Episode 67: How to Fix Your Credit Score When It Drops 100 Points

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You are listening to the Purpose of Money podcast, a podcast where we talk about ways to build wealth and create more freedom in your life today. I am your host Acquania Escarne.

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Hey guys, welcome back to the Purpose of Money podcast. This episode officially kicks off season four. Yay. June is home ownership month. So I'm gonna start off the season with episodes to help aspiring home owners get their finances together so they can purchase a home. So this episode is going to focus on a conversation about credit. Because credit is key to qualifying for a home loan. And in this episode, I'm going to share how my credit score recently dropped from 100 points dropped to 100 points. And how I raised it back in less than 10 days. I've been really praying about being more vulnerable with you guys and sharing stories about my financial past and present. And this happened to me and it was really hard for me to accept. But I really felt like I needed to share this story with you. So you know that nobody's perfect. And there are ways to rebuild and grow if you just take time to figure out the steps. So listen to the end of this episode, so you can catch my tips on how to build your credit and improve your credit score. And without further ado, let's hop into this episode.

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So this year 2022. Back in January, I completely forgot to pay a credit card. And the truth is, I had no idea I forgot. So not only did I forget, I didn't even remember that this was a payment I had to make. So let me explain. Two years ago, two years ago, I opened up a store credit card and at the time, the incentive was to be able to save about 125 bucks on my purchase. And I was wooed by the prospects of future store coupons, special discounts and exclusive cardholder opportunities. So I was convinced to lock into this card. Now today, if you ask me, Should I get a store credit card? I'd say no. Because most store credit cards charge a higher interest rate than if you went to a credit union or a bank. But at the time, and since I don't believe in keeping balances on cards, the interest rate didn't particularly matter to me, it was more about the immediate savings that I was going to get. So I applied for this store credit card made my purchase saved over $100 on my purchase, walked out the store kept moving. And then I proceeded to pay that balance off pretty much right away probably a couple of weeks after I got home and the credit card was due.

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So let's fast forward to the present. Last year, around December, I saw that the store was having a sale. And it was about that time of year where it was I need to make some activity happen on this card so that it continues to know as valuable to me. And I get to take advantage of these discounts that I signed up for. And so I made some online purchases for clothes for my kids that was supposed to be for our Christmas vacation. So you know it's December, I'm shopping online, I'm getting clothes for them, unfortunately at the last minute and hoping that they arrive in time for Christmas while only some of the clothes arrive in time for our trip and the rest didn't even show up before we left. So not only did I purchase these clothes for the vacation, I had to figure out another plan for my kids clothes because they were not going to be able to wear the clothes that I ordered.

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But here nor there, we had an amazing Christmas vacation. We had a lot of travel in December of last year. And this is where it all went wrong. I messed up because when I got back from our long break and crazy travel, I completely forgot about the credit card purchase. In fact, I didn't even remember that I had used the store credit card to pay for it. I just assumed that the clothes were paid for on another card that I use regularly and tend to put all my purchases each month and then pay off each month. So lo and behold, like I started out the episode saying in January I missed a credit card payment. But because I didn't even know I missed it. I kept moving through life, minding my business doing my thing. And not even aware that I had missed a credit card payment. And so then in February, I missed another one. Because again, I'm not checking for this card. I'm not even remotely remembering that I used it. It was not until March, when the company sent me a paper bill in the mail, that I realized I'd missed two credit card payments. And I never paid for these clothes that I ordered in December, and wasn't even able to wear on our trip. So I immediately went into panic mode, because nobody wants to get a past to balance bill in the mail, let alone one that is tied to my credit and credit score. So the first thing I did when I got this bill in the mail was I checked my credit score and I, my jaw dropped, I was like, Oh my God, my credit score had dropped from a 722 to 620 after the two missed payments, and I had two late payments, because I failed to pay a credit card company on time, which is the normal response that they have when you don't make your payments. And then I also noticed that I had been charged a $25 late fee in January. But because I failed to make the payments of the balance due in addition to the late fee. Now I owed a $40 late fee in February because of the second missed payment.

