A Bad Credit Story

When my husband and I first started dating I had no knowledge of his financial situation. Then, one night out at dinner his card was declined. He couldn't understand how this was possible since he had just deposited his paycheck. It turned out that his account had been garnished. An unpaid collection had become a judgment and had been granted permission to take payment straight out of his account.

I have always had good credit, and grew up with parents that weren't necessarily perfect with money but who taught their children about it. My husband grew up in family with no financial plan, often surviving on unemployment and constantly in collections or facing evictions. In his late teens he found himself faced with thousands of dollars in bills that he had no clue how to pay. With no financial education whatsoever he chose to ignore them rather than working out a plan. Of course they only got bigger and bigger and went to collections. He handled that by never answering a phone call from a number he didn't know. This was his financial plan.

When everything finally caught up to him, we pulled a copy of his credit report and started figuring out what he owed. A few thousand in bills had turned into $6,000 of collections. All in all, there were 13 negative entries on all 3 of his reports, and his credit score was 470.

We immediately began paying his collections. This is often not suggested as collections could be outside of the statute of limitations during which they can collect, and paying a collection can often wake a sleeping monster. It's also advisable to try to work out an agreement with the collection agency to delete the negative entry in exchange for payment. But I didn't know any of this yet, and with his bank account being garnished he really had no choice but to pay. We contacted the main collection agency and stopped the garnishment by setting up a payment plan. I made the payments on my credit card since he didn't have one, and he paid me back over a period of a few months.

When his car broke down and he was forced to buy a new one we found out how much a credit score of 470 hurts. I could have cosigned the loan for him at a much lower rate, but we had only been together a matter of months, and I was already extending myself by paying off his collections while he repaid me. Since ultimately we got married, it probably would have worked out for us if I cosigned (and saved him a lot of money!) but I still think I made a safe and responsible decision for myself. If you ever cosign a loan, you might find yourself trying to fix your credit one day too. Without the help of my good credit, my husband accepted a 24.99% car loan.

Just to give you an idea of the weight of that money, amortized over 5 years that would mean paying $7,607 in interest on a $10,000 loan - almost double the price of the car! A 3.9% rate (the rate he was approved at just two years later) would cost only $1,022 in interest.

In my next credit post I'll tell you how I went about pulling his credit scores out of the toilet, but first I wanted to illustrate exactly what a bad credit score can end up costing you and how important it is to be careful with your credit. If you don't know what your credit report or credit score look like, you can buy your score and report here or get a free copy of just your report here. And if you find any problems or mistakes, be sure to come back to find out how I brought his scores up to just under 700 so far!