With thousands in debt and not enough income, Al Jones suffered from horrible credit. But after putting a few strategies in place, he now has almost perfect credit.
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After years of consumer debt and student loans and a credit score so low no one would consider offering him a loan or a credit card, Al Jones decided to turn his life around. He set out to not only pay down his debt but to employ some strategies to get his credit up to excellent.
Jones shows that you don’t need a high-flying job or a great salary to have almost perfect credit – you just need to know how credit scoring works and make sure you play by the rules.
Jones recounts his experience in his book, “My Journey from Bad to Excellent Credit,” and he shares some of the lessons he learned with us today.
So, let’s get Charged Up! about getting your credit to the next level!
Jenny Hoff: Al, thank you so much for joining us today.
AlJones: The pleasure is all mine. The pleasure’s all mine. And hello to all the people in Austin. I lived in Austin a couple of years ago, and it’s a great town.
Hoff: Yes, absolutely, it’s a great town. So let’s first talk a little bit about your background. In your book you talked about how as a child you were already dealing with creditors when you had to answer the phone as they called with bills that your mom owed.So at that time did you think to yourself that you would ever get in that kind of a situation? Tell us a little bit about your background with money and what you were taught and how you think it affected how you managed money later in life?
Jones: In those adolescent years, I thought that’s how life was supposed to be. All I wanted to do was to somehow make the nightmare of repeated calls stop. That was my life, and I somehow had to survive the situation. Mom and dad had divorced and in most divorces household items were split in half, so I believe that things would get worse and I had to suck it up.
I believe that if my mom and dad were still together and could iron out the differences things would get better for the whole family, my siblings and I didn’t have to eat cereal or salt and crackers and peanut butter for breakfast and dinner. I wouldn’t have to go to school hungry and lose focus because all I could think about was the hunger pain.
Jones: Yeah, it was my opinion that there was something wrong to cause these collectors to repeatedly call my mother and I and ask for payment. It was my opinion that they were being mean to her with the threats. And back in the ’70s it was the wild, Wild West. I mean, they would just pretty much say anything on the phone there to get you to pay.
And with the threats that they were wanting me to relay to her through me as a young man of the house, I thought it was my job to listen to these people and understand the situation and in turn I’d relay the concerns in a less threatening tone and attempt to inspire mom to acknowledge the debt head on and make some sort of payment arrangement.
What I was taught about money? Well, in my opinion there are two different topics where it is not discussed where if you it can lead, it’s a recipe for disaster – sex and money.
Jones: Yeah, and since we’re talking about money on the show I’ll stay on topic. So basically it was you work and you pay bills. That was the education. Granted I was taken to a local bank to establish and create a kid’s savings account. My mom deposited a few bucks in the account and I was given a little booklet to track the balance.
Whenever we were in the area we stop by to check on the balance, and most of the time you get a penny or two for interest, but after a while the bank fees were kicked in and soon it depleted the funds and the account was closed.
So needless to say my limited knowledge of money played a role in repeated cycle of destructive spending habits, crazy stuff like taking advantage of personal check processing, poking holes, giving it away. Poking holes in basically the footer of the personal checks where the numbers, poking holes in that in the footer and using a magnet to level across the bottom of the footer of the check to leverage the flow times. It was crazy.
Jones: Then you’ve got the problem of charging items on your credit card and paying the minimum balance for eternity. How it affected me? I think the anxiety experience in life taught me the importance of keeping things simple, maintaining a focus on what makes me happy, what helps me sleep at night, and enables me to look at myself in the mirror each morning and smile. Granted we are bombarded with temptations, emotions cloud our rational decision-making.
And it’s hard. I’m not the first person to say so, but it’s really hard. But I’ve chosen to take a disciplined approach and say, “Hey, I don’t need this and I don’t need that,” and live with the consequences.
Hoff: Absolutely, and that’s where you are now. But it took you a while to get there, your book takes us on that journey with you. And so let’s fast forward a little bit from when you were that kid answering the phones for your mom to when you started taking out student loans and how that started the cycle of debt you found yourself in.
