How I went from very poor to very good credit in 45 days

Not to long ago, I went from very poor to very good credit in 45 days. My wife and I were under crushing financial debt. I mean we still are, but the payments at the time far exceeded what we were actually able to handle. I had a pay cut from work a few months earlier, which we had not recovered from. We were behind payments, our credit scores were both shot and my wife was on maternity leave. We were definitely not in a good place. To handle payments we were using our savings. Savings which, by this time were nearly exhausted. We were considering some pretty serious options, like declaring bankruptcy.

 

Then Came an Angel

No, not really, but a friend of ours told us about a financial trick he knew about. A trick to open a bunch of 0% interest credit cards and reset your credit score in 4 – 6 weeks. “Even better…” he said, between my wife and I, we could keep our debt on 0% cards in perpetuity. Sound to good to be true? Let me tell you about a hack so outrageous, so ridiculous, so crazy, that I can not in good conscience actually recommend you do this. But I did it, and it worked. Here’s the true story…

 

Disclaimer: What you are about to read should not be taken as financial advice. In fact, it is a perfect example of something you should not do. What I am about to describe is the way I quickly achieved a solution to a big problem I had. However, this solution is extremely high risk. I can not in any capacity recommend anyone actually do what I will be describing below. Unless you are in the most dire of financial situations, even then, do not do this! I am not a financial advisor. Anything I say and or write regarding finances should not be construed as professional or expert financial knowledge.  You have been warned.

 

The Setup

So the first thing my wife and I did was find a friend, a very, very good friend. One who was not only an extremely good friend but one who was also willing to basically take on all of our debt for about two months, and who had excellent credit. Let me tell you, you’ll find out who your true ‘lifer’ friends are if you have one that will agree to this.

 

After getting our friends agreement for this, she (and her husband) needed to open as many long term 0% offer credit cards as they could. (See the Difference between a Hard and Soft Credit Check for more information on how this can affect your score.)  Then, after receiving them, combining as many as they could onto one card. So for example, for 3 different Chase cards at 10k each, they would now call Chase and ask to combine all the cards into one so that they have one card with a 30k limit. This was not necessary but just made it easier to track everything.

 

The Transfer

With the cards open and received, we then worked with our friend to do balance transfers of all of the debt onto her 0% cards. The purpose of this step was to clear all debt from our records. The only things remaining on our end was our house mortgage, car loan and a small amount on a personal line of credit. Then from there we just waited.

 

The Waiting Game

An interesting piece of information about the credit reporting bureau’s (Equifax, TransUnion, and Experian) is that they generally update right when a request to pull your credit is made. Another interesting tidbit, is that credit card companies generally report changes to status once a month. (Read this article from Nerdwallet for more details.) Depending on when in the month the credit card company reports to the agency, it’s possible to see a credit change in as little as 1 week, and a maximum of 6 weeks. So, we waited. I do want to point out that during this waiting period, we had already made agreements with our friend to cover any credit card bills that came in while the debt was in her name. And so we did.

 

The Return Transfer

If I remember correctly it took us just about 4 weeks before the score changed. And WOW did it change! From a Very Poor to Very Good credit rating in only 4 weeks! It felt like magic! Of course it wasn’t magic, if anything it was deception… but I digress. From here the plan was simple, make sure that moving forward, we could keep all the debt at 0% interest until it was paid. The reason we needed a friend to offset our debt was so that both of us could ‘reset’ our credit scores.

 

With our credit scores reset, my wife just duplicated what our friend did. She opened up as many 0% cards as possible, consolidated them and then transferred the debt back over from our friend to only her. This point was important. This plan wouldn’t work if we split the debt between us. Why? Because one of us has to maintain excellent credit, so that when the time comes and those 0% start to expire, we can simply transfer the debt over to me. In this way, switching off every year and a half or so, the debt can be kept on 0% cards in perpetuity.

 

What to Beware of

Where do I even begin. There are so many potential risks to this strategy that it’s why I could never actually recommend it to anyone.

 

First, beware that most banks do charge a transfer fee. When we went through this process we not only looked for long term 0% offers, but also for nothing greater than a 1% transfer fee. The way this works is the bank charges 1% of the total being transferred over as the ‘fee’ of doing so.

 

Example

If you are transferring 30k, the bank would charge $30,000 * 0.01 = $300. This amount is usually added on top of the amount transferred over, not as a separate bill. Keep in mind, however, that this is up to the bank! When my wife and I did this we made sure not to apply for anything with more than a 1% fee.

 

Second, if you do this with a significant other, the person who’s debt is not in their name must maintain good credit. Not doing so will put you right back in the same situation of needing a friend. Don’t treat your friends so poorly!

 

Third, remember that banks can change the rules of the game at any time! This works right now because interest rates, the economy etc. are going in such a way that some banks don’t mind extending large amounts of credit, that they don’t mind having a lot of long term 0% offers on the market etc. It’s important to remember however that this could change at any moment.

 

Lastly, Remember that banks have the right to collect on all outstanding debt at any time! It’s their money after all and if they want it back, there is little to nothing you could do about it except pay.

 

Why We Did This

At the time my wife and I did this, we were paying an absurd amount of money in interest. The amount we were paying in interest far exceeded what we could actually afford. Even including the 1% transfer fees we needed to pay on all the debt we were moving (both ways,) those fees combined were still less than the interest we were paying in a month. Now that it is done, we have all our debt on 0% cards, which means every payment is pure principle. In addition, the payments are now within a budget-able amount, instead of in excess of what we bring in every month.

