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How 3 People Managed to Get Out of Serious Credit Card Debt How 3 People Managed to Get Out of Serious Credit Card Debt
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How 3 People Managed to Get Out of Serious Credit Card Debt

LearnVest •  July 30, 2015 | Your Finances

Ever had a wake-up call that, in an instant, changed the course of your life?

Maybe you realized the person you were dating was The One, or it suddenly hit you that it was time to make a career 180 to pursue your true professional calling.

We talked to three people who know the feeling—only their aha! moments had nothing to do with romance or work.

Rather, their lightbulb moments helped them realize the impact that their credit scores and history had on their ability to achieve coveted goals—from growing a business to landing a new gig.

Curious what they learned about the power of those three little digits? Read on—and don’t be surprised if their stories trigger an aha! moment of your own.

“The Day My 580 Credit Score May Have Cost Me a Job”

Edgar Cerecerez, 29, a marketer in Lake Forest, Calif.

The Back Story “About nine years ago, I applied for my first credit card. But instead of taking advantage of a fresh opportunity to establish great habits, I let my impulses run wild.

The first mistake I made: taking out a car loan with a 25% interest rate. I didn’t realize how bad a deal that was—I was just excited about driving a tiny sports car.

When the car broke down months later, I charged the repairs, instead of paying cash. And when I found a $3,000 sound system I liked, I paid for that with credit, too.

Around that time, I lost my part-time job—and the ability to make payments on my cards. So I just stopped, and simply ignored the creditor calls that followed. I knew it wasn’t right, but I had no idea the level of damage I’d done.

My Credit Aha! Moment Fast-forward five years, when I was about to graduate from college and started hunting for entry-level marketing gigs. One day, as I was reading articles about the qualities employers look for, I was shocked to learn that good credit is often a major consideration.

Interested in how I stacked up, I pulled my own FICO® credit score—and was stunned to learn it was a lowly 580.

I was instantly concerned an employer would never take a chance on me—and it wasn’t much of a surprise when, a short time later, I was rejected for a job after the company performed an extensive background check. They didn’t say it was due to my poor credit, but my instincts told me it played some role.

That’s when I made a plan to rehab my score—and protect my future hirability.

My Enlightened (Credit) Life The first thing I did was open a secured credit card—an account that requires a cash deposit as collateral—with a $200 limit.

I’d learned about the benefits of keeping your debt low, relative to your credit limits, so I habitually paid my balance off every two weeks.

Not only did that keep my credit utilization ratio healthy, but it established a solid history of on-time payments. Over that year, my score creeped into the 600s.

Fortunately, I didn’t have to wait that long to land a great job. A few months after the rejection, I started working at a software company that hadn’t checked my credit during interviews. Although it was a relief, it didn’t change my goal.

My next move was to scour my credit report for any mistakes that could be hurting my score. Sure enough, I found an erroneous delinquency that I was able to dispute—a fix that boosted my score 15 points.

It’s taken a few years, but I recently watched my score hit 710!

Better credit has helped me qualify for traditional credit cards with limits of $4,000, plus a lease for the apartment I share with my fiancée.

Even though I feel good about my progress, I have my eye on an even healthier rating. My fiancée and I want to become homeowners one day, and I’d like to think of my credit as an asset—not a liability—when we embark on that process.”

“The Day My Credit Score Dipped to 520 From a High of 820”

Erin Smilkstein, 40, an education specialist in Pasadena, Calif.

The Back Story “In 2010, I was an educational therapist making upwards of $80,000, and I had a FICO score of 820. Credit issuers used to increase my limits before I even asked!

But four years ago, everything came unglued.

I got pregnant with twins, and even though my husband and I hadn’t financially prepared for it, I became a stay-at-home mom.

Living off one income was stressful—for our finances and our relationship. We racked up a lot of debt together before separating in 2012. Then, as a single mom of two, I fell deeper into the hole—at one point owing $25,000.

Thanks to help from a debt repair company, I negotiated an $8,000 settlement with my creditors, but my FICO score plummeted to 520.

