Warning: It is suggested that you read the story in its entirety so that you understand common mistakes that can happen to anyone.
Waiver of Liability: I am not a legal or financial advisor. I am merely sharing my experience and the suggestions of others that we have all learned in our 18+ years as credit users.
First off I’d like to say that this is something that should definitely be explained somewhere in your Mathematics class. How is it that we learn theoretical applications, but not realistic usage? Maybe if we explained more how Math applied to the real world, more of us would have healthy financial plans in place.
So let me get to it and explain what my credit report has consisted of.
My Credit History Adventures
I use to have at some point, in my 18 years of credit usage, the below accounts (charge accounts, credit cards, and loans). I am going to group them in periods of when I had them.
Student Loans (which were co-signed or I could not have gotten them other wise)
Capital One (Yes again)
Victorias Secret ( -_- )
Bobs Discount Furniture
Citi Card (Yes, I see I wrote it twice)
Barclay Credit Card (Apple Store Credit Card)
Capital One (No this is not a mistake)
Victorias Secret (Never Closed)
Not being educated on credit gets you in the end
Now what I didn’t know is that closing or being inactive on your accounts could be damaging to your credit history. I never did any research on it before because I wasn’t a frequent shopper. I only spent what I knew I could pay back if I wanted to within one to two months tops.
In 2008, I became a full time medical school student and was unemployed until I left and started working a year later which is around the time I got pregnant with my daughter. It became very difficult to catch up on bills when I came back. While I was in school, my student loan lender the Big and infamous Shark that will bleed you dry Sallie Mae, now renamed Navient, kept calling me and threatening that I had to continue to make my payments on my account. Giving them large monthly payments of about $600 while I wasn’t working contributed to me falling behind on payments. For four or six months I couldn’t pay my Discover Card which caused a freeze on my account, but I did pay off the account in its entirety. Working of course helped with my ability to pay it off. The card closed on its own as soon as I paid off the balance. I followed that by intentionally closing my GMC, Capital One, and Citi Card. Big Mistake!
Late 2009 and early 2010, before the birth of my daughter I thought I would payoff and close most of my accounts to make sure I didn’t have any debt or bills to worry about. I was about to embark on a new role that I was sure was going to keep me busy and I didn’t want to have to worry about anything.
My Macys card closed when I disputed a transaction which was $100 and they refused to fix my account. That led to that account closing and me paying off the balance that wasn’t due anyway. Lost Case! My Victorias Secret and American Eagle card closed on their own from inactivity with a $0 balance. I didn’t realize you had to spend frequently to keep your card open. It’s just not my way of thinking when it comes to money management, to keep spending often.
My credit score fluctuated but I was usually within the 700 range because I used little or at least less then 50% of my limit. I also often paid my cards off in full and made payments beyond the minimum due.
Around 2012-2015 I opened charge accounts for Victorias Secret, JC Penny, Kohls, Bob Discount Furniture, Best Buy, Barclay, Citi, and Capital One and a credit account with PayPal Credit formally known as Bill Me Later. I was on top of all my payments and still did more then the minimum and often 100% in full.
How did I end up with so many accounts?
I started a business which officially became a money making business around 2012-2013. Around this time my score was usually 730 or more. I made my payments and didn’t charge often. Still I didn’t think about inactivity with cards leading to closure.
- I thought these three charge accounts were good to have if I ever wanted to use them, but I always paid with cash or my debit card so they never got used.
Account(s): Victorias Secret, JC Penny, and Kohls.
- I needed to buy household furniture and I wanted to have more available cash on hand.
Account(s): Bobs Discount Furniture
- I made a transition in my business customer base and started to sell different items so I had to make purchases to widen my inventory.
Account(s): Citi and Capital One Card and PayPal Credit.
- I needed a laptop and iPad for business.
Account(s): Barclay for Apple.
- Personal shopping mixed with some business expenses
Account(s): Best Buy
Then What happened?
Fast forward to 2017 I closed my business due to some business partner issues which ended pretty abruptly after a 2 month run and I became solely responsible for debt that I thought would be shared. I couldn’t make the payments on my account for the new inventory (We also had taken on a Brick and Mortar, a permanent staff member, and storage unit). My Capital One, Citi Card, Best Buy, Barclay, and PayPal Credit closed due to non payments. My JC Penny and Kohls card closed from not using them. Now all I had left was my Victorias Secret Card as the only thing being reported on my credit report. What?!
Heres when my credit score hit rock bottom
Around 2018, all my old accounts dropped off my credit history making it appear as if I’ve never had charge accounts or credit cards that I paid. It was about 15+ items. Now I had no proof that I was ever a good payee. My credit score plummeted to an ultimate low of 300 which I had not seen since before I entered college and took out my first loan. Now I look like a total risk! What in the world was I going to do in order to get my credit history up? I only have a Victorias Secret Card and I don’t shop. I started researching cards and came across secured credit cards which you have to put a deposit down to open. I was able to get a Capital One, but the limit is only $200.
So Now What?
After a lot of discussions with friends and family here is the most simple version of the
TOP 10 PRACTICES THAT YOU SHOULD AND SHOULD NOT DO TO BUILD YOUR CREDIT HISTORY
- Do not open too many new accounts at once. Space them out as it reduces your score and lowers the age of your credit history. Same goes for closing accounts.
- If you know you have a credit score that will potentially get you denied for new accounts, do not apply. Hard Credit inquiries lower your score. Low credit scores less then 630 seem to get denials for new accounts more often.
- Do not use more then 30% of your credit limit? It lowers your score. Be patient and wait for your limit to be increased before you use more.
- Make your payments on time every month. A missed payment reduces your score. Even if you’re thinking, your account isn’t reported on your credit history, believe me it will if you fall behind.
- Pay more then your minimum due payment. This can potentially increase your score more then if you paid just the minimum.
- If you want to avoid interest fees, pay your account off in full every month before it is due. Speak with your creditor first to determine what date you must pay by since most are calculated on a daily used balance and then totaled at the end of the month.
- Ask for limit increases only if you have made regular payments consecutively for four months or more, did not use more then 30% of your limit each of those four months, and have not asked for a credit limit increase within the last six months. They won’t increase it if they see you are almost maxed on the spending limit and paying the minimum. I’m going to assume that they consider it as a sign you are struggling to make payments and they don’t want you to have more access to cash that one day you might not be able to pay at all.
- Having access to more cash (spending limit) increases your score. Having a limit of $200 verses a limit of $2000, will keep your score lower. It doesn’t show your ability to control your spending when having access to more cash and not increasing your utilization over the 30%.
- Being added to someone elses account as a user can increase your score if they have a larger limit, use less then 30%, and make all their payments on time.
- Make sure to make even small purchases on your accounts to keep them open and so they won’t reduce your credit limit. Check with your creditor to ask them the specifics that they use to score your account.
Thats the sum of it all with this lesson Stay on top of your credit history. You do not know when you will need it and what doors it will open or close on you.
I will keep you all updated on what I am doing to work on building up my credit score and how those actions have impacted my credit history. This way you can get an idea if you wanted to try the same.