Always Keep Track of Everything - Update!

It's super important to keep track of everything.  Whenever you make a payment, it is always best to either write on the bill when you paid it, how you paid it, and if you spoke to anyone about your bill, the person's name.  It's also super important that anything you pay online, you get a copy of your payment, print it out, make sure it says how you paid it, and again: if you spoke to anyone, their name.  And it's always important to file everything - from your bills to your bank statements - and have it filed in a way that you can easily find things.

I have had collectors call me in the past and try to convince me that I did not pay a bill.  All I had to do was go into that file, find the bill, and I could tell them "I paid it on this day, with this check/credit card, and I spoke to Joe on this other date." They would fumble and say, "we'll note this on your file!"  If I didn't have that, they would probably try to persuade me into paying extra.

One collector in the past tried to tell me that I didn't pay a bill.  I did.  The debt was 100% paid off.  They kept calling, kept harassing me, and I kept telling them no.  For months, they bothered me.  AND, they continued to hit my credit.  Then, they sent me a letter saying that if I didn't pay a certain amount, they were taking me to court on December 4, 2011.  Needless to say, I paid them.  It is terrible to get summoned for a collection debt.  That will hit your credit super hard.  They were wrong.  In 2012, they were audited.  They had to fix my credit score from the damage they did to it, and they were required to give me back the extra amount I paid.
Which reminds me that I need to send a copy of the letter to Kari....

Always keep track of everything.  It is so easy now with online payments and automatic withdraws for companies and collectors to get sticky fingers.  Which is what I experienced today!

I have not been late on my student loan payments.  I have always paid on time.  Since we are trying to boost our credit, we never wanted to run the risk of being late on a payment.  I set up automatic withdraws for my monthly payments.  I thought that my bills would be paid on time.... Apparently not.

Last Thursday, I checked my student loans online.  I owed $283.  I noticed that there were no pending payments listed.  Worried, I tried to pay the bill anyways.  A notice came up saying that since I was signed up for automatic withdraws, any amount I paid would be ADDITIONAL.  Currently, I do not want to pay anything additional.  So I assumed that the payment would go through on it's due date (today).

I went back to the online bill pay for my student loans to find a lovely notice saying I was past due!

Say What??

HOW can someone on automatic payment withdraws be past due??  I tried to pay it, but again, I got a notice saying that since I am currently set up with automatic withdraws, it would be additional.  Now, how in the world am I supposed to pay this bill?  I decided what the heck, I'll just ask to be reimbursed the additional amount.  Then I was presented with this lovely message:

Oh, well that's convenient.

I checked my online bank account.  Sure enough, there was the student loan company's name in all capital letters.  They took out the payment from my bank account!  Not only did they take out a payment, they took out $357.06.  That's $73.20 more than my monthly payment.

Well look at that!

I will be updating this post after I speak to customer service.  This cannot hit my credit!  I am freaking out a little bit.  This is criminal.  They have to fix it - and they have to guarantee that it will not touch my credit!  Saying I'm mad is an understatement right now.  However, if they don't fix it, a friend of mine told me that his family (who own a law firm) will have no problem speaking on my behalf.  If it has to go further, his family will represent me pro bono (aka, free).  Hopefully it won't have to go to that extent, but just in case, it is nice to know I have that leverage.

*~*~*~*~*~* UPDATE *~*~*~*~*~*

So I called customer service this morning first thing.  I was so mad and confused.  The Customer Service Rep (CSR) did not make matters any better.  Travis had to take the phone away from me and talk to her.  What can I say, I was more than frustrated!

We'll go back a little ways.  Usually, when I think of "Due Date" for bills, I assume that is the day the payment is due.  I'm never a day late on payments.  Because Travis and I live paycheck to paycheck, we budget hardcore.  Each week, I have it planned to pay a little bit towards all of my bills - based on priority.  That way, my bills are paid BEFORE the due date.  It also helps us to live our lives on a week to week basis without fear that our bills won't be paid.  It's all planned out and we do our best to follow our plans.  On top of that, it's always best to pay the bills with the highest interest rate early because a greater percentage of the payment will pay towards the principle balance - not interest.  By the time the bill is due, majority of the payment will go towards interest.

On January 3rd, I paid $75 towards my student loan bill.  On Friday, January 4th, I called the company and spoke to a CSR about lowering my monthly payments.  It's not that we can't afford it, necessarily, but we'd rather use that money at this time to purchase a home.  That way, we can always pay more when we can or when we want to.  The CSR gave me a few options, and we worked out a plan.  He told me that my next bill will be $282 (and some odd cents - I always round up).  I asked him about my $75 - and he said it would be applied towards my bill of $282.

