How Do I Fix My Credit? - A Deadbeat’s Odyssey
Perhaps deadbeat is a little too strong. But “The Odyssey of a Nominally Responsible and Hardworking Person Who Found Himself In A Difficult Financial Position Due to Circumstances Largely Out of His Control” is a bit of a mouthful, not to mention a bad title for an article.
Due to the potentially embarrassing nature of this material I've decided to share my story anonymously. I’m 37 and money has always been a problem. On the one hand I’ve been able to pay my bills and haven’t had to run from creditors, but on the other the cash has always seemed to go out as soon as it comes in. As it has it always will, my entire adult life.
The Atlantic recently published an article documenting a Federal Reserve Board poll that revealed a whopping 47% of Americans would have trouble scratching up $400 in an emergency. I’m that guy. And, if the numbers are correct, there’s basically a 1 in 2 chance you are too.
How did it happen? I am not an economist, or a writer for the Atlantic but I have a theory.
The Louis Winthorpe Effect
In the 1983 classic film Trading Places Dan Aykroyd plays blue blood commodities broker Louis Winthorpe III. As an experiment his employers decide to strip him of all his money. (You should already know all this and if you don’t shame on you.)
In an attempt to convince Jamie Lee Curtis that he is not as destitute as he seems Winthorpe produces a leather breast pocket wallet full of credit cards and boasts:
“You don't think they give these to just anyone, do you?”
Starting in my 20s every time I’d watch the film, this scene in particular grew increasingly anachronistic. I mean, by that time, I had a wallet full of credit cards. In fact, the very first day I set foot on my college campus I was offered one!
The takeaway message from this scene in Trading Places is that once upon a time credit cards were only for those who were economically well off. The companies issued them to people who they deemed good credit risks. At some point in the 90s this changed and credit card companies started targeting younger people and college students with little to no credit profile to speak of.
DISCLAIMER: I’m not passing the buck or playing the victim. No one put a gun to my head and forced me to go to that restaurant in 1998 or take that flight to London in 2003. I don’t think anyone can seriously claim ignorance, regardless of how easy it was to get access to credit. We all know when something is too good to be true.
Anyway here’s my theory. I don’t believe the vast majority of people of my generation who ended up under a mountain of debt were necessarily using credit to finance an opulent lifestyle, or buy things way out of the range of what they could afford. I think we just wanted to preserve a standard of living we were accustomed to growing up.
For example, a friend of mine just took her two sons to Disney World for the first time and financed the trip entirely on credit cards. She couldn’t afford it, but the thought of depriving her boys of an experience she so treasured herself as a child killed her. To her, it was worth going in the hole.
Is this irresponsible? Yes. But I’ll leave the discussion about learning to live within your means and fiscal responsibility for a later time. My purpose here is to describe why I think so many of us got in this mess.
A lot has been written over the years about how my generation will be the first to do worse than their parents. We’re making less, we have freer access to credit, and we want to do the things, go to the places, and live as we did growing up. So we’re in debt because of it.
End of story.
If I remember correctly my parents had two cards, a gas card and one for the local department store, both of which had to be paid off monthly. If we went on vacation it’s because they’d saved. Does that make them a more solid and responsible generation than ours? Or would they have responded the same as us if the credit was flowing back then? We’ll never know.
So now to the point of me writing this.
Last month while trying to trade in my old car for a new model at the dealership I was turned down for the loan. When I asked why I was informed my credit score was below 600. I was shocked. Despite being strapped for money and under heavy debt, my credit score was always sound. In fact, the last time I’d checked a few months before it had been 715.
When I got home and checked I sadly found there was no mistake. All three bureaus, TransUnion, Experian, and Equifax, were reporting my score at either below or slightly above 600.
This immediately set my wife and I into panic mode. My good credit score was the one thing we were holding onto in the whirlwind of debt and struggle. As long as that score was good, we could one day buy a house. We’d prioritized keeping it up, almost as if regardless of what else was going on, at least this…at least this represented fiscal responsibility and that we could be taken seriously.
Now we could pretend no more. We were officially a financial disaster across the board, stuck in the mud. How did this happen?
In retrospect, I’m glad it did, because being at rock bottom money-wise forced me to finally take charge of the situation and proactively seek out a solution.
Up until this point I thought there were only two ways out of credit card debt and they were both bad.
A) Continue trying to pay more than the minimum on multiple cards for basically the rest of my life, or
B) Opt for debt settlement or bankruptcy, essentially finishing off my financial reputation completely
Then one day I was talking to a friend of mine who is an accountant. He suggested I get a loan to consolidate all my debt. The fact that this never occurred to me before shows just how financially illiterate I am. All this time I thought loans were only issued for cars or houses, or for other things like starting a business.
He explained to me that I could get a loan, either online or straight from the bank, which could pay off all my cards and consolidate the debt into one payment. When I informed him of my credit he suggested my priority should be improving my score. As it stood, I’d only be getting approved for loans with terrible rates, if I even were to get approved at all.
So step one is to improve my credit score. I don’t yet even know what caused it to take a nosedive.
I invite all of you who are in the same fix along with me. If it works, you can follow the same path. I’m warning you up front it might get existential. Along with documenting my experiences I want to explore why we want what we want, and also what makes us think we deserve a standard of living that might be not in line with reality.
Fixing my credit and getting out of debt is one thing, changing the behaviors that created the problem in the first place is another.
Let’s see what happens.
Part 2: The Call to Lexington Law