How this woman raised her credit score from 490 to 800

When Janet Alvarez graduated from business school in 2011, she had a load of debt and few job prospects. Some $100,000 was student debt and $30,000 was medical debt, which she ran up while she was in school and had limited savings and income.

“I thought I had done the right thing by furthering my education,” Alvarez said. “But I found myself graduating into the Great Recession.”

She attended Northwestern University for her undergraduate degree and Arizona State for her MBA.

Janet Alvarez is now 37 and has a credit score above 800.

Courtesy of Janet Alvarez

She didn’t have health insurance and struggled to pay her medical bills. As a result, when she graduated her credit score was a paltry 490, which is considered the lowest tier, “poor credit,” according to the Fair Isaac Corporation (FICO) scoring system.

People with lower credit scores often end up paying more in interest over time, since it’s harder for them to be approved for loans with low interest rates.

Alvarez decided to get serious about her debt and the impact on her score. Just six months after she graduated from business school, her score was in the 600s: Still below average, but considered “fair” credit. In 2014 it was above 700 and by late 2015, her score reached 800, an “exceptional” score that is well above average.

Now, Alvarez is 37 years old and the executive editor of personal-finance website

So how did she do it?

Negotiate your debt with doctors and hospitals

Alvarez applied for financial assistance from the creditors of her medical debt. She was successful: When she demonstrated her income was low — at the time, she was making about $30,000 a year post-graduation — her creditors eliminated $20,000 from the $30,000 she owed.

If You Think the Equifax Data Breach Was Bad, Wait Till it Happens to These Companies

“Very few people” realize this is possible, she said. She suggested calling hospitals and doctors’ offices directly to negotiate for lower bills. They may offer a discount even when consumers aren’t behind on their payments, she said.

Alvarez was also able to put her student loans on an income-based repayment plan when she graduated. While she was unemployed when she graduated, she was able to pay $0 on the loans, but they were still considered current. That helped her score.

Another option, Alvarez said, is to put federal student loans in “forbearance,” which means borrowers can temporarily stop paying them while they search for work. (The consumer must still pay the interest on loans during forbearance, either while it accrues or as an added charge on top of the principal.)

Think creatively to increase your income

While getting control of her debts, Alvarez also increased her income. She was disappointed in her job prospects after graduation and eventually accepted a marketing job that paid about half of what she made before business school. She was living in Silicon Valley, where living expenses are high.

But she decided “not to be complacent,” she said. She left that first job after six months and increased her salary 30% when she accepted a new job. She remained in that job for one year, and left for another company that paid 30% more, putting her into the six-figure income category.

She also took on freelance writing jobs, eventually making an extra $2,000 to $3,000 a month, to help pay down her debt.

Alvarez said she recommends that anyone facing a significant amount of debt find ways to increase income, from renting out spare bedrooms on Airbnb to doing odd jobs through companies like TaskRabbit.

See also: 7 side hustles that pay $100,000 a year

Aja McClanahan, a mom of two living in the Chicago area, was also able to pay down more than $20,000 of debt by increasing her income, as she built her sales and marketing consulting business. Persistence is key, she said. “Start where you are, with what you have.”

Find novel ways to build your credit

Alvarez wanted to raise her score quickly, and she found that there are companies consumers can pay to report their apartment rental payments to the major credit bureaus, which can raise their scores.

There are several companies that report rent to credit bureaus, including RentTrack and PayYourRent. One caveat: They each charge a fee.

RentTrack charges $6.95 per payment if the renter pays by check and just under 3% of each payment if the renter pays by debit or credit card.

PayYourRent charges $9.95 a month and an additional 2.75% if the renter pays by credit card.

A recent version of the FICO score, FICO 9, does use rental payment information when calculating a score, and so does VantageScore, another type of credit score, according to the personal-finance company NerdWallet.

But rent reporting might not be factored into all scores used by credit bureaus or banks, said Nick Clements, the co-founder of personal-finance website MagnifyMoney, who previously worked in the credit industry. Also, not every rent-reporting company reports to each of the three credit bureaus: RentTrack and PayYourRent report to all three, but PayLease reports only to TransUnion
  and Experian
  and not Equifax

For VantageScore, rent data that is at one or more of the major credit bureaus will factor into all versions of the VantageScore, a company spokesman said.

Can’t get a credit card? Use these alternatives

Secured credit cards can be a good way to build credit, apart from rent reporting, he said. When Clements’s wife moved to the U.S. from Europe, she used a secured card to build her score. They work similarly to debit cards in that they require an initial deposit, but unlike debit cards, they report to credit agencies and can help consumers establish a credit history.

Other tips: Paying bills on time consistently will help raise scores easily, Clements said. “Scores can recover pretty quickly if you focus on doing the right things.” Keeping balances on lines of credit low, known as a low “credit utilization ratio,” is also important, Alvarez said.

“Having debt and bad credit isn’t about stuffing it under the rug and ignoring the problem,” she said. “It will impact your ability to buy a home, to start a family, to start a business someday, and to live the life you want. The sooner you’re able to get control of it, the sooner you can do that.”

View more information:

Articles in category: moneyist
See also  Luxoft's stock soars after DXC buyout deal valued at $2 billion, or 86% premium

Leave a Reply

Back to top button