I had just graduated college and moved out on my own, and I was barely getting by on my entry-level salary. I charged a few items to my retail credit card for Christmas and simply forgot to pay the bill.
When the credit card company called a few days after my bill was due, I apologized and paid on the spot, but it was too late. While terms and conditions vary by lenders and credit type, in this case the negative mark was already on my credit file.
I eventually checked my free credit report a few years later and discovered that there was more negative information on it: two additional late payments and a delinquency that reflected the time I paid my final electric bill a month late. Despite these negative marks, my credit score was still in the mid-600s—a fair credit score according to the Equifax credit score scale.
I didn’t worry too much until my husband and I decided we wanted to buy a home. That’s when reality set in. Our mortgage broker said that with my credit score hovering in the mid-600s, we were not eligible for the best mortgage interest rates. After hearing this, my husband and I decided to wait to purchase a home, and I set about trying to make the following changes to my credit behavior:
1. I ordered my free credit report.
After the wait-it-out phase of my plan flopped, I once again ordered my free credit reports from annualcreditreport.com. These credit reports included information about what was dragging down my credit score.
It was obvious that my late payments were negatively impacting my credit score, but so too was my credit utilization ratio, or the amount of credit I was using vs. the amount of credit available to me. Reviewing my credit report helped me determine my next steps.
2. I disputed inaccurate information.
I tried to get the late payments removed from my credit report. After all, as I exclaimed to my husband in frustration, “I wasn’t even 30 days late!” After determining that some of my payments were not, in fact, 30 days late as had been reported, I disputed those late payments.
I sent my credit card company a letter about the account and the late payments, and I noted when the bills were due—and when I actually paid them. I admitted to paying late and apologized, but I asked that the credit card company stop reporting the late payments because they were not made a full 30 days late.
My credit card company was responsive and wrote me back within a few weeks saying that it was no longer reporting the late payments.
3. I paid down debt.
I didn’t have a lot of debt, but my credit limits were so low that even a balance of a few hundred dollars pushed me over the ideal credit utilization ratio. (It is recommended that you use less than 35 percent of your credit limit.)
After learning this, I worked on paying down my debt, focusing on whittling down the credit card with the largest debt and eliminating the cards that carried smaller debts. That way, my credit utilization ratio was under 35 percent on all my credit cards.
My biggest lesson: Monitor your credit report
Over time, I was able to change my credit behavior. My husband and I were eventually able to take out a mortgage on our first home—with a competitive interest rate.
One of the biggest lessons I learned was that reviewing your credit report is a good first step to fully understanding your credit behavior, and it’s a good idea to continue to monitor your credit report once you’ve modified your credit behavior.
Michelle Stoffel Huffman is a researcher and staff writer for Think Glink Media. Michelle previously worked for the Chicago Tribune as a daily news reporter and community manager, covering local government, business, tax issues, and crime.