Repentence of Debt

This is a story from Little House on the Valley. It is a story about her credit card debt and how she eventually rebuilt her credit. Please check out her blog and consider subscribing to her blog.

Out of work in early 2001, I was unable to pay off my credit card debt that I had accumulated on some wild business ideas. By the time I was employed again, my salary had been reduced by a third leaving me unable to resume paying off my debt.

At the time, I felt my only option was to allow my credit cards to go into default. I didn’t know enough about bankruptcy to safely file without horrible repercussions, and thought that default was the lesser of two evils.

A few years later, I realized I needed to start rebuilding my credit so that I would have some positive history on my credit report that would counter balance all of the negative items. To do this involved acquiring some new credit.

First, I worked out a collection deal with two of my defaulted credit cards. The agreement involved transferring the debt to two new credit cards. This would help me pay off the old debt and build a solid payment history. Looking back, I’m not so sure this was the best option, but it did help to establish my credit, so it wasn’t the worst choice I could have made.

Next, I became a cosigner on my husband’s credit card. His credit card had a higher credit limit than my repayment cards, so my overall available credit increased, and my debt to credit ratio looked healthier. I also started a repayment plan on my student loans to dig them out of default. After nine on-time payments, the loan was in good standing. It was also helpful that I now had an installment account in good shape as well as my revolving accounts. Since 10% of a credit score is based on the types of loans available to the credit holder, this mixture of loans helped boost my overall score.

During this period, I was building a positive payment history, which accounts for 35% of a credit score. I began receiving credit card offers. I was very selective in applying for these as 10% of a credit score is based on new credit. Meaning, the more accounts you acquire in a short period of time, the more points are deducted off your credit score. I opted for a Capital One credit card. This card was my first “real” credit card in a long time. It boosted my overall available credit, had a lower APR than my repayment cards that had been paid in full, and listed me as the primary cardholder.

Finally, as the 7-year mark was approaching on the old debt, I began disputing the negative items. Each time I received an updated credit report, there were fewer accounts hanging around in the negative list and more accounts in the positive items list. My last negative item was removed off my report in late 2009, increasing my credit score by almost 200 points in a year. I started out the year with a pitiful score of 542 and ended the year at a blissful 703. I’m still working towards increasing my score to over 740, but with a solid payment history and no new debt, this goal will be accomplished.

Little House has documented her journey in more details in her ebook about improving credit score. It is well worth checking it out.