The Weight of Money

I haven’t updated my debt meter in quite some time and it’s no longer in the $13,000-range. In fact, we started off the year at $15,000 in credit card debt, so I’m betting that meter hasn’t been updated since June of last year when we were battling down debt in order to buy a house. The purchase of said house stalled all progress in reducing our credit card debt – something we expected for the first year of home ownership.

We were doing pretty good for a while in keeping things in check, but there were several instances where we chose to increase our credit card debt instead of reducing our emergency fund. The only reassuring thought about this increase is that these are not frivolous purchases – there is no going out to eat on credit or buying unnecessary items. Unnecessary items is an “eye of the beholder” situation; I’m sure that we’ve charged some items that others would not agree are necessary. Our plane tickets to attend my grandmother’s 75th birthday party last year, for instance, could be considered an unnecessary expense. But, I’m comfortable with that charge knowing that my grandmother is getting older and attending this event, that I also organized for her from 1,000+ miles away, was worth the credit increase for us. Not knowing if or when I’ll get back to see her again made the trip worth it.

Today I’ve been filing away papers and bills and have updated our credit card spread sheet. We currently have $17,300 in credit card debt at the moment. This is costing us a little less than $100/month in interest charges and we’re paying a little over $300/month in payments (this is the debt maintenance plan, not a debt reduction plan). Of the $17,000, $7,000 is currently under a balance transfer agreement and we’re not paying interest on that, which is a significant savings – this savings will end in October. The scary thing about our credit balances is that we’re still using less than 30% of our available credit – wow, what a scary thought. The $2,000 increase from January is mostly attributed to my business purchases and two rounds of car repairs.

I’m currently waiting to see what, if any, pay increase the partner gets this year to see where we can start reducing credit card debt. As I’ve mentioned several time, we knew that our first year of home ownership would put all positive financial progress on hold and would be a difficult year in making things meet. However, due to the ongoing financial struggles at the partner’s company, I’m not too confident that this year’s raise, even with a very positive annual review, will do much to alleviative our current finical struggles. But, we’ll take whatever it is in stride as we’ve learned to do this past year and continue to make compromises as we barely make ends meet.

It’s been a while since I talked about my efforts to improve my credit score, but I just wanted to chime in with a quick cheer that my score is now in the 700s! I’m so excited to see that, even if I know it’s a variable adjustment due to the fact that we just did a balance transfer over to another card. So, this my be a temporary jump into the 700s, but even if it is, I’m still happy.

Perhaps in 2.5 years* we’ll be in a position to get a better interest rate on our house because of improvements to my credit score — and hopefully to the partner’s as well if out debt management improves.

* If we refinance before that point, we’ll get dinged with a charge equal to 3% of our loan — basically, a clause that prohibits refinancing for a certain period of time. We could have skipped that clause and added almost a full percentage point to our interest rate – so we took it.

Last year started out nice and slow and ramped up to an almost unimaginable pace. There are so many things that I was going to work towards that got pushed aside by minor emergencies and new obligations striving for my attention. Before I get started planning for 2008, I wanted to see just how we finished out the year. After some major procrastination, I finally closed out our November and December budgets and the picture ain’t pretty – more on that in a bit. First, lets look at our 2007 goals:

• Goal: Increase Savings for Home Purchase to $20,000 by July 2007. Meeting this goal was my biggest financial-ego boost for the year. We dropped about $8,000 – $9,000 on all the costs with buying and closing on the house and we still had another $10,000 sitting in savings after the fact. This was a major stretch for us and I’m proud that we made it happen.
• Goal: Reduce Credit Card Debt to $10,000 by December 2007. We’re about $5,000 short of this goal for the year. $2,000 of this total is my fault since I replaced my laptop when it died on credit instead of pulling from savings. Also, we’ve taken a 6-9 month break on beating back debt as we do what we can to keep our heads above water.
• Goal: Buy a house in July 2007 Success! We are the proud home owners of an old (137 years) farm house with just an acre of property. It was less house and land than we wanted at a pricer higher than we really wanted to pay. Despite those things, it is working out and we managed to stay within a reasonable commuting distance for the partner. The majority of the houses we were considering were much further out and now, having lived with the commute, we are very appreciative of the house we have.
• Goal: Increase retirement investments to 15% of income by December 2007. I’m a little embarrassed to say that I’m not sure where we are at with this goal. I think that the partner is still contributing only 6% of his income to retirement. I expanded my home business to be my only income source but did not put anything into an individual retirement account. This is something we need to get a handle on for 2008.
• Goal: Increase Passive Income to $200/month. We’ve managed to accumulate about $50-$75/month in passive income. I don’t see this increasing anytime soon.

