Credit Score Worries

I’ve waxed on and on about my feeling on being debt free. My student loans are long gone. The car loan? Gone! Right now, I have zero financial obligations tying me down. Not even a lease on an apartment! No contracts on anything. I could move tomorrow and change my entire life if I wanted to. It’s an amazing feeling!

In all honesty, my financial life is better than it’s ever been. For the first time since the age of 17, when I signed for my first student loan, I don’t have any debt. I have a spending plan. I save money for big and small goals. I live a cash-only life. I don’t make as many frivolous purchases. My financial situation gets better everyday.

Unfortunately, the credit bureaus don’t see it that way.

My credit score was at it’s best right before my sister defaulted on the student loan I had cosigned on. Every time I applied for a loan (for a car, and later a house), people commented on how they rarely saw scores so high. I had a handful of credit cards, with total limits exceeding my annual salary. I’d charge up my cards, never maxing them out, but sometimes acquiring as much as $20,000 in debt, and eventually pay them off. I had no cash savings. No real retirement savings. Nothing much of value to my name. And I was frequently spending more than I earned.

My financial situation was precarious. And lenders loved me for it.

And then, the loan was defaulted on. I didn’t even know what was going on, until my credit score fell. And I only knew that because the credit card rates started sky rocketing, and my available balances plummeted. My financial situation spiraled out of control, and I felt completely helpless to stop it. Lenders didn’t even want to talk to me anymore; the old advice of calling the companies to work out a deal got me no where.

Eventually, I filed bankruptcy. In hindsight, I don’t think that was the best plan, but at the time, it felt like the only option. And just like that, I had zero credit cards to back me up. At the time, I had a mortgage and student loans. Some financial advisors recommend getting a credit card as soon as possible after bankruptcy, to help rebuild your credit. I decided my financial life was more important than my credit score, and stuck with my cash lifestyle.

It hurt when I took out a loan on the Nissan Versa; I was making the most money I’d ever made, and was putting down a nice sized down payment, yet the rates offered to me were terrible. By the time I bought my Ford Escape, my credit score was in the mid 600’s. Bad, but better than it had been. It wasn’t as hard to get a loan, but the rates still weren’t that great. I wasn’t too concerned: My plan was to pay off the loan as quickly as possible. The quicker it was gone, the less interest I’d pay overall. A bad interest rate does make for some nice motivation!

I set all my bills to auto-pay, so I’d never miss a payment. I paid ahead as much as possible. I signed up for CreditKarma, and watched as my credit score slowly rose. Eventually, I made it into the 720’s. I was finally back into the “good” range.

And then, I paid off the car loan.

My credit score, as of 7/13/16, according to CreditKarma.
My credit score, as of 7/13/16, according to CreditKarma.

Okay, it isn’t the end of the world. It was a small hit, and I’m still in the “good” range, even if just barely. But the bigger issue is that I now had zero credit.

The makeup of my credit score, according to CreditKarma.
The makeup of my credit score, according to CreditKarma.

What would happen to my credit score from here, now that there was nothing to report? Sure, the “Derogatory Marks” would fall off in a few years. The “Total Accounts” are all accounts that were closed years ago. I currently have nothing in my name, and don’t foresee having anything in the next few years. Would my credit score continue to fall?

I’d love to adhere to Dave Ramsey’s thinking, that a credit score makes no difference what-so-ever. But, the reality is, your credit score affects more than just your ability to get credit. Insurance companies check your credit score to assess your risk. Jobs can check your credit score. And, if/when Bryan and I decide to buy a house, we’ll have to take out a loan. Right now, my credit score is the strongest of the two, and I foresee that being the case for at least the next few years: His divorce settlement left the mortgage in his name for another two years, while his ex-wife got the house, and is supposed to make the payments every month. A house that neither of them can now afford. So she’s been late on making the payment, every single month. He watches every month as his credit score plummets. I said my piece in the beginning, and have since let it go.

Note: A lawyer is a legal advisor, NOT a financial advisor. It’s very likely they have no idea how something will affect your credit score, or your future financial situation. They’re primary concern is what is LEGAL.