 

Final Thoughts

This is how I got excellent credit in 45 days. I will point out and stress, however, that having excellent credit does not mean “good with money.”  If you are reading this thinking any part of this sounds like something you should do. Or worse, if you fee like it is something you “need” to do. Then the first thing you really need to do is learn how to properly deal with and handle money. My true story here is not an example of how to do so, quite the opposite. I recommend starting here.

 

The Ideal Account Setup

What is the ideal account setup? How does one structure their accounts for success? For the former the answer is simple, as many as you need. For the latter, that’s a bit more subjective. Here I will explain how I set things up and why and you can make your own judgement call from there. Regarding number of accounts, most people have two, a checking and a savings account. In terms of what is needed for receiving, spending and saving money this setup does serve that purpose, but it could server that purpose better.

 

The Setup for Failure

Let’s assume that today is the 18th of the month and that you have a checking account with a monthly direct deposit. On the first day of the month $1,000 dollars was put into this account. $500 of that was withdrawn from this same account for rent on the third. You spent $200 on groceries on the 17th so you are already down to $300. Now, Netflix and YouTube TV were withdrawn on the 10th for $45, Adobe Creative Suite will be deducted on the 20th for $55 and your gym membership will be deducted on the 25th for $49.50.

 

You are out on an anniversary date with your significant other, a nice restaurant with a 7 course dinner sampler & wine pairing for $90 dollars a person. (yeah, I wouldn’t actually do this either, but just roll with the example…) You check your account and see you have $255, everything looks good so you and your S.O. enjoy a nice dinner. Everything is good right? …Not quite. Were you tracking everything that happened? If not that’s ok. I’m not great at word problems either. lets look at the same information above in a spreadsheet format:

 

Do you see what happened there? The day you went out dinner you did have more than enough to cover the dinner, (which… side note: please don’t spend that much per person on a dinner. I promise you no food on this planet is that good) but, Argh!! You forgot about a couple of bills that still needed to be deducted! Many of you may have experienced a situation like this once or twice. It happens, but with the ideal account setup, it doesn’t have to.

 

The Myth

Before I start getting deep into this, I want to dispel a myth in regards to checking and savings accounts. This is that opening many checking and saving accounts will hurt your credit. This is not true, you can have as many savings and checking accounts as you like. There is no sort of penalty for having multiple accounts.

 

The one thing you should be mindful of when opening accounts is that some banks, like for example Charles Schwab, will run a hard check on your credit before they will open an account. Running a hard credit check can affect your credit score. (See The Difference Between Hard and Soft Credit Checks) The only thing to be mindful of are any bank requirements like minimum balance requirements, direct deposit requirements and any related fees. Ideally if you are going to create multiple accounts, you’ll want to chose financial institutions that do not have fees or requirements for their accounts. Ok, with that out of the way, lets continue…

 

The Ideal Account Setup

So what would be the ideal account setup? An ideal setup would be one in which one account receives all income, and from which all incoming money is then re-allocated (aka, your primary checking). This basically means the money that goes into this account does not stay there. It either goes to a bill or is transferred to another account and that’s it. This account is like a central transit hub, everything goes there but nothing stays there.

 

You should have a savings account in which you keep 6 months worth of living expenses. (why? Because apparently everyone says so.) Realistically I don’t think you need 6 months worth. The point is to have enough that if you hit real trouble, you’d be set for a long time. How much you should have in this account is based on how confident you are in how long it will take you to find another job should you lose it, even if the economy is doing poorly. Then add a month or two buffer to it. This account will be your emergency fund account.

 

If you don’t have enough to cover 6 months of expenses, that’s fine, the important part is setting up an emergency account and then flowing some money towards it. Even if you can only flow $5 a month toward such an account, it’s worth it. For a truly ideal account setup, I highly recommend a high yield interest account for this. I personally have a Marcus account for this purpose.

 

Fun Money Account

You may be wondering at this point that if all the money in your checking account is being redirected elsewhere so that it can’t be spent, how do you buy other things like your morning coffee and bagel before work? How is that an ideal account setup?! Well, glad you asked. One of the places your money should be redirected to is a checking account meant for general spending. The idea being that the money in this account is money that you can use to buy anything. This is your “fun” money account. It’s the money you can spend completely guilt free because you know it’s not needed for or tied to anything else.

 

Once your fun money account is established, you should set up savings accounts for any other longer term items you may need money for. An example account I would recommend you create is one for gifts. Every year someones birthday always seems to sneak up on me at the most inconvenient financial time. How much simpler life would be (and now is) if I had a saving account where I put some money in each month specifically to cover the purchase of gifts for all the birthdays in a year!

 

Ideal Account Setup Review

Ok, that was a lot of information. Let’s review and simplify how accounts can be handled to avoid the scenario of spending money you don’t actually have.

  1. Create a primary checking account. This account is where all money earned is deposited and from which all the deposited money is then immediately moved to other accounts or used to pay all bills. Setup correctly it would be expected that at the end of each month, this account would reach a zero balance.
  2. Create an emergency savings account. This account, as the name implies, is only used for dire emergencies. As far as daily life goes, this account does not exist. You put money in and it never comes back out.
  3. Create a “fun” money checking account or what some call a slush fund (such a negative connotation though…) in which general spending is made from. This is things like your morning coffee or the pedicure that Susan just invited you to join along for.
  4. Create additional savings accounts for longer term items that you will need money for.  An example of such an account would be a savings account for birthday gifts.

 

The Final Word

If you’re curious how I personally have setup my accounts, I will write about it at a later time. So that’s about it! This may seem like a lot of work and the initial setup can be. When it’s done, the amount you have in your spend account is exactly the amount you have to spend. When you need to buy gifts, the money sitting in your gift account is exactly what you have. What you see is what you get. There is no need to wonder if you paid all your bills yet or if there was something you forgot about.