Overall, I think we did a pretty good job in 2007. The last 6 months have been a serious stretch as we started to resonate with those crying “house poor” from time to time. But, even though our budget has been hit pretty hard with the new housing costs, we’re still well fed and clothed and not standing on a corner with a tin cup in hand.

Here are some numbers on our total spending for 2007:

• Credit Card Debt: $4,951 or 9.3% of spending
• Student Loan Debt: $3,805 or 5.7% of spending
• Utilities: $3,829 or 7.1% of spending
• Housing: $20,803 or 38.8% of spending
• Groceries: $4,098 or 7.7% of spending
• Eating Out: $2,933 or 5.5% of spending
• Transportation*: $6,401 or 11.9% of spending

*Transportation includes gasoline (about 8% of total spending), insurance, repairs, and fees.

The above numbers only reflect spending from our personal account. Items that are automatically deducted from income, such as retirement and health insurance, are not included.

Reviewing last years goals’ progress and our annual spending (especially the percentages) prepares accurate and reasonable numbers for spending and savings for 2008. As I emerge from several months of serious financial neglect, I have a lot of work ahead of me to get us back on track to be in a position to pursue goals of any type. As I mentioned, November and December were ugly months, fiscally speaking. I chose to continue spending without considering the impact it would have on our budget, and didn’t follow through with the partner to mange his spending as well. As it turns out, we closed out the year $3,000 short – which is almost an entire month’s worth of bills and spending. I’m frantically working to correct this and get our numbers in order for 2008.

While our move was pretty seamless, running the budget numbers for August exposed 2 missing credit card payments. I searched through all of the mail we’ve received and those bills had not arrived – looks like we missed updating the addresses for those in time. Sometimes things like this happen and you shouldn’t just sit back and let it slide. The astronomical late fees are the least of your credit worries because late payments can raise the interest rate on your current card and subsequently all of your other credit cards as well.

Having noticed the error, I immediately sent payments through our billpayment service and called the two credit card companies to discuss the problem. Each company listened to the situation and had no problem removing the derogatory entry/late fee and resetting our interest rates. Each company is different, so make the call and don’t be afraid to ask.

After hearing the situation, the first credit card company volunteered to remove the late fee (they had not automatically increase the interest rate) and was very focused on keeping us a happy customer. The second company didn’t offer any assistance but was willing to make the adjustments when I requested it. Be sure to ask about the interest rate, the second company was willing to remove the fee when I mentioned it, but didn’t inform me that my interest rate had increased as well. I knew to ask and they were willing to reset that as well.

Had I not called them, I would have lost about $80.00 in late fees and much more in increased interest rates. Having a perfect payment history is worth keeping – don’t let one little slip-up get passed you. Plus, you can make this call more than once. Last time we moved, we also missed a due date and I made the same call then (I think to one of the same companies too).

The 30-day window has passed since my last round of action – time to take stock and plan my next steps. Part One and Part Two gave a basic overview of my credit correction challenge and outlined the first five steps:

• Step One: Get a copy of all three credit reports.
• Step Two: Get all three credit scores.
• Step Three: Challenge all past addresses with CRAs.
• Step Four: Submit blanket disputes to CRAs.
• Step Five: Request Validation from creditors.

Step four is partially completed. I submitted blanket dispute letters stating that certain accounts were “not mine.” Each of these accounts had some element of incorrect information and I was attacking “low hanging fruit” to see what would get deleted with the least amount of effort. I’ve received responses from all three credit reporting agencies (CRA).

Experian Results
My blanket dispute with Experian listed five accounts, including one judgment, that I wanted deleted. Of the five disputes, three accounts were deleted. I’m excited about one deletion in particular: a store credit account with very negative information (multiple 30-90-120-days late payment reporting). The balance was paid in full a couple years ago, but it was still wrecking havoc on my credit score. Aside from the judgment, it was the worst entry on my credit report.