What do you think was the first mistake you made when it came to taking out loans? And if you look back at it now what would you have done differently?
Jones: The first mistake if you want to call that would be to use my funds to pay for goods and services other than tuition. Food for myself and my family, because we’re having times where there was an empty cupboard and, hey, I’ve got student loan money, so hey, put some food on the plate so we can all eat.
The other thing was assisting mom with the debt she was accumulating. Eventually I use a credit card as needed for tuition payment. The thought was that I’ll put a Band-Aid on the problem and deal with a larger problem of compiling debt later.
What would I do differently? Well, on one hand I’d say nothing, because those challenges made me who I am today.
Hoff: But if somebody were going through this, what would you tell them to do differently than that?
Jones: I would have been more disciplined and not treated myself to so many meals, but hey, I was constantly hungry. Anyhow, that’s another long story, so that’s what I did.
Hoff: So definitely would you tell somebody not to put their tuition on a credit card, correct?
Jones: If you feel the need to go to school and that’s your option, go ahead and put it on your card. But again the big thing is you’ve got to be disciplined, you’ve got to be disciplined in the approach, and make sure you’re ready to start paying when the bills are due.
Hoff: Absolutely, and I think a lot of people think that if they are highly educated they’re not going to find themselves in a real debt situation. And I mean, we have millions of examples of how that’s wrong, right? That’s not true. But they think, “OK, I’m educated. I’ve gone to college. I’ve got a degree. I’ve got a good job, clearly I’m not going to get myself into a really bad debt situation.”
And that you were even applying for your Ph.D., started Ph.D. work, and yet you found yourself in a bad debt and credit situation. And so I say this because I think people kind of never imagined themselves in that situation, so what were the first signs to you that you were in real financial trouble?
Jones: The first time that I believed that I was in financial trouble was when I got out of the military. I have been in for quite some time but was not in long enough to be able to get financial compensation for being in. I got my disability rating but the disability rating was not high enough to get that type of compensation.
Jones: Plus I had not received any transitional guidance for employment outside of the army and struggled to secure employment to adequately pay for the debt that I accumulated over the years. So once I got out the gravy train stopped and suddenly I’m forced to deal with the situation somehow. Then I kicked into survival mode.
Hoff: Yeah, and so survival mode was what?
Jones: Survival mode was get married, maybe somehow I met a gal and we get married and we’ll live happily ever after. That was my survival mode.
Hoff: So it was thinking just of the kind of the next step, it was not really a long-term approach because it was hard to deal with the debt and not having the job immediately and kind of picturing your life in a way that was more financially secure. So the first signs of financial trouble were, what, when you started getting bills in the mail and you had no idea you were going to pay for them?
Jones: That was it, after getting out of the army I was unemployed, I was looking for work and again the debt started piling up or I think the bills started piling up. Suddenly, OK, I’ve got to do something, I’ve got to do something. And I thought that if I got married life would somehow turn around for the better.
Hoff: You become more responsible, you would know what you’re doing with money, all of that happens when you become an adult and you’re married.
Hoff: Exactly. So, I found it interesting in your book how you recognize that the debt you accumulated had to do with more than just financial mismanagement, but it’s kind of a loneliness, a lack of structure, failing relationships. When did you finally say enough is enough? What was the turning point for you?
Jones: I had that enough is enough near the end of my second marriage. Second marriage, while the divorce was finalized like with my first wife as a new divorcee I was back to sleep in on the floor of an unfurnished apartment, only this time I didn’t have to battle German roaches and I didn’t have to sleep in my car before moving into it.
Everything else was about the same. I had repeated the cycle again years later, and around 2005 I said to myself, “Nope. This is insane. This is absolutely crazy.” So like many others I read a bunch of books, I listened to the CD box set from the self-proclaimed experts, which often were filled with more fluff than usable content, took notes from what I learned and committed to making a change in my life for the better.
