Understanding the System

Good grief! Yesterday, I opened an email saying I had a new credit score...I'll come back to this.

Frank's fortieth year - 1994 - a disastrous year financially. In January, his truck slid on an icy highway into a vehicle that turned in front of him. The damage was minimal, but the truck was old (1984) and the insurance company totaled it. 

In February, while still driving the truck until we could track down another one, the front wheels grabbed pavement on the icy highway, and the truck went end over end into a ditch. No seatbelts. Seth had a concussion and Frank was unhurt. Thank God for the guys from Wheatland Energy who stopped and pulled them out. 

It was about this time the stock market went crazy, and Frank lost about 40% of his 401K. 

In March, we were notified that his car insurance was cancelled because he was driving a totaled vehicle, and the accidents were just two weeks apart. Now in 1994, our monthly car insurance was about $200. With the stroke of the electronic pen, our insurance went from $200 to $1000 PER MONTH. This was to last for 36 months.  And that was the month Frank finally had to have his separated shoulder repaired!

Good Lord! Frank was a farm tech and I was a schoolteacher. We were already spread as far as we could be, and we had to get a vehicle, another payment! How are we going to do this?  We checked our commitments and realized there wasn't much to cut. No more extras at the grocery store. No traveling, even to see family (and fuel was below $2.00 a gallon!) No extras, regardless. I had a school pal who wanted a housekeeper, and I started cleaning again after school. I checked the thrift store before buying anything new. And, we "borrowed" from our savings, depleting our backup. Bottom line, for the next two years, we used credit. We tried hard not to spend more than absolutely necessary, but we were buying underwear, groceries, and paying medical bills with borrowed money. The interest rates were lower then, but just the same... 

I remember Suzy Whoos-it, a financial lady on TV, but her solutions were not going to work for us. I don't think Dave Ramsey was a thing then. One day, we decided to see if we could possibly procure a second mortgage. Of course we didn't! But that woman taught us a valuable lesson that led us out of the Hole of Debt. Remember when the mail was full of offers for zero interest for 18 months, then 5% after?  "Apply for those," she said. "Put as much on a card as you can, pay attention to when it is going to start charging interest. Then apply for something else." She told us to line up our credit by interest charged, then start with the least interest and concentrate on it, with minimums on the others. When one is paid off, add that payment amount to the next balance, and pay it off, and keep going like that, until it is all gone.

Those are pretty common solutions, but when living in the Hole of Debt, there is no guiding light, and we were overwhelmed and worried Because we still had at least 18 months to go on the insurance punishment, we were still counting pennies and paying Peter before Paul could show up. It was 2000 before we had paid off old debt, and we managed to help our daughter with college. 

In 2002, we changed jobs and our income was better. We could pay off any charges every month. In 2006, our second went to college and we could help him. With only mortgage and car payments, we started paying cash for fuel. We had worked really hard, and had finally driven our credit score over 800. I bought a car with nothing but my credit score to show I was a good risk!

So...yesterday, what was our credit score? UNDER 700. WTH???  Our only debt is a car payment that will be done in a few months.  I dug in...I wanted to know what the hell was going on. Seems that if we don't owe anyone and close accounts to clear our plate, our score dropped. We're SOLVENT! 

What a full circle moment! When we were deep in the Hole of Debt, we still had a credit score of mid 400's, "Fair." Now that we are comfortable, we are "Good" when we had already earned "Exceptional" and yet the score had gone backwards.  Then I learned this - Credit scoring models are based on the credit mix, accounts, age, revolving balances, and utilization.  You mean to say that if I had more debt, my score would be higher?  No, but when one makes consistent payments, it shows that one is a reliable financial manager and the score rises. Having no debt and making no payments, the score will most likely drop. One financial manager said to use debt as part of our financial package, to our advantage. Regardless of my research that said not using debt will not affect credit score, it appears that without utilization of credit (and perhaps our age??) our score has gone down. 

The rant is over. Maybe it was too-much-TMI, but it is a life lesson that has guided us through many decisions (and debates 🌞) over our marriage, and into our golden years.  We are relieved with our retirement budget and our borrowing days are over!