My Credit Aha! Moment Anxious to rebuild my financial life, I decided to ramp up the business I’d launched in 2000—an online video training program that helps creative kids learn math.

I really believe in my products, and I needed some help with marketing and sales—getting the word out would help me reach the next level of success.

At that point, I was working as an education solution specialist making $60,000, but because I was funneling any extra cash toward my debt, I needed a loan to get my business off the ground.

The only problem: I couldn’t get approved. One after another, banks, lenders and even credit card companies rejected my applications.

And that’s when it really sunk in: If you don’t have a good credit score, no one will finance you. Scratch that—no one will believe in you. I felt utterly defeated.

My Enlightened (Credit) Life Finally, after about ten attempts, I heard the words I’d been waiting for: ‘Congratulations, you’ve been approved.’

I was ecstatic … until I read the terms.

The lender was offering me a 99% interest rate because I posed such a high risk. I felt sick to my stomach, but with no other options, I accepted—and promised myself I’d turn the experience into something positive.

Knowing how high the stakes were kept me extremely focused on my business and my debt—so much so that I paid off the loan in three months, instead of three years.

Accepting that loan was a risk, but I’m glad I did. I was able to use the money to gear up my company—and earn more. In fact, I project my monthly income will reach five figures by the end of the summer.

I’ve also focused on restoring my credit—namely, setting up automatic bill payments and hacking away at my debt. Right now, I’m just $3,000 away from freedom!

Not only does that feel amazing, but it’s worked wonders for my credit score. In less than three years, it’s increased 130 points to 650.

This has been a long and humbling road for me, and there’s still more work to be done. But at the end of the day, I’m extremely confident I’ll get back to the place I was before. It’s too important to give up.”

“The Day My Stellar 740 Credit Score Was Questioned”

Mike Bowman, 42, an IT support center manager in Pittsburgh

The Back Story “Throughout my childhood, my parents struggled financially, thanks to terrible spending habits. As young as 8 years old, I remember worrying about being able to make the mortgage in a given month.

I didn’t want that kind of life for myself, so as soon as I went to college, I took every opportunity to create financial security.

I found a full-time job that offered 100% tuition reimbursement, paid all of my bills on time, and was savvy with credit. I spread out purchases across a few credit cards each month, and paid each one in full.

By the time I turned 25, I’d established a great track record—and a 740 FICO score.

That year, I read a book about how to create positive cash flow with income generating assets, which inspired me to invest in real estate. I was great at finding bargains and negotiating favorable deals on single-family homes and duplexes.

My Credit Aha! Moment One of my first acquisitions was a three-unit apartment building in a Pittsburgh suburb. Before renting them out, I wanted to install new carpeting, so I headed to a local store to place an order. Since it was a large purchase—about $2,000—I inquired about whether the shop offered financing deals.

The salesperson looked at me with skepticism, as if he couldn’t believe I could handle such a transaction. In a sarcastic voice, he said, ‘We’ll have to see—I’m going to check your credit.’

He returned a few minutes later with a huge smile, and announced my credit score was great. I was qualified to buy as much as I wanted.

The interaction really made an emotional impression on me—it was the first time I saw the real-life benefits of healthy credit.

Even though I knew my credit was good, the fact that my status as a financially secure individual was challenged gave me flashbacks to my childhood, when our stability was forever uncertain. I wanted to do everything in my power to never feel that way again.

My Enlightened (Credit) Life These days, my FICO score rings in at 760, due to 20 years of responsible habits.

I’ve remained debt-free, and never charge more than 15% of my credit limits in order to keep my credit utilization ratio in check throughout the month. If I do ever need to use more than that for a big-ticket purchase—for instance, I recently bought a washer and dryer set—I first request a higher credit limit from the issuer.

As a result, I’ve scored access to credit cards with valuable cash-back rewards, great interest rates on mortgages and car loans, and better car insurance premiums.

But, by far, the most important thing a great credit score has bought me? Peace of mind—that’s priceless.”

FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.

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LearnVest, Inc. is owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin.

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