On January 15th, I did the dumb thing and signed up for automatic payments.  I should not have done that.  Once I signed up for automatic payments - that $75 became an "additional" amount.  I did not know this.  On January 24th, I checked my online account to see if the payment had gone through yet.  It didn't.  There were no pending payments.  However, it said my monthly payment was $282 (and some odd cents).  Because the loan company recently changed their website, I could not find a statement anywhere saying what amount was paid or not.  Because the CSR told me that my monthly payments would be $282, I assumed the amount listed was the total bill.  I figured the $75 would be applied, because that's what he said!

Sunday was the due date.  I checked my online loan account, and you all know what I found.  So this morning, bright and early, I called the company and the CSR got an earful.  She would not give me a straight answer.  I was so confused, that I just lost it.  It sounded like no one there knew what in the world I even owed!  Once Travis got on the phone, and I calmed down, things started to become clear between us.

Turns out, the previous CSR did not change my monthly payment plan and never made a note on the account.  So technically, I owed $357.06.  The balance that was showing up online was the amount after the $75 had been applied.  HOWEVER, because I signed up for automatic payment withdraws, those automatic payments take out the full amount.  So this company not only took out $357.06 - they also took out an additional $75.  Basically, we "lost" $150 this month.  I asked if, because of the confusion, they could reimburse $75 or apply it towards my next bill, and they said no.  There was nothing they could do.  We are just out that money.

We set up a new payment plan with this CSR.  I have her name, and I recorded our conversation.  I won't let that happen to me again.  Once she knew she was being recorded, she certainly changed her tune.  Now, we're back to what we were originally paying in December:  $303.  Whatever.  Now I have to update our budget again.

This has me super upset.  I could have used that $75 towards our House Fund.  Here's why:  Travis and I have been working with credit advisors and what not to boost our credit.  Our credit advisor suggested that since I paid off my credit card completely, I should put $100 on it and pay it down to $10-$20 to develop a consistent history of revolving credit.  I followed their advice and put $110 on my credit card.  I WAS going to use $75 for paying down my credit card - but it looks like we're going to have to pull $75 from our House Fund savings account to pay the credit card.  Thanks student loan company! **obviously sarcasm**

Better Than I Thought!

So, all of our hard work and efforts paid off!  Our credit jumped up.  Our debt to income ratio is right where I wanted it at the time being.  AND, we can qualify for more than we originally thought we would.

A dear cousin, Kari, has been giving Travis and I advice about building our credit and paying off our debts so that we can own a home.  The woman is a genius.  I am so totally clueless about this homebuying stuff.  However, Travis and Kari were on the same page the whole time, and they explained things to me in more simpler terms so that I could understand.  There were so many things I learned, I was amazed!

Kari pulled our credit reports and gave us an updated, accurate credit score for each of us.  She sat down with both of us and went through every page on our credit report, telling us what lenders look for.  She pointed out areas that we could fix, and she pointed out areas where we should leave things alone!  I was surprised that there was one thing on our credit report that she told us NOT to touch until after we buy a home.  If we messed with it, it could potentially hurt us because of when it will be reported - and she explained why it would negatively impact us.  This one thing was a collections account.  This debt was actually paid through the hospital between 2008 and 2011.  However, it was not updated on our credit report.  Even though that debt technically does not exist, the agency did not report it to the credit bureaus.  It is not hitting our credit negatively to leave it alone the way it is.  At first, I thought "OMG, that needs to be taken off!"  But Kari explained to me the moment that there is any activity on the account, it will come across as a negative impact on our credit and bring our credit scores down.  She told us to wait until after we buy a home to update it.

Kari also told us where we can dispute things on our credit report.  She told us the best places to talk to in order to handle credit disputes.  There was ONE medical bill that we paid off that had not been reported to the credit bureau.  Unfortunately, because we paid it, it's possible it will bring down our credit score.  But oh well, live and learn.  It'll be ok.  When Kari looked at our previous debts and saw that everything had been paid off completely, she told us we did everything right.  That was a relief to hear!  I was worried that I was messing up.  Kari reassured me that we are not in a terrible position, and because we have a good record of debts being paid in full - even though our credit scores weren't as high as I had wanted them to be - that will look more favorable because it shows we pay off our debts.

