I had just turned 18 when my bank offered me my first credit card. My job history had just begun and I barely knew how to keep tabs on my spending. However, the whole pitch about being able to shop online and reimburse whenever I wanted to sold me. Long story short, the summer of 2013 was filled with a chain of online bargains, offering dinner to my friends and movies with my boyfriend. I made a few payments here and there, but never assured myself that they were done correctly. Deadlines and payment windows were blurry concepts to me. Evidently, this lifestyle did not last long! My first credit card had a $500 maximum at the beginning, and throughout the summer they approved an increase to a $1,000 limit. For a heavy shopper with a McDonald’s cashier salary, this augmentation felt like an early Christmas gift.
My spending parade lasted a couple of months before my card was officially emptied. Every time I made huge payments on the card, I would use to it to purchase evenly valued articles. It was a never ending cycle! In 2014, when my boyfriend and I broke up, I tried to cheer myself up by buying a new cellphone. I took a twelve-month payment plan with a brand new iPhone. The first few bills went well and I was very proud of myself, but as soon as I started university I hit a financial block. I took less and less hours at work to focus on my classes and eventually would miss a few payments here and there. When they cut my line, I figured “oh well, I’ll just pay the last few bills when I am ready then.” I only lifted my finger to refuse the credit bureaux’ calls (and if you have ever had a recollection file, you know how these people like to call you restlessly.) At that point, I had already acquired a second credit card from another bank whom I had to open an account with for my student loans. This time, the limit started at $1,000 right away. Needless to say, I used up this amount pretty quickly! When you have little to no source of income and a negative digit in your bank account, credit seems like your rescue. When I finally had the courage to open the multiple letters I was receiving from my banks and the phone company, I had to do the math. I realized I was $4,000 deep in credit debt.
My first reaction was a very passive one. Years had passed since I had maxed out my first credit card and nothing bad had happened yet. I figured I could wait! However there is this evil thing called a credit score that had completely gone over my head. Credit for dummies 101: your credit score is a three digit number that is established based on five main factors: payment history (your payments agreement, did you pay on time, did you respect the minimum amounts, etc.), your debt usage ratio, age of credit accounts (how long you have had credit), type of accounts, and the number of inquiries on your credit. You might wonder (like I did) what’s the importance of a good credit score. Well, your credit score is used to determine the risks of future money loans. According to www.credit.com:
“The three-digit score is a numerical representation that indicates how risky a borrower you are from a lender’s perspective. A higher credit score can help improve the terms and conditions you qualify for. For example, your credit reports and/or scores impact the deals and interest you will receive when you buy a home, finance a car, rent an apartment, apply for a job, buy insurance, purchase a cell phone, or open a new credit card.”
When I realized my long-term bad behaviours could potentially hinder my future plans, I started to take matters into my own hands. Of course, when you are 18, hearing about cars and housing deals is not very frightening. However, turning 21 and realizing I wanted to have my own apartment when I graduate made me more conscious of how my file would appear to my future landlords. I did not want a mistake I made in my foolish youth to ruin the rest of my twenties. The good news is that credit is fixable! It takes time and work, but it’s doable and I’ll explain how I fixed my credit.
1. Get a job and do not be picky
When I first started paying back my credit card, I got this horrendous job in a summer camp an hour away from my house, but the money was good and I was away from any spending distractions. Ask your friends who have jobs if they can refer you (that usually speeds up the hiring process), apply in and outside your neighbourhood and use employment websites regularly.
2. Call back your recollection agents
Chances are, you probably dodged the calls because you had no idea what you did not want to be caught with no money to give them. As soon as my job was secured, I called everyone! I called the two banks and the phone company, offered my sincerest apologies and asked for advice. They are very understanding. You’re not their worst client, so do not be ashamed to say you were out of a job or simply could not afford to pay. They can write up this information in your file and treat your case accordingly, especially if you are a student. From that phone call, you can also figure out a payment plan.
3. Payment plans
They are life-saving! Remember, I had four thousand dollars of debt. There was no way I could have saved this much money! However, I did not want to let the overdue statements linger. Instead of one large payment, I broke down each bill into monthly and bi-weekly payments. The bill that was the oldest would be paid the quickest (bi-weekly payments) and the newest bills were paid on a monthly basis. This way, I could still afford to live a socially active life while knowing that my debts were being taken care of. You can program the automatic bill payments through your online banking (the recollection company will give you your bill number) and receive email confirmations when payments are received. You can make the amounts as little as you feel comfortable paying! I spread my oldest bill bi-weekly with larger amounts (example: my primary credit payment plan was $220 bi-weekly for a total of six payments = three months to clear this debt versus the phone agreement $150 on a monthly basis for a total of ten payments = ten months to clear this debt, and so on). You do not have to make equal payments every month! I paid little by little at first, but when I started taking on more hours at work, I made heavier payments and cleared the debts even faster! Take it one milestone at the time. You may start juggling three bills at first and find yourself paying off the last one in the matter of a couple of months!
4. Make Lifestyle Changes
Making recurring payments hurts! I remember waking up to a thousand dollars in my account and going back to bed with half because of the different payments as well as the regular bills (phone bill, bus pass, school supplies etc). It might become discouraging when you do not budget your life to always see money leaving your account. My advice is to make small daily sacrifices to be able to treat yourself throughout the process. For example, when I was midway through my first payment plan, I treated myself to a $100 thrift shopping session for the fall season. However, I made sure I would not run out of money to live during the following weeks. To ensure I could spend this amount of money with a carefree state of mind, I saved on my everyday coffees by making coffee at home in the morning and bringing a portable mug. I meal prepped my lunches or attended free lunch at school. I avoided going out with my friends unless it was a cheap deal (Tuesday $5 cinema, half-price pitcher specials, coffee dates, and so on). If you change your everyday spending habits, you can use the money that is not going into your bill payments to treat yourself and keep the excitement of getting paid alive.
There you have it! Those are the few tips I used along the way to fix my shaky credit. It was a long process, but a very rewarding one. I lived in the shadow of my infantile score for too long: it feels great to grasp a good hold on adulthood. Taking responsibility for your debts is a mature step into the real world. Being able to make payment plans re-teaches you how to keep your accounts in check for future arrangements. The habits you cultivate while trying to regain control of your finances is valuable practice for when you re-enter the credit arena. Want to know more about how to rebuild good credit once you’ve cleared your debts? Here are some interesting links to consider:
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