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- I suffered from drug addiction for a decade and destroyed my credit during those years.
- I got sober in 2012 and immediately got to work fixing my credit so I could have a better future.
- I found a co-signer, educated myself, negotiated old debts, opened new lines of credit, and put my bills on automatic payment.
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Recently, my girlfriend and I had to move due to a rat infestation in our old apartment, and we wanted to improve the interior design of our new apartment.
When we went to IKEA, I was approved for a $2,500 line of credit. This might not seem like a big deal to most people, but for me it was huge. I am a recovering drug addict and I completely destroyed my credit score during the years that I suffered from my addiction.
From an early age, I learned terrible spending habits and lacked financial literacy. No one taught me the importance of credit or how my credit score would affect me for the rest of my life.
In my addiction, the only thing that mattered to me was getting drunk or high, and so all financial obligations were at the bottom of the list.
During that decade, I missed payments on my cell phone bill and utilities, and racked up tons of medical debt because I didn’t have health insurance. In addition to these bills, I also ruined my credit by breaking leases and not repaying payday loans.
When I got sober in 2012, it took me a long time to finally check my credit score to see the damage I had done. It was in the 400s and I knew it was time to get some work done.
I wanted to not only create a good financial situation for myself, but provide a better life for my son and teach him financial literacy.
After years of hard work, I can happily say that I now have a credit score of over 650 and can actually start thinking about buying a house with my girlfriend in the near future.
Here are five steps I took to raise my credit score from 400 to over 650.
1. You have a co-signer
The first strategy I used to fix my credit was to convince my dad to co-sign a new car with me. By then I had been five or six years sober and his credit was good enough to help me out.
Having my dad co-sign added a layer of accountability. It’s easy to let down a faceless financial institution, but I didn’t want to hurt my dad or the credit he worked hard to build. This monthly payment was my top priority, and I paid it religiously.
2. Learn about how credit works
After a few years of keeping my head down and just making the payments, I decided to check my score again, and it was up to 500.
Now that I could see that it was possible to improve my score, I took an important step that I should have started with; I picked up books and made the important strategy of educating myself.
Books like “I’ll Teach You How to Be Rich” by Ramit Sethi and “Broke Millennial” by Erin Lowry taught me the ins and outs of credit as well as much more about saving and investing.
3. Negotiated with collection agencies and paid off old debts
I learned that my debts in collections were weighing on my credit rating like an anchor, and I was going to be at a plateau until I took care of those.
After I started reading and learning about credit, I also learned how collections worked and realized I could settle some of my old debts.
So I called all the collection agencies and paid my debts in full for over 50% less than I owed. Doing this and getting a removal letter from the collection agencies caused my credit rating to skyrocket.
4. Opening of new lines of credit
As my credit score increased, I eventually got to a point where I no longer needed to be tied to a co-signer. After two years of owning this car, I went back to the same car dealership and was able to purchase a car on my own with my own line of credit.
I also tested the waters with a low limit credit card of around $300 and used it for small purchases.
Opening these two lines of credit improved my credit even further, but I had to make sure that my credit utilization rate on this card was low or it would hurt some of the work I did to rebuild my score.
5. Set up my invoices for automated payments
The last big lesson I learned from learning about credit and reading so many books is that automating your payments is the best strategy. Although only some of my bills are on autopay, if something has a big impact on my credit rating, it’s automated.
I opened a separate savings account with my bank which is used to pay my credit cards and car payment. To make sure there are always funds in this account, I have money from each of my paychecks that automatically transfers money to the savings account.