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So credit card companies not only tend to charge you for being late, but then they charge you more the the more times you're late, or you continue to display bad behavior as an incentive to encourage you not to do it. But again, I'm already behind. And I'm trying to catch up. So as of March 9, when I'm looking at my credit report, this account is delinquent, it has two miss payments, and my score has dropped 100 points. So here's what I did next, I immediately went online to pay this card because it needed to be paid the balance needed to be paid, I knew that was my responsibility. I even went ahead and paid all the late fees, because I knew they were my responsibility. And I felt really guilty. So the guilt in me pushed me to pay the bill and pay the late fees and kind of not challenge it initially, because I was just still in shock that this happens. I'm not perfect. And I realized that I by not writing this down and following my normal steps to pay my bills, I completely forgot about it. So this was another reminder to follow your process that you have, so that you don't forget. But anyway, here's what else I did. I called the credit card company because I felt like if I could talk to a real person, maybe they could help me fix this faster. And I was nervous to do it because I was ashamed of what had happened. And I was just applying all these extra factors into the situation that really didn't need to be there, I really just needed to try to fix the problem, and then put some steps in place to ensure it never happened again. Well, it turns out when I call the company, it was really hard to get in touch with the person, everything prompts you to talk to an automated system. So I call and they're like, do you want to hit your credit card balance? Do you want to make a payment online, the typical responses, right press one, press two plus three, there was even though to my surprise, there was an option to waive a late fee through the automated system, I was completely shocked. I just knew that this was going to be something that I had to talk to a person to waive. But the automated system gave me the option to press a number to waive a late fee. And I immediately did that.

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And so the second late fee of $40, which was the highest one of the two was immediately removed from my balance, even though I'd already paid it. So now I had a credit on a credit card that I had literally just forgotten to pay twice. So I ended up taking that option getting that $40 credited to the account, but then I called back and I still tried to pursue talking to a real person because I wanted to know, in addition to saving on the fees, how could I fix my credit? So the good news is the second time around, I did get through I patiently waited until I could talk to a customer service representative. And I explained to her what happened that you know, if you look at my credit history, you'll see that I got this card two years ago, and I traditionally only use it once a year to keep the card in place and to also keep the credit limit in place. But unfortunately, because of Christmas and the chaos of the travel I completely forgot it was an honest mistake. And I never really intended to not pay this bill. But in addition to that, I saw that they reduced my credit limit after the second missed payments so that I couldn't even charge additional purchases beyond the amount of money that was due on a card, which by that point was fine with me because I didn't really intend to use this card as a major credit card anyway. And if the lower credit limit was their way of sort of giving me boundaries, then I was going to accept those boundaries for the time being, but I'll get back to that. So believe it or not, the customer service representative was like, ma'am, I completely understand things happen. You're right. So you have a two year history with us. And you actually have not used the card more than once a year. And you've never, until now missed payments. So what I can do is I can actually submit a report to the credit bureaus saying that this was an error, and you want to dispute these late fees.

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So we had to go through the statements, figure out what was the date of the most recent late fee and dispute it. And I was shocked. I was like, Wait, so I can actually dispute a genuine late fee. With your help. And you'll help me turn that into the credit bureaus. And she said, yeah, we'll do it, we'll submit it. And we have evidence that the account is now current. So we can also report to the credit bureaus that the account is current. But you might have to wait 30 days before this is reflected on your credit report. And then if it's not, you can call us back and we'll look into it. So I was in shocked. Because never ever did I think you could talk to a human person. Explain that you made an honest mistake, and then dispute an actual late fee. Right. But I did. And then before I ended the call, I made sure to ask her, could the credit be sent to me in a check or return to my account since now, with the waive late fee? I overpaid, right? Because now that fee doesn't exist. So I overpaid by $40. And she was like, Absolutely, I will put that request in and you'll see a check in the mail within seven to 14 days. And I was like, okay, cool.

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So I was literally prepared to wait 30 days to wait for this change to be applied to my credit report. But I was checking my credit report now like every day, because I was so nervous about it, because not checking my credit report is how I totally missed that this was happening. And I'll explain that a little bit more and towards the later part of the episode on why I don't check my credit report all the time. But how I'm going to go back to my basic systems and do a little more checking in. But anyway, it turned out it didn't take 30 days to fix my credit report. Because on March 9, the delinquent report activity was on my credit report. And by March 15, it was gone. And when I say gone, I don't mean like you know there but there's an asterix like it's gone gone. Like when you look at my credit report, now the activity does show a delinquent account was now put into current status, and it's called an approved account now. But when you look at the history of my credit score, the 620 is like not there, it's completely gone. Six days later, my credit report showed a correction that was considered improved account, which means a lender or creditor reported that my account is now current, and is no longer in derogatory status. And it allowed my score to pop back up literally 100 points.

