Thibodaux native Steve Herbert made some mistakes when he was younger — errors he isn’t afraid to share now that he’s in his 40s and financially secure.
He got caught up in credit card debt, had student loans he could hardly afford to pay and was late on a few payments for his truck.
“It’s never comfortable being afraid to answer the phone,” Herbert recalls. “You never know who the person on the other end of the line is going to be or what they’re going to want to collect from you. It’s a helpless feeling.”
His credit score plummeted, which affected his ability to borrow money, which affected his ability to buy some of the things he’d dreamed of having his entire life.
“I was young and stupid,” Herbert said with a laugh. “That’s the old saying, but it’s true. I was young and stupid and I didn’t realize that mistakes made as an early adult can impact you later in life.”
But Herbert’s story comes with a happy ending. He got off the mat and learned from his errors. He secured a stable job in the oilfield and slowly, gradually paid off his debts and today, his credit score has risen to levels he never thought he’d see when he was in his 20s.
“I got my life back,” Herbert said. “Now, I have financial freedom again.”
Having good credit is vital to making many life decisions, according to several financial institutions, who stress that almost every major purchasing decision is easier when one has a solid credit score to fall back on.
Experts say that several factors go into one’s credit score, but add quickly that small mistakes along the way can quickly turn into big hassles throughout our adult lives.
“Good credit can be the make-or-break detail that determines whether you’ll get a mortgage, car loan or student loan,” said author and financial expert Liz Pulliam Weston. “On the other hand, bad credit will make it more difficult for you to get a credit card with a low interest rate and it will make it more expensive to borrow money for any purpose.”
So how does one start the process of achieving that high credit score?
That’s simple: by proving to creditors that you’re reliable when borrowing money.
Almost all credit sites agree that the best way to build credit is to slowly borrow money, then pay it back. Experts say that young people should get a secured credit card with a small limit of a couple hundred dollars.
After making a few purchases, pay off the note, then rinse and repeat.
Doing so, while making timely payments will start one forward toward the process of lifting a credit score to higher levels.
When making bigger purchases, relying on a trusted family member or friend will help, too, in some cases. Having a co-signer with good credit will make loan approval far more likely. But co-signing is like a marriage and it should be approached with caution, according to BankRate.com’s team of experts.
On their website, they explain that while co-signing helps increase the likelihood of loan approval, it could also do damage to relationships if the borrower isn’t 100 percent sure that he/she is ready to take on the debt. If the borrower goes back on his/her note, the co-signer then assumes legal responsibility to pay it back, which could cause a sticky situation for parents, close friends or spouses.
“Do this with extreme caution,” they warn.
OK, so we now know that the key to having good credit at an early age is reliability and showing responsibility to creditors.
But what if mistakes are made early in life, like Herbert?
How does one dig out of a rut?
Usually, the most simple way is to work hard to pay everything that’s owed.
Financial experts have varied tips and lists to repair damaged credit, but the bread and butter of most people’s strategies is to pay off debt on time and with long-term consistency.
If payments were missed, catch up on them. If possible, pay off credit card debt and other accounts — without closing them. One of the biggest factors in a credit score is the amount of available credit a person has at his/her disposal, so owning accounts with credit available is a boost to a score.
Another tip is to understand that credit repair is a process. Good credit can be ruined overnight, but it can’t be fixed without months of healthy practices.
But Herbert is living proof that it can be done. He said it took him “very long” to get out of his financial rut, but now, he’s in good standing with the banks and can secure loans anytime he chooses to do so.
“It’s important to be patient,” Herbert said. “This is a relationship. The lenders need to have trust with you. Paying on time over time will develop that trust. It can be done. It takes time, but it can be done. Just make your payments, be consistent and all will be well.”
For a typical 36 month auto loan of $25,000, this is how you could see your credit score affect your loan rate. Insurance rates typically rise for lower credit scores as well.
Sources: MYFICO & freecreditreport.com