Hoff: And so how hard was that process when you started making those changes, and what did you start doing?
Jones: When I started it was very hard at first, because you’re reading the content and you’re thinking, “OK, I’m all excited about making a change in my life,” but with many of the content that’s out there once you started reading and you get past Chapter 1, you get past CD No. 1, you’re thinking, “OK, I’ve got 12, 15 more chapters to read. I’ve got five more CDs to listen to. Oh, forget it, just forget it. I’ll never get out of this loophole.”
And you put the stuff aside and you live in sadness for a while and try it again a little later. So it’s just that initial start.
Hoff: And so what were the first steps that you took then once you said, OK, enough is enough, you listened to at least some of the CDs or you got through them, then what were the first steps you took to start getting yourself out of debt and started getting yourself into sound financial footing?
Jones: The first step for me was acknowledging that I had a problem. I had been in denial about my life and problems for years. And actually looked at myself in the mirror and said to myself, “Al, this is bull crap. Really, you really need to stop this and you need to stop it now. Dude, what are you doing?”
And once that actually soaked in in that moment of sadness lapse from there it was nonstop further improvement, and I wasn’t going back. But you just have to look at yourself in the mirror and say, “You know what? Stop this cycle and you’ve got to stop it now.”
Hoff: So what was your credit at your lowest point, your credit score?
Jones: Maybe low 600, high 500 at best as I recall.
Hoff: So you would have qualified for no good loan, no good credit card, nothing like that?
Jones: I got to the point where if I would have walked in the door and said, “OK, I would like to buy whatever,” they would be like, “Really now? Just go. Just go.”
Hoff: So absolutely you were at a kind of the worst situation because you’re in debt, but at the same time your credit score is so bad that no one’s willing to help you out there, no one’s going to give you some money to pay off that debt.
Hoff: So your first step was to recognize the problem, what would your next step? Once you recognize the problem did you just start tackling the biggest bills, the smallest bills, did you start working nights? I mean, what did you start doing to start getting that debt gone?
Jones: What I did is I ordered my three credit reports from each other three separate credit bureaus – Equifax, TransUnion and Experian. And I specifically went to these credit bureaus separately versus some of the products for your day all credit reports in one, because when you do it separately you get the order confirmation number from each and you can dispute them separately. And when you dispute they require a confirmation number from each of the bureau.
So each of the three credit bureau reports, look at those, established a baseline where am I in the whole grand scheme of things. Once I got that in place then it was a matter of disputing any of the content that was on there.
One of the things I discovered is that you can use what they call a settlement letter back then. I’m not sure if they’re doing it now, but back then I use what they call settlement letters. So if I had let’s say a debt of let’s say $2,000 I would call the collection agency, you can say, “OK, collection agency rep,” you are speaking in a real nice tone, “Collection agency rep, I’m willing to pay X amount to pay off this debt if you will agree to accept my offer and send me a written correspondence that we have made this agreement, I will pay it off and you clear it from each of the three credit bureau’s reports.”
They send the letter to me and in turn I would pay it off. And shortly thereafter it would be removed from the credit reports. So a lot of my earlier stuff was done with the settlement letters.
Hoff: So you had to do a lot of legwork there, you had to call them, you had to get the letter, you had to pay it off, you need to make sure that it was taken off your credit report because you knew the longer it stayed on there the worse your credit was going to be, it wasn’t to get any better. So did you take any night jobs, did you start working on the side to try to pay off some of these bills?
Jones: Yes, I did. I actually took a job as a cab driver and I did a job, a full-time job eight-to-five, and then after work I think from Friday night, from 6 p.m. to 6 a.m. Saturday I would drive a cab.
Hoff: Wow. So you had a nine-to-five job, and then you would get into a taxi at 6 p.m. and drive for the next 12 hours.