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So now as long as I continue to make payments on all my other debt, mostly my mortgage, and my car note and continue to pay those bills on time, I can continue to rebuild my credit score. So as of the time of this recording, my credit score is a 717, which is almost at the 722 it was prior to this incident happening. And at this point, the most I can do is continue to pay my installment loans like my mortgage and my car note on time, and give it a few more weeks a few more months before I eventually lower those balances so that my credit can now go back up to a higher score. But I you know, this experience was so humbling for me because I was literally in shock. I just remember it happening finding out I've done it and feeling so ashamed that I missed this, you know, but my life was so busy in the last month of last year and then transitioned into even crazier 2022 that I had to realize, like I have to revisit some of my systems and I have to use them I have to use the tools around me and so one of my systems for example is to put all my credit card due dates on my calendar and to get reminders. Well, because I wasn't using this card that often, it wasn't a part of that reminder system. So I didn't even remember to pay it because it wasn't getting, I wasn't getting the reminder alert, like I do with my other cards. And the other thing that I realized is like, I can still make mistakes, even as a financial coach, and someone who's constantly trying to help others with their money, I can make mistakes too. But now, I'm even more aware of it and how to fix it. But then the other factor is that I realized, in some cases, you can fix and improve your credit faster, when you take action, talk to a person, and you have had that history of good behavior prior. So the companies know that it genuinely was a mistake. It's not like I'm intentionally late on a regular basis. And now I'm asking for some leniency.

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So I thank God for this experience, because it's a testimony that I can share with you. It's also something that just helps me remember to go back to the basics, I think sometimes we get to a point in our financial journey where we have so many things going on and systems in place that sometimes we don't realize, there might be something that's not in the system, or not working the way you intended, and you need to kind of regroup and revisit. So this was a great opportunity for me to check all of the things that I had on AutoPay, and all of the reminders that I had on my calendar for my bills to be due. So now I just want to like transition into some tips that can help you if you're someone who's building your credit, or trying to prepare your credit to purchase a home. These are some of the things that you got to keep in mind.

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Your credit score, your FICO credit score specifically is based on a couple of factors, your payment history, the amount you owe, the length of your credit history, the new credit that you open, and the types of credit that you have. So because payment history is 35% of your FICO score, it is one of the things that impacts your score the most and so quickly. That's why when I failed to make payments, my score dropped 100 points because that was such a heavy part of my score. And I wasn't performing well in that area, they immediately responded by dropping my score to 620. So whatever you do, pay your bills on time, come up with a system that allows you to track them to pay them before they're due. But definitely don't do your best not to pay bills late because then they just become more expensive for you, you have these late fees. And in my experience, I explain to you that they start out small as $25 a pop, but then they could almost double to 40 or more depending on the terms of your contract.

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The other thing to keep in mind is that how much you owe is 30% of your score. So that's normally what we call the credit utilization. So if you have $1,000 credit card limit and you have $300 charged, then your utilization is about 30%. Right, which is a good place where you want to be you don't want to be at $999 on $1,000 card limit, if you don't have to, because that shows too much of a reliance on credit and not one that creditors want to see because it looks like you're a riskier person to lend to. But if you're someone that maintains low credit balances, and you have higher credit limits, that looks good, too. So if you owe a certain amount of money, we try to make sure that you don't owe more than 30% of what you have access to. And that's including on all your loans, your mortgage, your car, whatever it is that you originally purchased it for, and then what you owe now, you'd like to get down as much as you can. But length of your credit history is important too. So how long have you had your car loans, your credit cards or even access to credit, some of us will start to build credit at different points in our lives. And for me, I got my first credit card in college, so I was about 19 20 years old, and my credit card limit at that time was $1,000. Now it's much more but by keeping that card for so long, I now appear to have like a good relationship or good long history with credit card companies.

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New Types of Credit open that refers to how many times in the last six months to a year have you applied for new credit cards or had someone look at your credit for a loan, whether it be a car loan, a house loan, another student loan or some other type of debt that you're looking to get access to. It helps to not have too many inquiries in one year. And prior to this incident, when I paid a card late, I hadn't had any inquiries on my card for about two years, because this store credit card was literally the last card that I'd opened in the last couple of years. So I don't have a lot of activity as far as new inquiries or applying for new credit on my credit history. And then the last part, the last 10% of your score is based on the types of credit you have. And it's recommended that you have diversification even in your credit. So I know we always talk about diversification of assets and investments. But you also want to have diversification in your credit history as well. And what what's on your credit report. So that basically means like a combination between installment loans, which would be your loans that are fixed, they have a set amount you owe each month, and at some point, it'll be paid off. So that's your student loans, that's your car loans, that's your home loans. But then you also have revolving debt, like your credit cards, which you have access to a certain amount of money, say $1,000 card limit, but then you can charge $100 $200 $500, pay it off, charge it again, pay it off, charge it again, that is revolving credit, and revolving credit is nice to have on your credit report as well. And if you have a balance of installment loans, and revolving credit, you're in a good sweet spot.