She ran our numbers through a program to see how interest rates would fluctuate between FHA and Conventional loans.  She showed us every possible outcome.  She told us the pros and cons for each type, and how they would affect us.  Ironically, where we are, monthly payments won't be much different for either type of loan.  When going through the possible outcomes and different costs of a home and calculating a different percentage for a down payment, we were looking at possibly a $7 - $30 monthly difference between the two.

She asked us if we had been searching for a home at all lately.  I told her one house in the neighborhood we live in that I have had my eye on.  She ran the numbers for both types of loans with the amount the house was selling for and she took taxes into consideration.  This is where I was super surprised.  A Conventional loan was $7/month more than an FHA, but it was also more than likely a better option for us.  Then, we took another home into consideration.  An FHA was a better option for us on that one!  I was really surprised how minor adjustments made a HUGE difference!

After going through adjustments and comparisons, Kari told us that we were "finance-able" where we currently are.  She told us that we could qualify for much more than we originally thought.  Granted, we told her that we were looking for a lower cost home and wouldn't mind doing repairs.  This one really surprised me:  she told us that with where we stand, we should NOT get a house less than $50,000 because insurance and interest would not work in our favor.  The lowest we can look for a house is currently $54,000 without getting hit with huge insurance costs and higher interest rates.  I never thought there would be a minimum amount for getting a better deal.  If you go too low compared to what you qualify for, the bank won't see it as a loan being worth it - and we could potentially get denied because - well - it isn't worth it to invest in that much with where we are.  Interesting....

Again, these were all "approximate" and fairly accurate simulations, but it let us know where we currently stand on getting a home.  Worst case scenario, Travis and I will be home owners in July of this year.  If we continue doing what we are doing, handle a few minor adjustments on our credit reports, we could be homeowners by March!  AHHH!!!

Kari then calculated taxes, down payment, closing costs, appraisal costs, fees, etc. and gave us a total that we need to save for.  It's more or less a "goal" amount for the least that we should save for, and we need to save up that amount and keep it untouched for 2 months.  Only small additions, like $20 or $50 from a paycheck that is easily traced, can go into the savings.

Kari is going to run a few more simulations with another program with a lender.  This is going to tell us where we could be in 3 months up to 6 months.  Kari is going to see how long we should wait to get the best deals, without having to wait forever and not move forward on buying a home this year.  The lender is also going to talk to her about our credit report and give advice on what she would like to see us do before she'd be willing to approve us for certain amounts.  Basically, a lender is telling us what we should do in order to get our credit scores up higher in a short time frame and also what is going to work in our favor this year.

I cannot tell you just how relieved I am!  Travis and I left there feeling so proud of our accomplishments and determined to do whatever we need to in order to put ourselves in an even better position.

Not going to lie, this homebuying process still looks like Greek to me.  But I am glad that I have Kari to hold my hand and mentor me through the process.  Travis is on the same page with Kari - so it makes me feel better knowing that he understands this more than I do.

Here we are... step number 1 towards buying a house is accomplished.  Now on to step 2!

Why Did My Credit Score Drop?

I have been doing very well with my budget.  My bills are being paid on time with a little extra.  Our debt is gradually dropping.  I checked my credit score, and I was shocked by what I saw... My credit score DROPPED!

Immediately, I began searching for any bills that I had not paid.  I couldn't figure it out.  Why did my credit score drop?  I found nothing!  I felt like crying.  All that hard work for absolutely nothing positive!  Travis had no idea what happened.  Let's just say, I freaked out.  I began thinking that nothing good is going to happen for us.  I began thinking that we'll never own a home.  I began thinking what's the point in even trying to pay off my debt - it won't help me anyways.

A few friends of mine know a lot about credit scores, mortgages, loans, and business-y stuff.  One night, while we were all hanging out having a few drinks, I brought it up to them.  I asked them, "How do people do it anymore?  Why is it my credit score drops when I do everything right?"  They started asking me a few really smart questions that I would have never thought of.

The greatest debt I have is student loans.  The credit cards are really nothing.  When I confessed to my friends how much I owe each month to student loans, it was roughly 60% of our net income.  Yup, that's right.  We pay 60% of our take home pay to student loans.  Because our credit card debt is so low, it's actually not a negative thing since we pay it off each month with a little bit of roll-over.

Your credit score is actually affected by your income to debt ratio.  I did not know that!  While we sat here thinking that if we paid off my student loans within 10 years, it would be better for us and that my credit score would improve.  Nope, it sure doesn't.  Your debt needs to be AT THE MOST 40% of your net income.  To qualify for better interest rates, your debt needs to be about 30% of your net income.  If your debt is over 40% of your net income, it reflects negatively on your credit score.  So even though we are paying off my student loans at the lowest current rates they offer for a 10-year repayment plan and paying off the principle, it doesn't increase my credit score.  Sure, we'd be saving more money in the long run... but it isn't helping us now get our footing in the real world.