Jones: That is correct. You’d work Monday to Friday, Friday night get home from work, quickly change into more casual attire, get your cab, drive from 6 p.m. at night until 6 a.m. Sunday morning. You’d come home, you crash, get a quick bite to eat. Later on that night you work from Saturday from 6 p.m. to 6 a.m. Sunday morning, you come home, you crash and you get ready for Monday morning, and rinse, wash, repeat.
Hoff: Wow. OK, and so did that help you pay it down pretty quickly then?
Jones: Yes, it did. It really did, granted I had no social life and my eyes were like fireballs. But it paid off some bills. And when you’re driving a taxi you’d go and you take an aggressive approach, “Hey, I’ve got bills to pay, I’ve got bills to pay, work, work, work.” And it kind of goes back to as I was saying earlier you work and you pay your bill.
Hoff: Absolutely, so you learned that is exactly what life is all about. And so your book is the story of your life, and it’s very interesting, and you kind of go through what you’re emotional struggles were, and your relationship struggles were, and your financial struggles were.
And I want to talk now also about your strategies that you developed as far as getting your credit score, so what is your credit score now?
Jones: Credit score now is 846.
Hoff: 846, OK. So you’ve almost got perfect credit at this point. And this is what your book is about – how you went from bad credit to almost perfect credit. Now you had to put some strategies in place because credit as we know is determined by several factors, your mix of credit, when you pay your bills, how long you’ve had credit, your credit utilization rate, etcetera. So, What strategies did you employ specifically to get that credit score up besides just paying your bills on time?
Jones: For me tracking and maintaining good records along with acknowledging and managing my emotions as it relates to money and spending is basically my core strategy. I’ve got a couple of cards, I’ve got one, two, four total cards, I’ve got the Bank of America, American Express, and three other cards, some Visas and Master cards.
But what I primarily do is just use that Bank of America, American Express for everything whenever I can. And if they don’t take American Express then I’ll use one of the other cards and apply to that, and then pay that in full.
But with the American Express what I do is when the bill is due and you know when the bank is going to be reporting the amount to the credit bureaus I pay it enough, and just leave like $50 or so to carry over to the next month. So it will show that I have a balance carried. And do that on a regular basis, but for the most part it’s just sticking to that one card and just using it for darn nearly everything.
Hoff: So that is an interesting strategy that you talked about there, and I think a lot of people maybe don’t realize this that showing a little bit of a balance is actually better than having zero balance on your cards, because you need to have a little carryover.
Jones: Oh, yeah.
Hoff: But there is a way that you can do it like you said is figuring out when they report it to the agency so that you have a little bit of a balance on there, but then paying that off before it starts accumulating interest, correct?
Hoff: So would you say you pay off 90 percent of your bill and leave just a little bit there so that it carries over so they can see it’s an active credit card and you are carrying a balance?
Jones: Yeah, I would even say like 95, 95 percent, just maybe 50 bucks or so, 25 bucks or so. Just to show that, hey, you’re using the card, we trust you, and that whole bit.
Hoff: And so you also don’t close any cards that you’ve had for a long time, correct?
Jones: That is correct. If I have an inclination that, OK, it’s been forever since I use it then I’ll go and buy something that I would have already purchased with cash per se and put it on the card, quickly pay it off, the bill pay, and pay that off and call it a day.
The other thing that I do with credit limits with continual use the banks will often automatically increase your credit limit – pay, bring it on. So I don’t say, “Don’t increase my limit.” If they increase it I accept it and I don’t reject or ask them to lower the limit.
Hoff: And I think the reason why, to explain to our listeners, is the reason why you do that is because a credit utilization rate makes a big part of your credit score. And so if let’s say you’re spending $3,000 a month and you have $10,000 line of credit, so you’re using 30 percent. That’s a pretty good credit utilization rate.
If it goes up to $20,000, well, now you’re only using 15 percent, right? So it shows even more that you are responsible. As much credit is extended to you, the smallest amount you can use of that it bodes well for you, correct?
