How To Come Back From 10 Credit Horror Stories
Credit cards and loans enable us to purchase things we wouldn’t be able to afford upfront, earn rewards and cash-back bonuses and — when used properly — boost our credit score to show prospective lenders that they can trust us with their funds. However, there’s a dark side to credit, too, as the people featured in these stories, unfortunately, found out.
These 10 credit horror stories are certainly scary, but they’re also full of invaluable lessons that can help you to find out useful tips on things like how you can get a loan a safer way.
Last updated: Nov. 6, 2019
His Credit Score Dropped When He Paid Off His Student Loan Right as He Was Buying a House
Matt Schmidt, CEO of Diabetes Life Solutions, was in the process of closing on a home. Schmidt had already had his credit checked and was preapproved for a loan.
“About three to four weeks before I was to close, I decided to pay off the remaining amount of my student loan,” said Schmidt. “Surely paying off a debt would be a smart financial decision, right?”
Unfortunately, this seemingly wise decision ended up almost costing him his home.
“Since the student loan was the only type of installment debt I had on my credit record, my score plunged 30 to 40 points,” said Schmidt. “Because of this, my lender wanted to raise my interest rate. Due to this unexpected issue, I delayed the closing until my credit score had rebounded, [which] took about six weeks or so. In the end, I could have lost the house I wanted. This all happened because I thought I was being financially mature in paying off debt I owed.”
How To Bounce Back From This
A drop in credit score can have a number of consequences, including being charged higher interest rates on a loan. Although there’s no super-quick credit fix, Schmidt was able to bring his credit score back up, and you can too. Some ways to boost your credit score include improving your debt-to-income ratio by asking your credit card company for a credit limit increase, making all payments on time and focusing on paying off high-impact debt, like credit card debt, first.
Her Husband Failed To Make Payments on Their Joint Mortgage
Deborah Sawyerr, a financial literacy educator at Sawyerrs’ House, almost lost her house due to her then-husband’s failure to keep up with payments on their joint mortgage.
“We agreed that he took on the responsibility of paying our mortgage on a monthly basis; my financial responsibility was [to] pay all other bills within the household. He was the bigger earner in the household at the time,” Sawyerr said. “Sadly, I was married to someone who was not financially responsible or literate. My husband failed to make regular payments. In fact, in any 12-month period, our mortgage would only be paid once or twice. This continued for several years.”
This led to a number of court judgments against Sawyerr, and it negatively affected her credit score. The financial issues were accompanied by marital problems, and Sawyerr ended up getting a divorce.
“Suddenly and overnight, I became a single mother to our two daughters. I was on the verge of becoming homeless because the mortgage company was threatening repossession of our home,” said Sawyerr. “The mortgage debt had accumulated to a whopping 7,000 pounds (about $9,000).”
How To Bounce Back From This
Sawyerr was able to bounce back from the situation by cashing in on a long-term investment and using it to pay off her mortgage debt. However, not everyone has access to that amount of money. If you find yourself struggling to make your mortgage payments, you do have several options, including refinancing your mortgage, modifying your mortgage loan and filing a partial claim.
He Ended Up Owing 21% Interest on a Kitchen Renovation
Mike Greig, a personal finance blogger at NinjaBudgeter, was forced to make an unplanned kitchen renovation after a water leak caused significant damage.
“We decided to put the costs on our credit card while we figured out how we were going to pay for everything,” he said. “A friend of mine recommended that I transfer the debt to a different card that offered a 0% interest rate for six months on balance transfers. I thought this was a great idea, though I didn’t bother to read the fine print. I was one day late with my first payment and got stuck paying 21% interest on the full balance on a card I didn’t even really want.”
How To Bounce Back From This
The best way to bounce back from a situation like Greig’s is to not end up in it in the first place. He recommends always reading the fine print before signing up for a new credit card.
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He Racked Up $20,000 in Credit Card Debt Due to Irresponsible Habits
Chris Tepedino, a car insurance writer with CarInsuranceCompanies.com, racked up thousands of dollars in credit card debt over time, eventually reaching $20,000 of debt.
“It didn’t happen overnight,” he said. “It started with a lost job and needing to pay for basic expenses. Then it became a habit: spending a little on the card, telling myself I needed to pay it off and paying the minimum payment at the end of the billing period. One hundred dollars became $200, $200 became $1,000 and $1,000 became $20,000.”
How To Bounce Back From This
Tepedino ended up with a credit card payment as high as his rent, but he was able to begin paying it off by making better financial decisions.
“I had to understand it was just numbers and numbers can get moved around,” he said. “I learned to live beneath my means, automate savings, work longer hours and still meet some financial goals.”
A $10 Missed Payment Majorly Dinged His Credit Score
Levi King, CEO of Nav.com, discovered his credit score dropped 169 points due to a very minor missed payment.
“A credit card of mine — which I hadn’t used in three years — was charged a $2 late fee [that] resulted from a missed $10 payment for an insurance policy I forgot I purchased,” he said. “Until then, the payments had been coming automatically from a checking account I forgot to close. The account ran out of funds, I was dinged for a measly two bucks, and my credit score plummeted in consequence.”