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So those are the things you want to really watch out for. But just remember that payment history can have the largest impact because it's 35% of your score. And it could impact you the longest prior to me asking for this dispute to take place so that potentially my record could be corrected, I was looking at potentially having about eight to 12 months or more that I would have to wait for my score to go back up slowly. So I'm really grateful that the company provided additional information to the credit bureaus so that I could have my record show improvement and also show that the account was current. And I tell you this is like totally a blip. Because now when I look at my score, like I said, I don't even see the 620 anymore, it's not reflected in my credit history as far as the month to month scores that I have. And when I look at my areas that my score is based on, my report is showing that I've made 100% one time payment. So I have no idea what happened to the one legitimate, late charge that I paid and didn't dispute is it's just gone. So it there's no reflection of it. So I have excellent in the one time payments category, my oldest line of credit is 20 years because I literally was in college about 20 years ago. And my credit utilization is under 30%. And I have not made an inquiry, like I said in the past two years. So the last one that I made was in 2020. And that was literally to open this particular store credit card. And so I also don't have a lot of new accounts, either, because the inquiries pretty much are in line with the account openings. And then I have access to a lot of available credit like now, when you talk about available credit, that's the amount of money you can charge or you have access to but you're maybe you're choosing not to use because you don't need it, but it's nice to have. So I do have over $50,000 in credit that I have access to but I'm not utilizing, which is actually rare is in the excellent category as well, because only about 13% of people have that much or more access to credits. But I've been able to grow to that point, because I've progressively added credit cards to my credits, so that I can have access to more credit. And then I've strategically use them once or twice a year to make sure that I'm maintaining a relationship with that company. And I'm paying the balances in full to justify the need for the access to that credit.

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I'll have some more episodes on credit in the future. But that's how I progressively was able to access over 50k in credit that I can utilize, but I'm not utilizing all at the same time. So that's how I've been able to bounce back, as I say, but one of the things I want to tell you is that, you know, your credit score doesn't define you and I don't let it define me. I genuinely utilize credit when I need it. I care about my credit score when I'm about to apply for a loan or when I'm about to do something in my business or in my personal life that requires the use of credit. And that's probably why I wasn't really tracking it like that because I didn't again in two years I haven't really utilized or relied on my credit score to help me do anything transactional. But know If it's not where you want it to be, there's room for improvement, you can make your on time payments, you can open up additional lines of credit if you need to increase your access to credit because the more credit you have access to, interestingly enough, the more credit card companies will want to give you more or more lenders will want to lend to you more.

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I also have decided to stop relying on my mind to remember, I am a human person who has two kids busy job busy businesses and a husband, I cannot always remember to make those payments the way I used to in my 20s or the way I used to even earlier in my 30s. So now I really need to rely on my systems. And I still do have my calendar reminders for my other bills. So now I'm just putting in calendar reminders for the one off once a year bills to the last thing I want to say is it's important to have the courage to admit that you made a mistake, but then also to seek the solution. Don't just get stuck in that moment of shame or embarrassment because you made a mistake, because had I done that I would have probably still had a 620 or 630 credit score that was slowly rising. It took courage to call the company, plead my case and ask how could they help me and then just being patient when they did their part.

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So I hope this episode was helpful. I wanted to tell my truth, and also let you know how you too can bounce back from mistakes and build your credit score. If something like this happens to you. I also want you to know in the show notes, I'm going to drop some additional resources because I have a couple of blogs, and a podcast episode on credit that might be helpful to you. So check out the PurposeofMoney.com/blog and look for my newest article on how to build your credit before buying a house perfect for home ownership month. And I also have episode 19 it be sure Shante Nicole who I call the credit queen, she has an amazing story about how she went into a lot of medical debt, and then had to rebuild her credit after divorce, and after surviving cancer. So check out episode 19 on the Purpose of Money podcast, and then also check out how to raise your credit score even if you have debt is one of my older articles on how you can pay down your debt and carry balances and raise your score all at the same time. I'm going to drop all of those resources in the show notes. And I encourage you to always visit the PurposeofMoney.com so you can have more tips too. Until next time, I want you to keep building generational wealth.

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Thank you for listening to the Purpose of Money podcast. For more resources and information check out my website the PurposeofMoney.com and while you're there, please sign up for our newsletter so you have the latest information on new episodes and blog posts. Until next time, keep creating freedom in your life today.

Transcribed by https://otter.ai