If I increase my repayment plan to 20 or 30 years, it will boost my credit score and give us lower monthly payments.  It could possibly boost my credit score enough to qualify for a mortgage.  I brought up consolidating my loans... is that a good thing or a bad thing?  In my situation, it would be bad.

Because I am pretty well organized with my student loans, consolidating would not do me any justice.  It would negatively affect my credit score.  I have a variety of different student loans - some at low interest rates and some at high interest rates.  Consolidating would give me a higher interest rate than majority of my student loans.  The best decision for me is to keep them separate, pay the minimum balance, and then use what I have left to pay off the principle on my highest interest rate loans.  Consolidating would cause me to pay about the same or significantly more than if I just keep them separate and first pay off the higher interest rates in comparison to the principle balance for each.

So there you have it.  To help your credit score and prevent it from dropping, you must keep your debt at or below 40% of your net income.  If that means pushing my student loans off to a 20 or 30 year plan, then so be it.  It will definitely benefit us more than paying off the student loans right away.  After all, we still have our 10 year plan to paying them off - it just shows on paper that we plan to have it paid off in 20-30 years, showing that we are more financially responsible and trustworthy with our credit.

Boosting Credit

I've basically come to the conclusion that I should not take credit advice from anyone that does not handle credit on a daily basis.  We had been struggling to boost our credit for a long time.  See, the reason why we chose to seek out a professional to review our credit report is because we didn't know a single thing about how credit actually works.  Because everyone's credit is different, rules change.  What would boost my credit may not boost your credit... in fact, it could potentially hurt it.  However, something I do that hurts my credit score could be exactly what you could use to boost yours.  Plus, there are a million grey areas when it comes to credit scores.  How much does getting an Old Navy credit card actually affect your credit?  When applying for a job that asks to see your credit report, does it affect your credit positively, negatively, or does it stay stagnant?  Does a Victoria's Secret credit card affect your credit score more than a mortgage?  If you pay off your debt entirely, is that actually going to boost your score?  The answers are always different depending on your own credit history.

For example, I was trying to figure out how to quickly boost my credit score.  I was at a mid-500 range.  I couldn't figure out why it was not going up when I was paying my bills on time!  A friend suggested I get a small retail credit card to boost my score.  Sure enough, when I applied for a credit card at NY & Co., I got denied.  AND it didn't help my credit score at all!

I decided to get a free trial through Score Sense.  For one week, I gave the online credit checker a try!  And to my surprise, I really liked it.  Score Sense shows you how your credit score changes over time on a very simple and easy to read graph.

It sends you an e-mail when there is a new alert  -  which is great for preventing identity theft.  It tells you the moment there are any changes on your credit report.  My first alert was on August 1st.  It told me that my credit score improved because I paid off medical debt.  It also told me that out of the three credit agencies (TransUnion, Experian, and Equifax), TransUnion was the one to update this first.

There is a ScoreCast, which allows you to see how your current score will be affected.  For example, if I paid off all of my credit cards completely, my credit will increase dramatically.  However, if I paid off my student loans completely, my credit score will increase the same amount as if I paid off my credit card debt entirely.  It helps you prioritize what areas you need to focus on to improve your credit score.

And there is a Dispute Center which helps you dispute errors on your credit report.

To top it off, Score Sense has a help line that you can call to ask questions about things you do not understand on your credit report.

As a couple striving to own a home some day, Travis and I are really thankful to have total access 24/7 to our credit report and credit score.  I highly recommend it.

I still believed that I needed assistance in understanding and monitoring my credit score.  Travis and I want a home of our own.  I turned to Kari Peters, who is a mortgage loan originator here in town.  She knows her stuff.  She has given us so many tips and constructive advice that has helped Travis and I boost our credit score in hopes of owning a home.  She is the person helping us get to a point where we can actually buy a house.  Did you know that there are free forms that you can fill out and mail that WILL boost your credit score?  I didn't either!  Kari started a new blog just to offer tips, crack credit report myths, and give advice to anyone needing home-buying/home-owning advice.  Check out her blog for exclusive tips and tricks to boost your credit, too!  Her blog is Ft. Wayne's Mortgage Minder.

I hope these resources help you just as much as they have helped me!  If you have any other sources that you use that have helped you understand and boost your credit score, feel free to share them in the comments!  I'd love to know where these hidden gems are!