How To Bounce Back From This
“When it comes to late payments, credit scoring models care more about the fact that you were late than the dollar amount,” said King. “Whether it’s $2 or $2,000, the impact on your credit score is negative.”
The best way to prevent missed payments from ruining your credit score is to set up autopay for all your accounts, he said.
Someone Charged $400 Worth of Sneakers in Her Name
Gerri Detweiler, director of education at Nav.com, was the victim of identity theft.
“I was alerted through my credit monitoring service that a retail credit card had been issued in my name,” she said. “When I spoke to the issuer to report the fraud, they told me some $400 of sneakers were out on delivery to an address in another state.”
How To Bounce Back From This
Detweiler took the following steps when she found out that identity theft had occurred:
Filled out a fraud affidavit with the card issuer. “I kept a physical and digital copy in case I encountered further problems,” she said.
Placed a fraud alert on her credit reports with Equifax, Experian and TransUnion. “I could have chosen to freeze my credit files but went the fraud alert route instead,” said Detweiler. “I monitor my credit closely and felt confident I’d catch any other unusual activity. If more than one account had been opened in my name I likely would have frozen my credit reports.”
Disputed the account and related inquiries on her credit reports. “The fraudulent accounts weren’t immediately removed so I had to dispute them directly,” she said.
Monitored her credit carefully to see if anything else suspicious appeared, such as inquiries or accounts she didn’t recognize.
Her Credit Card Interest Rate Jumped From 29.9% to 79.9%
Toni Riss filed for bankruptcy after a motorcycle accident left her with medical bills she couldn’t afford. The bankruptcy filing wreaked havoc on her credit score and made it hard for her to qualify for credit cards, CNN Money reported. Riss ended up qualifying for a credit card that initially had a 29.9% interest rate, which she felt was fair for her credit score. But six months later, she received an alarming notice in the mail.
“I about had a heart attack when I got a disclosure notice saying that my starting rate of 29.9% was going up to 79.9%,” Riss told CNN Money. “It was ludicrous. Talk about a highway robbery.”
Riss said that she immediately tried to cancel her card, but the process took six months. During that time she continued to be charged fees, and the credit card company put Riss in collections when she didn’t pay them.
How To Bounce Back From This
Improving your credit score is the best way to qualify for better interest rates. That’s the strategy Riss took — she focused on building up her credit and applied for a new credit card when her score had improved enough to qualify her for a card with lower interest rates and better fees.
“I eventually picked myself up and re-established myself, but I want to be a warning to people who would ever think this is a good deal,” Riss told CNN Money.
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A Name Misspelling Ruined His Credit Score
Edwin Liou never missed payments on his credit cards or loans, but when he checked his credit score, it was around 600, Cheapism reported. Liou eventually discovered that his credit cards were not being reported to the credit agencies because his bank had misspelled his name. He also discovered that he had an unpaid gym fee on his credit report that was charged to him accidentally. Liou eventually was able to correct the errors and improve his credit score, but the process took eight months.
How To Bounce Back From This
You should regularly check your credit report to make sure the information is accurate. If you spot an error, it’s up to you to have it corrected so that your credit score can recover. To dispute a credit report error, reach out to all three credit bureaus (Equifax, Experian and TransUnion) by phone or online, and notify the creditors who submitted the incorrect information that you are disputing their report. Be prepared with supporting documents.
His Honeymoon Ended Up Costing Him More Than He Bargained For
James Garvey, CEO of Self Financial, thought he had set all of his credit cards to autopay before going on a honeymoon to Argentina with his wife. Unfortunately, he missed one, and he ended up missing payments on the credit card for two months, Business Insider reported.
“As a result, my credit score was damaged for years,” he said.
How To Bounce Back From This
“If your credit score has dropped because you have late payments or missed payments, a great way to recover from this is to take out a credit-building loan,” said Logan Allec, CPA and owner of personal finance site Money Done Right. “These loans are loans that you pay off over the course of two years, but you are actually paying them to yourself, and the funds go back to you when you are done paying off the loan. Every payment you make on-time helps put your credit score back on track towards having a higher percentage of on-time payments.”
They Got Stuck in a Payday Loan Cycle
A Barclays blog tells the credit horror story of Arthur and Stephanie. The couple needed about $1,000 to pay their bills and make it to payday, but they only had $500; they took out a short-term loan to make up the difference. Because they had to pay back fees on the loan, they were short again and needed to take out another short-term loan to bridge the gap. Before they knew it, they were caught in a seemingly unbreakable payday loan cycle.
How To Bounce Back From This
If you have a payday loan, you should cut expenses or earn extra income, and prioritize paying off existing short-term loans before paying back anything else.
In general, short-term loans such as payday loans tend to have very high interest rates and should be avoided at all costs. If you need to take out a short-term loan, make sure you have a plan to save or earn the extra money to pay it off ASAP.
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This article originally appeared on GOBankingRates.com: How To Come Back From 10 Credit Horror Stories
