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Chelsea: Hi, I'm Chelsea from The Financial Diet and today I'm going to be taking about something very fun and sexy and that's my terrible credit history. So to give you a little bit of background, basically the long story short is that I used to have really terrible credit and now I have pretty good almost actually good credit and all of that took place over the span of 8 or 9 years. So it all started when I was about 18 and like many pre-2008 crash high school students I was offered a credit card despite having absolutely no credit history or self control and the general judgement of an 18 year old. It had a $500 limit and I maxed it out immediately, don't even ask what I spent it on 'cause I have no idea. And then I just sort of threw it away! I was like "Well that's done" and had no intention of paying it off. So kinda right then and there it ruined my credit and it only got worse as I continued not to pay it off.

But pretty much until the age of about 21 I'd say I had the same behavior with small debts that I was taking on. A couple thousand dollars here and there for school, I had literally an entire glove compartment full of unpaid parking tickets and moving violations. I just looked at debt as sort of like a suggestion, not any kind of obligation. Now this all sounds insane and it is objectively because I was just a huge dumbass at that age, but what's more insane is that I really looked at myself as being 2 people. I was present day, irresponsible, YOLO Chelsea who just ruined her credit with abandon and then there was some weird, vague, future me that was going to suddenly have all of this money and pay it all off and have excellent credit. And I was never sure how I was going to get from one to the other, but I sort of just imagined that that version of me would exist. 

And what's even worse is that I was never a debtor, I was never a shopping addict, I didn't really have any reason to be doing this to myself. I was just lazy and wanted to avoid paying, but what really allowed me to snap out of it was around 22 when I got my first sort of "big kid" job where I had a salary and benefits and you know a regular check obviously and it finally seemed possible to pay off this debt and actually start being responsible. Before that I never really considered my financial future, but as soon as it seemed possible, I really wanted to do it. 

So the first thing that I did was make sure to pay off all of the debt that I had from that original credit card, which at the time I think was a $500 limit and by the time that it had gone through like 20 different collections agencies and even, I think, almost went to court it was over twice that and I think I eventually settled with them for something in the middle and paid it off within a year. And from that point between paying off that credit card and now I've done several other things to improve my credit and so I have gone from, if you look at the credit chart on- I use CreditKarma- I encourage you to do the same if you're curious, they have sort of bad, fair, and good. I'm now into the good territory and I don't know how much it, how low it actually was when I was at my worst 'cause I refused to look at it, but I'm assuming it was as far down on the bad chart as you can get. 

And repairing my credit has taught me a few really important things about how you get bad credit and how you get out of it and this is what I learned. So the first one is that answering is always better than ignoring. Anyone who has an unpaid debt knows that the worst part of it is those horrible collection calls that basically train you to not answer any phone number that you don't recognize. And you ignore it and it gets bigger and scarier because you're not answering and you also feel ashamed and it feels like your parents are calling you to scold you, but they're nice and they're trained to be kind as they can be, obviously because they're goal is to get money out of you. And the second that you answer and start engaging with them that whole scary, built up thing in your mind just goes away and you can start dealing with the problem. 

The second is that having bad credit makes you a permanent child and by this I mean that you pretty much are looked at as the equivalent of a child for all financial intents and purposes. And you have to do a lot of humbling things to get yourself out. For example, the first step that I took after paying off my initial debts to get my credit back to where it should be was to sign up for what they call a rehabilitation credit card at my bank, which just basically this toy credit card with a $300 limit that ensure that you will have basically no way to get yourself into serious debt, but you have a way to pay back and show that you're capable of paying on time. This was obviously embarrassing to have to do at the bank, but it did teach me right away how to be really, really diligent about paying it off, but this whole child thing, it happens anywhere. I even got refused for a credit card in line at Banana Republic, which trust me is about the most humiliating experience you can go through. But it was the right thing to go through because it taught me what I needed to do. 

The third thing is that it doesn't matter how much money you earn if you have bad credit and obviously this applies really strongly to things like renting or even buying a house because, you know, a landlord is going to look at your paperwork and let's say you do earn 40 time the rent. Sure that's great, but what's most important to him is not that you have the money, but that you can really be trusted to not to one day sort of up and fly to Buenos Aires to bail out on your debt. You're going to show him all of your paperwork, you know, your checking account, your salary, all of that stuff and he's going to say show me someone with an ounce of responsibility, which is obviously really humbling. 

Now the fourth thing I've learned is that when it comes to paying back debt that's being collected upon, you have to negotiate. Now a lot of the reason people will avoid debt collection, not even answer those calls, is because they're afraid that they can't make the minimum payment and I was certainly afraid of the same thing. But one thing that I have learned in my experience is that the people on the other end, their first and only goal is to get something out of you, to get that card number, to get the payment rolling so that you can start making good on your account. The biggest and best thing that you can do to advocate is to say "Hey, I have this budget. I can spend X amount, we have to work within that, but I want to start paying my debt today. How can we make it work?" And 9 times out of 10 they will work with you.

So the fifth thing that I definitely is that bad credit creates power imbalances in your relationships. Now whether that's with parents or roommates or significant other it just means that you're going to need them a lot more than they need you. Whether that's cosigning on a lease or helping you get, you know, an extended payment plan on a big purchase, you just have to be kinda the child in the relationship. 

The sixth thing that I learned is that you cannot pay everything off without saving. Now when I first started paying back my debt, I went through this period of like excitement where I was like "Yes! I'm an adult! I'm finally doing what I'm supposed to, I'm just going to pay it all off right now!" and I didn't save anything at that time. And obviously that came back to haunt me when I had big purchases to pay for and what I know now is that when you're paying off debt it's hugely important to prioritize paying down your debt against creating an emergency fund, balancing the interest on each one, seeing what your income is and really deciding where on the list of priorities your debt should actually fall. Usually they'll fall pretty close to the top, but if you haven't saved as much as you need to to have an emergency fund, it won't be the very first thing. 

And the last thing, and maybe the most important that I learned is that nothing will get better until you own and acknowledge your problem. Now I used to be really kind of ashamed and evasive and squirrely about my financial history because, you know, it was embarrassing and who wants to admit that they have terrible credit or that they did it in the world's most dumbest way- I certainly didn't. But when I finally started acknowledging the problem, picking up the phone and asking people in positions of relative power "how can I make this better?" it started getting better. Now this can be in very small steps, like for example, working with your banker to see if you can get a rehabilitation card or find out what you can make your payment plan be, Or it can even be bigger more, you know, kind of emotional things. Being honest with friends and family about "Hey, I can't make this big financial decision right now because I still have some other stuff to work out. 

You have to let go of that shame that's holding you back. And if right now, you're really battling that embarrassment about having bad credit let me be the first to tell you that there is nothing more liberating than just owning it! I used to be so ashamed of ever talking about my terrible credit history and now I basically stop strangers on the street to tell them about it. And I have to say that life is just so much better when you can be honest about it because no one's perfect and we all have somewhere where we can improve too and the only way you're going to do it is by being honest. We've included some links in the description for more reading on how you can help your bad credit. And as always, don't forget to subscribe and to go to thefinancialdiet.com for more. Bye!