Equifax Results
I disputed eight accounts, including one judgment, with the “not mine” letter. Four negative trade lines, including the judgment, were deleted. The amusing part is that two of the trade lines that Experian deleted, were marked “verified” by Equifax and remain on my report. Equifax also deleted the store credit account; my two worst entries are now gone from my Equifax report.

Trans Union Results
TU requested more information to verify my identity before processing my disputes. This really annoyed me because they didn’t need more information for the first round of address disputes. I still need to respond to this request.

Next Steps: Step Five
I need to draft letters to each individual Collection Agencies (CA). The CAs will be required to validate my debt or they must have the information deleted from my credit report. Validation includes:

• Proof that the CA owns the debt or has been assigned the debt.

• Proof that I owe the money: account statements from the original creditor, payment histories with original creditor, etc.
• Copy of the original signed loan/payment agreement (original statements can fulfill this requirement).

One CA has already contacted me with a very lame attempt at validation, they’ll have to try again or delete. Once I contact the CAs, they will have only 30 days to respond. They can be fined and sued if they refuse to respond, respond incorrectly, or fail to delete an item. I will follow-up validation requests with an Intent to Sue letter as needed, and I’m willing to file suit in smalls claim court if it’s what I need to do to get this information off my credit report.

Stay tuned for more…

Disclaimer: I’m taking these steps in accordance with the research that I did at creditboards.com. The forums there are amazing for getting information and figuring out what you need to do to help shape up your credit. This is not advice of any kind, just my personal experience. If you want to give some of these ideas a try, you should read, read, read the forums, legal documents, and anything else you can before you get started. Failing to do so can have very negative affects on your credit and you may even get sued. Know what you’re doing before you start.

Every time I turn around, I’m reading about someone playing the debt shuffle game – 0% balance transfers. I’m starting to wonder if it is something that’ll help or hurt our situation.

I’ve avoided trying this tactic for a while now because I’m always worried that I’ll miss something in the fine print and it’ll turn around and bite us. Of course, I’m sure there are positive reasons for taking the leap, but I’m still pretty nervous about moving debt from one card to another. Additionally, since we are trying to get a house, lower utilization on each card is important to us. We don’t want to end up getting hurt by a high balanced (low interest) card.

But, some of the offers are very tempting. Especially the 0% for 6-12 months and then 3.99% fixed thereafter. When our lowest rate card is at 8% and highest is above 13%, 3.99% looks pretty good. Of course, we must also factor in the transfer fee (usually 3%, some with/without a fee limit) into the interest rate.

What has your experience been? Is it easy to make the transfers? Was it worth taking that step?

Wow, I never realized just how effective some minor steps with credit correction could be. The results are encouraging.

In Part One of Credit Correction Challenge (CCC), I discussed the starting steps including challenging all old addresses listed on your account.

Credit Scores at the beginning of CCC (March 8, 2007):

• Equifax:612

• Experian:659
• Transunion: 630

CCC Actions Taken:

• Step One: Obtained copy of all three credit reports.
• Step Two: Obtained all three credit scores.
• Step Three: Challenge all past addresses with Credit Reporting Agencies (CRA).

Since completing the last step, we met with a mortgage broker regarding our housing plans and discovered that I really needed to take more aggressive action in credit correction. Instead of waiting for the results of Step Three: Challenging Past Addresses I had to move on to the next steps.

Step Four: Blanket Disputes with CRAs. There were several accounts that needed disputing and the hope is that they’ll be removed. However, it isn’t exactly that simple. The CRAs must attempt to verify that the debt information with the reporting creditor. They have 30 days to complete this process (the clock is ticking) and must delete unverifiable information. I expect that several creditors will be unable to supply the proper verification, but that they will probably report back as accurate anyways.

Step Five: Request Validation from Creditors. Following the results of the blanket disputes with the CRAs, I will then send validation requests to each creditor that is reporting inaccurately. This is another 30-day window and has varying degrees of success based on the creditor. If information cannot be properly validated, it must be deleted.