Hoff: Yeah, absolutely. I thought it was interesting, the strategy, I think this was with your third wife. So she would charge a meal on the card just to increase the usage and then pay it off immediately, so is that what you were kind of doing when you were trying to get back into the credit game? I mean, what were some of these earlier strategies you used to start using your card but not to unnecessarily put expenses on there?
Jones: It was basically just using it for stuff I would have normally purchased with cash. I go to the store and buy let’s say groceries, I will use my debit card. Well, hey, I’ve already had money in my checking account to spend, so why not put it on my card so that same amount I can track what I spend?
OK, well, I’ve got a habit of buying Tropicana Pure Premium Orange Juice; do I need four of them? So you can track your spending with that, but again putting your stuff that you would normally put on your debit card, which I only use now for pulling money out on the ATM when necessary.
Hoff: OK, debit card just pull money out. You put everything else on credit card. Now a lot of people that I talked to say if you can’t control your credit card usage, get rid of it, or just get rid of them altogether. But first, OK, yes, you do need to control your credit card usage.
But second, people may not realize if you cut up all of your credit cards you have no credit history really, you don’t have a credit score, and suddenly if you do need a loan or you do need to buy a car or whatever it is, you’re going to find yourself in a real dilemma, correct?
Jones: Bingo. And I don’t subscribe to the paying everything off and being totally cash-free and pay everything with cash. Well, good luck with buying a house with cash. Good luck with renting a car or some stuff like that with cash. So my belief, it’s my opinion that debt and credit is based on trust. Can I trust this person to do XYZ? So yeah, just use your credit card and try to be disciplined with that.
Jones: And don’t cut up your credit cards, because your credit report is like a report card on how you pay stuff off. And when you paid your stuff off as you had mentioned before entirely, that history goes bye-bye.
Hoff: Absolutely. OK, so if somebody listening to this has a very low credit score, they don’t qualify for credit cards, or if they do the offers are very lackluster, and they end up carrying a balance on them, what would you say the most important three steps they should take immediately to start climbing the credit ladder?
Jones: If they have a low credit score I would say for that – order your credit reports and scores separately, notice the keyword? Separately from the three credit bureaus and confirm your existing score position. No. 2, clear any discrepancies and try to request settlement if you agree to pay the past due balance.
No. 3, identify issuing merchants, where you get your gas, office supplies or groceries, and where you make daily cash purchases and apply with credit with them. Use a credit card repeatedly for the same purchases you would usually cash, granted interest rates are going to be high, you’ll be paying down the card before major balances are due so carry a few dollars each month to build a credit over a six or one-month period.
Now if you have no credit what I would say is, for this one, identify credit issuing merchants again with the gas, the office supplies and groceries. And again the same thing as I mentioned for No. 3 if you have a low score. No. 2 for no credit is let the merchant increase your credit limit and do not request an increase or decrease of the credit limit.
And lastly if you have no credit, if you are unable to have someone with existing credit add you to their existing credit account, consider applying for a secured card. Now granted these often have high interest rate and may be coded to for those who have bad credit or no credit. But hey, you got to start somewhere.
Hoff: Absolutely, and great tips. And for anybody who does not understand what some of those terms meant – secured card, etcetera, check out creditcards.com. We have all of that information for you. Your book also gives a lot of great strategies. OK, finally our show is called “Charged Up.” What gets you charged up about mastering the credit game?
Jones: Having an excellent credit rating of 846 out of 850, it really empowers me. It does because I’ve broken a cycle of financial mismanagement and I’m able to acknowledge and better manage my emotions that relates to personal finances.
Hoff: Fantastic. Al, thank you so much for sharing your story with us. Thanks for sharing your tips with us. And your book, it’s a fun read, and I’m sure a lot of people can relate going through those ups and downs through life and seeing your credit go with that. And so I think that a lot of people can really benefit from the advice that you give. Thanks so much, Al. I appreciate it.
Jones: Thank you, Jenny. It’s been a pleasure.
See related: Charged Up! podcast: How to live debt-free