These days, I’m a Certified Financial Planner™ who helps other people get their financial lives right. I’ve been a CFP® for about six years and have been helping people learn about personal finance and investing for about 14 years. But I didn’t always have my own financial life in order.
I’ve openly written about my past financial mistakes many times, but here’s the quick version: When I graduated from high school, I had absolutely no idea how to manage money or how credit worked.
Plus, my college years happened before certain predatory lending practices were outlawed. Others in their 40s might remember being offered a week’s worth of free pizzas as an 18-year-old college student in exchange for simply applying for a new credit card. Plus, credit card companies weren’t required to verify young borrowers’ ability to pay the money back.
To be clear, destroying my credit was my own fault. But because of my irresponsible financial decisions and the credit card companies that facilitated it, I had a credit score of about 530 when I was in my mid-20s. Not only could I not get a credit card, but it was difficult to rent an apartment, get auto insurance, and even get a job after I graduated.
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My journey to excellent credit
Fast-forward to my early 40s, and that is now (thankfully) a part of my distant past. But after destroying my credit and seeing how it impacted my post-college life, I was motivated to get it right. I made it my mission to learn as much as I could about credit and responsible personal finance, and I gradually increased my FICO® Score.
It wasn’t a quick process. Within two years of getting serious about credit repair, I was to the point where I was able to buy a home (my lender required a FICO® Score of 600 at the time for an FHA loan with a 3.5% down payment). In about four years, my score passed 700 for the first time. And less than a decade after my score bottomed out in the low 500s, I joined the exclusive “800 club,” well in the realm of excellent credit.
How I did it
The exact FICO credit scoring formula is a well-guarded secret. But we do know that a FICO® Score is made up of five specific categories of information, each with a particular weight. And I used that to my advantage. Here are some of the strategies I used on my journey.
Secured credit card
I used two strategies when I first set out to fix my credit. One was to establish some good information on my credit report by opening a secured credit card account. A secured credit card is essentially the same thing as a standard credit card, but you have to make a deposit to “secure” the account. Your payment history is reported to the credit bureaus just like any other credit card.
Damage control
The other initial strategy was dealing with the negative information on my credit report. I had several old collection accounts when I started my credit repair journey, and I finally dealt with them. In some cases, I negotiated for them to be completely removed from my credit file after I paid them. In others, I got them labeled as “paid in full” after accepting a settlement offer.
I applied for more credit than I needed
This might sound counterintuitive. But 30% of your FICO® Score comes from the “amounts owed” category, which includes your credit card balances relative to your available credit. So, by applying for a few credit cards when I was able to qualify for them, I had more available credit than I would ever need, and I only used a small percentage of it.
Build a payment history
Finally, 35% of your FICO® Score comes from your payment history, and another 15% comes from a category called “length of credit history.” In other words, half of your FICO® Score comes from behaviors over time. It may sound like a boring strategy, but the biggest reason my credit score steadily climbed for 10 years is that I simply paid my bills on time, every month, with no exceptions.
Not a complete list
To be sure, this isn’t a complete list. But the key takeaways are credit repair can be a long process, and there’s no such thing as a legitimate quick fix for bad credit. The best and most surefire way to join the top credit tiers is a combination of two factors: responsible financial behavior and time.