Even though everything is still in process, there have been considerable improvement to my credit score. My median score has raised from 630 to 668 since beginning the Credit Correction Challenge.

Current credit scores are:

• Equifax: 678 (66 point increase)
• Experian: 673 (14 point increase)
• Transunion: 668 (38 point increase)

To be continued… this is an ongoing process with several interim time lines (30-day waiting periods). I’m currently waiting for the results from the blanket disputes and then will begin with step five. I’ll post my progress as I get updates.

Very Important Note: I’m following steps based on my extensive reading and research at creditboards.com/forums/. There is an amazing wealth of information there. Credit correction shouldn’t be attempted without first understanding the process and consequences possible. There is a lot of information relevant to my personal process that has been omitted to keep these posts a reasonable length. This is NOT advice, simply my personal experience.

My credit scores are already looking better. Not because of a recent increase, but because I found my reports from last September. I pulled the reports and scores, planning to start this ball rolling, and was very discouraged with what I found.

In just 5 months, my credit score has leapt up a combined 168 points!! Woot!

Credit Scores:
TransUnion up 58 points: 572 (09/27/2006) to 630 (03/08/2007)
Experian up 110 points: 549 (09/27/2006) to 659 (03/08/2007)

Wow, I am at a much brighter point today. Looking at the two reports, here are the changes and possible contributions to the increased score:

TransUnion went from 7 negative accounts to 5 and from 2 inquiries to just 1.
Experian went from 2 negative accounts to 3 and from 0 inquiries to 1. (ummm…)

Since those changes don’t seem to explain much, I’m guessing the positive leap in score stems from the partner adding me to one of his credit cards that gives me a credit history of 17+ years and a perfect payment record for that card. Also, my student loans are now in repayment and every payment has been made on time.

I’m much happier about my credit score seeing the drastic improvement in just the past several months. Hopefully the tactics I’ll be using will increase it another 70+ points. I’m hoping for a minimum score of 700, though that may be a long shot.

In more credit news, I just called (make the call) to increase our credit limit on one of our cards to reduce the utilization rate. I’m trying to do everything we can to be in a very positive situation for buying a house.

I have not always been this upstanding model of fiscal responsibility (ha!). About seven years ago I started a two-three year crash course in credit destruction. And now, it is time to face the music of all those transaction transgressions and time to get straight in the eyes of creditors.

Around this time last year, a friend responded to my poor credit woes and pointed me towards creditboards.com. CreditBoards has to be one of the greatest gifts to the credit-impaired and I devoured everything on the site. And then… I let life distract me and did nothing.

Not this time! I want to sign away the next 15-30 years of my life. I’m not going to be able to do that, at least not on preferable terms, if I don’t do something about my credit. So, I’ll be sharing with you all my Credit Correction Challenge. I’ll be following the information from creditboards.com.

Step One: I got a copy of my credit report from each of the three major Credit Reporting Agencies (CRA). (Go to annualcreditreport.com to get your free credit report.)

• Equifax Summary: 15 accounts, 3 negative accounts, 4 collections, 1 judgment
• Experian Summary: 13 accounts, 2 negative accounts, 2 collections, 1 judgment
• TransUnion Summary: 15 accounts, 5 negative accounts, 4 collections, 1 judgment

Step Two: I got a copy of my credit scores from myFICO.com. I signed up for their free trial and was disappointed to learn that it only include the Equifax score. I purchased my scores from TransUnion and Experian and ended up with copies of my report too. I should have ordered my scores when I pulled my free credit report, it would have been cheaper — live and learn.

Not the greatest scores. If fact, myFICOis rubbing my nose in the fact that, supposedly, 75% of the U.S. population has a better score than me and that I’m in the almost lowest of the low scores. Okay — this isn’t a news flash for me, I knew I needed to do some work. I’ll use these scores as a baseline for what to work up from and I’ve got some work to do.

Step Three: Challenge all past addresses listed with the CRA (Equifax, Experian, TransUnion) to get them removed. This will help with disputing negative entries later. I mailed my letters of on March 8, 2007 and they have 30 days to act.

To be continued…: And now, I wait. Once I have a response from the CRAs, I’ll start challenging the negatives on my account.