I’ve read so many personal finance blogs over the years espousing the value of credit cards, that I now skip those articles completely. But, I get the idea: If you can use credit responsibly (not buying things you can’t afford, paying off your balance in full every month), there are some great rewards to be had. Some bloggers have made a career out of advice on travel hacking using credit card rewards.

The last few years, I’ve been considering applying for a credit card. But I struggled to find one that I thought would add value to my life. After all, I don’t spend enough most months to qualify for those large sign-on bonuses. I don’t like the idea of putting all my spending on a credit card, just to earn more points. I feel more secure in seeing my spending limits by the amount of cash in the bank. Would we be able to earn enough points to make a credit card worthwhile? Would having a credit card make me feel like I could spend more? I definitely wanted to avoid any type of annual fees.

For a long time, I didn’t see the benefits of having a credit card as being worthwhile for my situation. And then I paid off the car loan, and my credit score dropped. I started reconsidering the value of a credit card in my life. And, eventually, I found one that made sense for us: A Visa card through the grocery store where we shop.

We already earn fuel points through the store’s loyalty program, which Bryan uses to help offset the high cost of fueling the Suburban. With the Visa card, we’d rack up more fuel points per transaction. Plus, we’d automatically save 25 cents per gallon for the first 3 months, and 5 cents per gallon after that. And we could accrue points for quarterly gift cards at the grocery store.

So, I filled out the application. And then I waited. And panicked: What if I didn’t qualify for a card? How would I maintain, or improve, my credit score?

After a few days, I decided it didn’t matter. If I wasn’t approved, life would continue on as it had been for the last few years. So, I wouldn’t have the greatest credit score? It wasn’t a big deal in our day-to-day lives. We’d make adjustments where we needed to, and life would go on.

It turns out, I didn’t need to worry. The card came in the mail, with a $5,500 limit, no less! This is way more than I foresee needing, which is a great thing in terms of credit utilization.

My plan is to only use the card for groceries and gas, and to hopefully pay it off weekly, to prevent overspending by thinking I have more cash available than I actually do. It’s a new venture for me, so I know I’ll need to adjust my plan as needed along the way. And I’ll have to be honest with myself about how it’s working. If I start to feel that my budget is suffering, I’ll change my use of the card to once monthly: Just enough to keep it active. The possibility of rewards is not worth letting my financial progress slip.

Hopefully this will be a good experience, and I’ll prove to myself that I really have matured over the years. Time will tell.

  • Cindy W.

Comments

  1. I have to admit when I saw the title, I thought you were “sweating the small stuff,” but after what your sister put you through; I can understand why you would be somewhat fixated on your credit score. Sounds like you have a good plan! Hope it brings you some peace.

    1. Thanks Cynthia!

      Honestly, I do have a habit of being a bit “worst case scenario”. It drives Bryan insane! He’s the opposite, never wanting to research/look into anything, wanting to believe whatever someone tells him that sounds that best, and that everything will work out just fine. Which creates it’s own issues. I’m trying to work myself somewhere into the middle: Be prepared, and then let it go. Baby steps!

  2. I was strictly cash also for about 8 years after I ruined my credit in my early 20’s. I got approved for my first real rewards card about 2 years ago, and since then, have gotten pretty addicted to amassing rewards/points/cash back on several different cards. Although I pay all of my CC bills in full every month, I don’t feel as on top of my spending as I did when I used cash. If I spend more on my CC than what I have in my checking account, I just move money around in order to PIF. Even the subscriptions that are auto-billed to my cards make me uncomfortable because I don’t think them as much as I would if it was coming from my checking account. I hate that!! I’m seriously considering going back to cash/debit but with fraud being so rampant these days I’m hesitant to make the switch.

    1. I’m definitely concerned about that. And actually, after my very first charge, it took me longer to pay it off than I would have liked, because I was toying with the idea of buying clothes with the extra money in spending. And the card doesn’t allow me to pay it off as quickly as I would have liked; It takes several days to a week before a new charge can be paid. It will probably take a few months before I figure out a system that works well for me. For now, I definitely plan to restrict what all goes on the card. Most of my spending will remain debit. My goal is to maintain/improve my credit score. I’m hopeful rewards don’t lure me into something else!

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