In the summer of 2007, Lotasha Thomas knew she needed to get her financial act together. She had finally gotten a bachelor’s degree after dropping out of college in 2001 with an auto-immune disorder. She also had landed her first full-time position after years of only working part-time or not at all because of her health issues.
But Thomas was saddled with student loan and medical debt and was way behind on payments. So she was afraid to see where she stood credit-wise. “It wasn’t until 2010 that I got the nerve to look at my credit score and my credit report,” Thomas said. She still remembers sitting at her kitchen table and pulling out her computer to check her score. It was 465. “I cried and cried,” she said.
Thomas knew she had to improve her credit score because she was living with a roommate and wanted to buy a house of her own. She also knew that building better credit would help improve her overall financial well-being. “That’s where the journey started,” she said.
Now, Thomas has a credit score of 805. Keep reading to see what steps she took to boost it from 465 to a near-perfect credit score.
She Educated Herself on Credit Scores
After Thomas wiped away her tears and got over the shock of her score, she wanted to find out why her score was so low. “I started researching like a mad woman to figure out what this meant,” she said. She looked up information on the internet and checked out books on the topic from the public library.
The credit scores most commonly used by lenders — FICO scores — generally range from 300 to 850. The average FICO score is 695, according to myFICO. Anything below 580 is considered a poor credit score and signals to lenders that the borrower is a high risk. A good credit score ranges from 670 to 739; very good ranges from 740 to 799; and a score of 800 or higher is exceptional.
She Disputed Errors on Her Credit Report
Credit scores are based on five categories of data in your credit report: payment history, amounts owed, length of credit history, credit mix and new credit. Each of the three main credit bureaus — Experian, Equifax and TransUnion — create credit reports on consumers based on information they receive from lenders and public records.
When Thomas printed out her credit report for the first time, it was 27 pages. She knew from her research that she needed to check for errors in her report because mistakes can potentially hurt your credit score. Thomas found a variety of inaccuracies, so she disputed the credit report errors with the credit bureaus to remove the incorrect information.
She Reached Out to Her Lenders
Thomas knew that two big factors were really dragging down her credit score: the amount of debt she had and the fact that she hadn’t been making payments on that debt. At one point, she was 180 days late on her student loan payments. And she owed the hospital for treatment for her auto-immune disorder. “I had medical bills that were all levels of crazy — tens of thousands of dollars of medical bills, but I had no way of paying them,” Thomas said.
Because she couldn’t afford her monthly debt payments, Thomas called her lenders to set up payment plans that fit within her budget. Her student loan lender actually thanked her for calling because they were glad she was trying to find a way to make payments. The conversation with the hospital billing department wasn’t as pleasant, but she was able to set up a two-year payment plan with interest.
She Focused on Making Payments On-Time
Negotiating payments that she could afford allowed Thomas to make on-time payments, which she knew would improve her score. To ensure that she didn’t pay late, Thomas wrote down the due dates of her bills each month and recorded every payment she made. When she couldn’t make on-time payments, she would call her lenders to ask if she could pay in a few days and not to report her payments as late.
She Transferred Her Credit Card Balance to a Low-Interest Card
When Thomas started college in 1998, she signed up for a credit card on her first day of school but knew nothing about how to manage credit. So she racked up debt.
To pay off that credit card debt she still was carrying and boost her score, Thomas took advantage of a balance transfer offer from Capital One. She could transfer the $958 balance she had on her old card, pay 0 percent interest and qualify for a $300 credit limit once she paid off the transferred balance. It might not sound like a good deal, but it was for someone with a credit score in the 400s.
She Paid More Than the Minimum
Thomas learned from her credit score research that she needed to make more than the minimum payments to pay off what she owed as fast as possible. Paying more than the minimum also can reduce the total amount of interest you pay over time.
Thomas was able to make more than the minimum payments on her debt by reducing her spending. In 2012, she tracked every dollar she spent that year in an Excel spreadsheet. It helped her realize how much money she was wasting. “I looked at that and started making changes,” she said. Not only did eliminating unnecessary expenses help her pay down debt, but also it helped her boost her savings. When she checked her credit score at the end of 2012, it was 740.
Actually, she found out her score was even higher – 760 – when she applied for a mortgage around that time. It was high enough for her to be approved for an FHA home loan with a 4 percent interest rate and a 3.5 percent down payment.
She Topped the 800 Mark
Thomas now has an exceptional credit score of 805. She’s been able to get it so high because she hasn’t had a late payment in eight years and keeps her credit utilization (the percentage of available credit she’s using) at 10 percent or lower. She also has a good mix of credit: a mortgage, car loan, student loans, two major credit cards and two retailer credit cards. She checks her credit score and report frequently, pays off the balance on her cards every month and now is using credit to rack up rewards points. “Last year, I had enough reward points to pay for almost all of my Christmas gifts and January birthday gifts, and I have enough airline miles from using my card to pay for my flights for my two vacations this year,” Thomas said.
Not only does Thomas have her credit and finances under control now, but also she teaches teens and young adults about money through her financial education program, My Finances Matter.
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