Fixing Bad Credit

Penguin_Otaku

Didn't want to hijack the other guy's thread.

So I made some poor decisions with my credit card my freshman year. Maxed it out and had to default on it and settled for about ~1000 less. With an invoice I have coming in, I will be able to pay it off in full and just have my student loans to deal with in a year, huzzah.

But I know that I'm going to need some kind of credit in the future. Obviously the debt collection agency coming after me was not the most ideal thing for my credit or myself. Although embarrassing it was a wake-up call and I'm getting my shit taken care of and planning for my future a little better.

I applied for the smallest credit card from my bank (Chase) recently and was denied. I cannot say I was surprised considering what my credit report probably says.

When I pay off that credit card and another (only ~200), will I be more likely to get that card from my bank?

I didn't understand what the purpose of a credit card was for, abused it and am looking to use it the "right" way this time.

Obviously paying bills and similar things helps build credit, but what else in your guys' experience has helped you through a similar situation?

Thanks.

MushroomStick

You're going to need someone to cosign on something for you.

Esh

Pay off everything you owe credit card wise and then maybe apply for a secure credit card?

VisionOfClarity

Both of the above options are good choices.

harry.timbershaft

Just some general advice on settling credit accounts: in my experience, banks are typically shooting for 35% - 50% of the total account value. The settlement precess is a negotiation and should be treated as such. Also, expect to pay taxes on the amount forgiven in the settlement. The bank kicks off a form to the IRS at the end of the year and the amount forgiven is taxed as income (unless the amount is really, really small). This should have been explained to you during the settlement and is completely awesome, isn't it?

But yeah, someone cosigning for you on something is going to be ideal in this situation. That and time.

IronKnuckle's Ghost

One thing to do if you haven't already is to obtain a credit report from one of the three bureaus (Equiax, TransUnion, and Experian). You're entitled to one free report from each bureau a year, so if you time it right with each bureau you can juggle between them. Bear in mind that each bureau reports your credit slightly differently, so it may fluctuate. The point is to establish where you are now. You've likely seen commercials for services that will provide you with reports from each bureau for "free," but you can deal directly with the bureaus by visiting annualcreditreport.com, which is maintained jointly by them.

As others have said, cosigning with someone with better credit such as a parent is a good option for you. Just make sure you can repay the debt, as it'll affect the cosigner's credit too. If possible consider taking out a small personal loan with a term of twelve to twenty four months. Paying off (as in completely, not just making your monthly payment) any kind of debt improves your rating, and a couple of small principal/short term loans can help demonstrate to future creditors that you're more likely to honor your agreement with them.

Defaulting on your card will hound you for years to come. While seven years is generally the limit it will appear on your score, be aware it may still affect a creditor's willingness to deal with you.

And to clear up some confusion, while paying your bills on time is frequently mentioned as a way to improve your credit score it usually only applies to debts such as credit cards and loan payments. A utility company may report late payments, but many don't bother.

Djeet

Re-iterating what IronKnuckle's Ghost said, unless an account goes to 3rd party collections, the only debts that tend to get reported monthly is revolving debt (credit card, store cards, gas cards), mortgage debt, vehicle purchase loans, personal bank loans, and student loans. Things like utility bills, cable bills, phone bills, insurance bills, and hospital bills don't get reported on a monthly basis and don't get reported at all until they are delinquent (in my experience not until they are 90+ days delinquent and go to 3rd party collections, often creditors have internal collections agency that your account goes to before they sell the debt off to 3rd party collectors, and I've settled with internal collections agency without it ever hitting my credit report). I've never gotten payday loans and whatnot so not sure how they report. And it's been so long since I rented that I'm not sure even rent obligations show up on a monthly basis.

So keep you nose clean, and if revolving credit providers are denying you it's just going to take extended time without bad stuff showing up on your credit report before your credit rating improves enough to get approved. Maybe get a report done so you can see what actually gets reported. Then try again in 6 months and look for a secured card or perhaps a gas card. I still use sites like freecreditreport.com to get the credit information (sans the score number) and just cancel within the 7 day trial period), but if you haven't pulled your own credit report in the last 12 months you could go to annualcreditreport.com and get it free without having to put in your card information. You cannot get a credit score number (if that's what you're looking for) without paying for it (bout $25-30 to get scores from all bureaus).

A lot to improving credit score is going to be time passing without bad things being reported to the bureaus, it's not something you can actively improve other then paying down balances that report monthly and even that is only incrementally better then time passing without bad stuff happening.

MagicToaster

Penguin_Otaku wrote: »

I applied for the smallest credit card from my bank (Chase) recently and was denied. I cannot say I was surprised considering what my credit report probably says.

Why are you applying for credit cards when you are in debt? At this point in your financial life you shouldn't be looking at more cards, but rather building a solid financial footing on which to stand on. Also, every time you apply for credit your score lowers.

Also, most bills don't help build credit (except for loans). When a private corporation, like a celphone service provider, receive your payment they don't report timely payments to federal institutions that handle credit. However, excessive late payments and deliquent accounts will always be hurtful to your credit, no matter who you pay (federal or private).

Penguin_Otaku

^ I'm aware it lowers everytime I apply and so that's why I applied for the one. It was a litmus test, so to speak, to see how bad it really was. If I can't get a card from my own bank then I realized I really need to work to get any kind of credit.

Had I been approved it would have sat in my wallet unless it was for an emergency.

IronKnuckle's Ghost

Penguin_Otaku wrote: »

Had I been approved it would have sat in my wallet unless it was for an emergency.

When you do get a card, don't do this. An idle line of credit is of no use to you. Instead, buy the occasional thing and pay it all off when your monthly bill comes. Many people use cards like this for big purchases, such as new appliances. The best sort of card to use for this purpose is one without annual fees, however those are generally only offered to people who meet certain criteria.

LadyM

IronKnuckle's Ghost wrote: »

An idle line of credit is of no use to you.

I don't think that's correct. I have one credit card I almost never use, but my credit score still went up a bit after I got it. Also, one time when I was checking one of my free annual credit reports, it listed "having two or more credit cards from major credit card companies" as one of the reasons I had good credit.

Penguin_Otaku wrote:

I applied for the smallest credit card from my bank (Chase) recently and was denied. I cannot say I was surprised considering what my credit report probably says.

Just go to annualcreditreport.com and view one of the three reports to find out what's up with your credit.