collectors are getting you to pay –because, of course, that’s how they get paid. If anything, the manager will treat you even worse. Also, why do you think they are manager? Likely, they are running the show because they are very good at getting you to pay and as we have already discussed, this usually means behaving very erratic. Don’t waste your time with a manager.

3. Never make a deal without getting it in writing.

If you have been a longtime reader of this blog, you have heard this a million times. Yet, when the time comes, still some people tend to get flustered and agree to a payment plan over the phone. What do you think happens when you do this? Most of the time they will clean out your bank account and you will find there is nothing you can do because they will simply say, “Well, you owed the money”. You can’t sue them because you have no proof. Again, any agreements should be made in writing before you give a collector access to your bank account.

4. Debt collectors are more willing to negotiate on older debts

The next time a collector contacts you regarding a 10 year old debt, don’t be afraid to offer them a settlement of pennies on the dollar. Many collection agencies purchase old debts from various companies after the company has written off the debt. Therefore, even if the settlement amount may seem small, keep in mind that as long as the collection agency makes a return on their investment, they will be happy.

5. Collectors do not care about your situation

It’s difficult to make smart money decisions when you are emotionally tied to the situation. Collectors know this when they call you a “deadbeat”. You must detach your emotions from the situation and consider it in the same way collectors do: this is just a business transaction.