Seven years of bad luck?

January 30, 2008 7:59 PM

I have managed to run my once-great credit into the ground. What now? How screwed am I, and for how long?

It’s an embarrassing story, an epic tale of my own sheer foolishness. The short version is that I treated my two credit cards as magical goodies creators, and ran them each up several thousand dollars. I lost my job, fell behind on payments, and just freaked out because I couldn’t keep up with them. Calls started coming; I panicked and did nothing. One of my accounts was transferred to a collection agency; still I panicked and did nothing. For months. Believe me, I’m fully aware that this was exactly the wrong thing to do, and I’ll be learning from my gargantuan mistake for a long time.

The good news is I’m getting back on track. I was able to settle with the collection agency and loan money from my family; in another month that account will be settled for good. I will be spending the next few years paying my family back. I am paying my other credit card off slowly but steadily, which will also take a few years. The interest rate on the card is pretty low. I have a budget, and I’m getting in the habit of keeping track of every purchase I make. I don’t make a lot of money; things are going to be very tight for me for a while.

I think – I hope – I have a handle on the budget. However, I have almost complete ignorance of how my wretched credit will affect me. I’m scared to check my credit report because I know it’s going to be ugly. I know it’s going to be hard to do things like move or buy a car or, well, just about everything that I need to do in the next few years. But I don’t know how hard, whether they’ll be impossible or just a pain in the ass. I don’t know the ways in which they will be hard. I don’t know how to deal with them when they come up. I don’t know how long this shadow will follow me. My friends have good credit and can’t really offer any advice, and Google has turned up a bunch of sketchy looking websites I’m hesitant to trust.

Any advice or resources you have for me would be greatly appreciated. If you need it: [e-mail]

posted by anonymous to work & money (10 comments total)

I’m scared to check my credit report because I know it’s going to be ugly

This is exactly the kind of "la la la, I can't hear you" thinking that got you into trouble in the first place. Go and check it, today.

The whole point about budgeting is that good planning is only possible given good information. A credit report is not a Damnation From Above, and reading yours is not going to change anything about your circumstances except the amount of solid information you have upon which to base your financial future.

In other words: Your fear of reading your credit report, and the attitudes that underlie that fear, are doing you more harm than a lousy credit rating ever could. Get used to confronting and planning with, instead of avoiding, financial information - whether it be good news or bad. As you've found out, finances and fantasy don't mix.
posted by flabdablet at 8:20 PM on January 30, 2008 [3 favorites has favorites]

I think going to a credit counseling agency would be well worth your time. Try to find one that's a non-profit. Regardless of whether they're for profit or not, they'll charge you a set fee ($75 to $200 ), help you come up with a budget for your lifestyle, then take any remaining balance you have with your creditors and negotiate the APR down at least by 50 percent (and oftentimes, all the way to 0 percent if you become current on payments.) These agencies are also often good because you can make one payment a month to the agency, which then disperses it to your different creditors.

Make sure you select through the phonebook or something because you're less likely to get scammed if you go local - I agree, the web idea IS sketchy.
posted by Happydaz at 8:45 PM on January 30, 2008

If you go to fico.com, you'll find a sort of credit improvement simulator. The calculator will tell you precisely what actions and for what period of time, it will take you to improve your credit score. For example: You owe $1,000 on a credit card card. If you pay $200 a month, on time for six months, your score will improve X amount.
It costs about $15. There's also a service that will monitor your credit for you and tell you when your scored has dropped or increased.
posted by notjustfoxybrown at 8:46 PM on January 30, 2008

I agree with flabdablet: yeah, it looks like you still have a lot of fear and denial when it comes to working with money. You need to address that...I'm guessing there are books written just for people like you. I don't know what they are, since although I've been known to rack up $2k credit card debt here and there, I've never been in a really desperate situation and always want to know what's going on.

Also, it's not just enough to have a budget and follow it. In your condition, you really need to be finding every way you can not spend money, and every way you can save. For instance, you don't need to buy a car...make a decision to move to a town with good public transport. Even if you have to pay each way for a train ride, that's still less than owning a car in terms of car insurance, repairs, and gas.

As pretty much any article on credit reports will tell you, the stuff is on there for 7 years. Now, that's from the last time I read an article on the subject which was a while back. It's possible it's longer today.

However, it really helps that you didn't in fact file for bankruptcy. i know someone who did, and they recovered well enough that they have been able to do things like refinance, buy a new home (after selling their old one), run a business, etc. But for a while they could not get another credit card, even a secured one, could not get financing for a car, and paid for practically everything with cash.

