GOLDEN

Melinda and Doug’s income dropped by 80 percent, but they kept their credit rock solid

LET ME LAY MY CARDS on the table: My credit score was 776 at last check, not exactly “golden” in the industry of the credit lingo. In order to be golden, you need a credit score that’s 800 or above on the 850-point FICO scale. At 776, I have a patriotic number, but it’s more silver than gold!

So I took notice when Melinda Smith of Hillsboro, Oregon, wrote to me saying that she and her husband, Doug, both forty-two, have maintained golden scores for decades despite falling on hard times during the Great Recession.

“Mine is 805, my husband, 809. Had those scores or higher since our twenties. Even after one or the other being unemployed for about three of the past five years,” Melinda noted on my Facebook page.

Having great credit scores during both good and bad times has helped the Smiths when they needed it most with low interest rates on home loans, auto loans, and credit card debt, plus it allowed them to refinance mortgages easily.

“I remember when I was twenty-eight and wanted to refinance my house and I called a lender to get a quote,” Melinda says. “The gentleman who I spoke with seemed very condescending and didn’t seem interested in dealing with me until he pulled my credit score. He was shocked and said that I had ‘gold balls’ credit and he was impressed. The refinance went much smoother after that and he was much more helpful.”

Fast-forward to the Great Recession, and like many Americans, the Smiths have wrestled with having their work hours scaled back over the last five years.

Beginning in 2007, Melinda went from a $25-an-hour position doing administrative work at a small environmental consulting firm to $10 an hour for the same job at a dentist’s office. She’s now working as an office manager at Allstate for $14 an hour, with a schedule that can vary from ten hours a week to as many as thirty-six hours.

Meanwhile, Doug has held four jobs since 2007, all in the service departments of Portland-area car dealerships. He’s now the full-time service manager at a dealership specializing in Volvos and other vehicles, and is paid mostly on commission, with biweekly checks that range from $1,867 to $3,387 per check.

But during the worst stretch, their household income dropped from $100,000 to $20,000 between unemployment compensation and part-time work.

That put the Smiths into an uncomfortable position. They had to wipe out a $20,000 emergency fund in order to keep up with their monthly bills. They also had to pay for COBRA when they didn’t have steady work. (Melinda is diabetic.)

So the couple, who has a nine-year-old daughter named Olivia, went from paying their credit card bill in full each month to being partial payers still making well above the minimum payments.

By prioritizing their obligations even when money got tight, the Smiths did the single best thing anyone can do for their credit score: Always pay each and every bill on time.

“We have always paid more than the minimum payment even when money has been tight and always on time,” Melinda says. ”I’m not going to say that we haven’t had to utilize some credit to get through the past five years or so, but we are making great strides in getting it paid back down while trying to build up our emergency fund again.”

Doug adds, “My parents taught me a long time ago, for the most part you pay cash for things. If you can’t afford it, you can stretch it, but no more than several months. I figure it’s part of my duty as an American to have good credit.”

Another key to the Smiths’ maintaining a high credit rating through thick and thin has been keeping their credit utilization low. Currently, Melinda and Doug have charges of $16,000 against their total available credit of $120,600 across four different credit cards. So they’re using 13 percent of their credit.

The Smiths also have unusual ways of staying afloat when times get tough.

For starters, Doug told me he’s perfected the art of car flipping. Last year, he bought a beat-up 1999 VW Cross Country with 138,000 miles on it for $1,000 cash. With his dealer discount, Doug got the necessary parts for $800 and did the repairs himself. He later sold the car for $4,900 on Craigslist, and that’s roughly the tenth time he’s flipped a car over the years.

Doug’s entrepreneurial spirit carries over into one other area of the family’s life too: birthday party entertainment.

If you want a real fire engine to come to your kid’s birthday party in Portland, the Smiths are the only game in town. Doug owns and operates Engine 51, a 1987 Spartan FMC Type 1 fire truck with a Hale water pump that holds 750 gallons of water. Basically, every seven-year-old boy’s dream ride!

Doug was a volunteer firefighter in Cornelius, Oregon, from 1998 to 2000, but he had one gripe during his service. “They never let me drive the fire engine. It got to the point where I was still probationary and I was kind of like, ‘Now, wait a second. Here I am risking my life and you won’t let me play with your toy,’” he told me.

In 2009, he saw Engine 51 on eBay for $3,500. He watched the auction for weeks, but it never garnered a bid. Finally, with just seconds left, he bid the asking price. The Spartan is valued at roughly $250,000. (Yes, you read that right!)

Melinda was initially aghast at the buy.

“When I actually saw that he had just purchased a modern full-sized fire engine, I promptly announced that he would need to figure out a way for it to make us money,” she says. “I then thought about birthday parties and found that no one was offering them in our area. It has been a nice part-time job and really helped us out financially during periods of unemployment.”

The Smiths charge $175 to bring Engine 51 to parades, restaurant openings, weddings, and other events. Doug even rented out the truck for a season finale of the TNT drama Leverage, earning $1,500 for the two days of filming along with $90 to appear as an extra. For the birthday parties, the family rolls up with sirens blazing in firemen’s turnout coats and helmets and lets all partygoers spray the hose, even adults!

While it never hurts to have a spare fire engine for rent to bring in extra dough to pay down your debt, I know that’s not realistic for most people. So what simple things can you do to boost your credit score?

Always pay your bills on time.

• This goes for credit card bills, doctor bills, utility bills, cable bills, and every other kind of bill. You can use a free budgeting tool like Mint.com to automatically send yourself simple reminders when your bills are due. Or if you’re not high-tech, just mark your bill due dates down on a calendar. Whatever it takes to get the job done. Making timely payments alone accounts for 35 percent of your credit score.

Don’t use too much available credit.

• Let’s say you have one credit card and it has a $5,000 limit. If you’re carrying a $1,500 monthly balance, you’re using 30 percent of the total limit. For a solid credit score, don’t use more than 30 percent of your available credit. For a top-tier score, stay below 10 percent. This factor accounts for another 30 percent of your credit score.

When you pay off a credit card, don’t close the account.

• People get so excited to close their cards when they pay the balance down to zero. Don’t do it! It will only reduce your available credit and lower your score. You want to have four to six lines of credit. Use them twice a year for small purchases to keep them active and pay them off right away. Fifteen percent of your credit score is having open lines of credit that are responsibly managed.

Know your credit score.

• Your true score is the FICO score, but you have one FICO score from each credit bureau.
• The one most lenders use is the Equifax FICO score. The question is, do you really need to know your real credit score? It’s only really necessary when you’re getting ready to take out a home or auto loan. In that case, you can pay a small fee at myFICO.com to learn your true score. Otherwise, if you just want a credit checkup, you can get a free non-FICO credit score from Credit.com, CreditKarma.com, or Quizzle.com.

Have alternate streams of income.

• Melinda and Doug found clever ways to make money, pay their bills, and maintain good credit even when the income from their day jobs dwindled. You’ve probably seen ads by the side of the road promising you can make hundreds in your spare time working at home. I get calls every day on my radio show from people who have been duped out of money that was supposed to get them insider info on the track to wealth.
• In reality, the best work at home is almost always drawing on your life experience, skills, training, and prior work experience to do something better, cheaper, or more conveniently for someone else based on what you already know. Anybody who promises you an insta-business for your cash is only going to make you insta-poor.