Even though you probably would be able to buy things with your credit card I would encourage you not to do so...put as much as possible in cash, and limit that cash by taking out only a small amount per week.

I know you didn't come here for the standard lecture on how to not spend money, but since you sound so uncertain I would ask you to make absolutely certain that you have a "handle" on the budget.

However, consider this: the only real effect your credit score should have a major effect on is your ability to borrow money in the future (although I guess it is now also used to determine things like health care and suitability as a tenant as well). You do not want to go into further debt, so you do not want to borrow money now or in the near future. So worrying about your credit is not really productive.

Just think about living frugally but happily, and pay off that debt. I know you can do it, you know you can do it, and all of MeFi is behind you. Best of luck!
posted by Deathalicious at 8:52 PM on January 30, 2008 [1 favorite has favorites]

You're going to have a real serious smear on your record for 7 years. If you settled with a collection agency that means the primary debtor sold the debt for pennies, and wrote it off. That scares other possible debtors.

If you have an account that's open somewhere, it'd be useful to have a card that you treat responsibly and run money through it every month (e.g. pay your internet and cell or whatever with it) If you don't have a working card anymore, I wouldn't bother trying for a while.

Given your lack of credit, you have to manage your finances the old fashioned way... with savings. So I'd recommend increasing your monthly allocation to an "oh shit" fund, and find every possible way to save money. As an example, if you say no to a dinner out, immediately pay down one of your debts by the amount saved.
posted by Tacos Are Pretty Great at 9:51 PM on January 30, 2008

oh, and use some sort of structured system to track your actual spending. This will help you make sure your budget is realistic, and keep you on the right track.

As you've noticed, it's incredibly easy to spend a fairly huge amount of money if you aren't paying attention.
posted by Tacos Are Pretty Great at 9:53 PM on January 30, 2008

Now, go hang out on the CreditBoards forums and personal finance blogs instead of Metafilter (okay, or in addition to it). I'd make it a daily practice.

There, you will be interacting with a lot of people who also have bad credit (potentially much worse than yours) and hearing how they are working around the obstacles it creates and also how they are working to improve it. The topic will become more of a constant presence than the monster in the closet. And you'll learn so much. You'll be an expert in no time, and you'll have this daunting issue under control. But only if you do that.
posted by salvia at 12:26 AM on January 31, 2008

My information is anecdotal from working in consumer and mortgage law firms and having to track individual people's credit ratings over time through bad situations. (I am not your lawyer, by the way, this is not legal advice.) If by "how screwed am I and for how long?" you are asking "how long will I have a bad credit score", your answer is "not terribly long" if you are steadily paying down your debt and not racking up more. A person's credit score can be surprisingly fluid. Although accurate negative information can remain on your credit score for up to seven years, there is much more to how your credit score is figured than that.

For instance, maintaining balances in checking and savings and mutual funds will counteract negative information. A recently opened credit card (including gasoline or store cards) which is paid off every month on time can counterbalance negative information. Carrying a small balance on a credit card while making the minimum every month, if your minimum is significantly less than 20% of your disposable income after rent and transportation may improve your score. Most surprisingly, just talking to the credit issuer can improve your credit score. Remember, the score is a device institutions use to determine whether or not it's profitable to them to lend you money at a given interest rate. Sometimes, you have the right positive information which matters more than old negative information.

These are the things a credit counseling center can tell you and explain in greater detail. There are many trustworthy nonprofit ones. Call your secretary of state for a referral; ask to speak to someone in the consumer protection division.
posted by crush-onastick at 5:39 AM on January 31, 2008

Just in case you don't know this already: Annual Credit Report is the federally mandated, once a year credit report that you get for free. Since you don't seem to be worried about fraud, go now and take a look at one of them (it doesn't take long). Look at one every four months.

It won't give you your credit score (that's proprietary), but it will give you a rough idea of where your credit currently stands.

Adding on to what other people have said: just because something's on your report from even two years ago doesn't mean you have an insanely bad credit score. Just start paying things on time, even if it's the minimum, and your score will improve.
posted by thecaddy at 6:42 AM on January 31, 2008

I recently bought Young, Fabulous and Broke by Suze Orman. I don't know how old you are, so maybe one of her other books would be helpful. I really liked this book. It was informative but not preachy. I looked at my own credit score (costs $15 at myfico.com) which was a good wake-up call for me. Suze has tips on getting your credit back on track and she explains exactly what goes into the score. I felt much more in control of my financials once I understood them better.
posted by radioamy at 12:40 PM on January 31, 2008