Editorial Policy

Good behavior shortens bad credit sentence

Eva Norlyk Smith Ph.D.

December 23, 2013

QHi Eva,

As an early Christmas present, my mom gave me enough ($1,800) to get the collectors off my back. That leaves me with one credit card still open and my mortgage. I've been good with those and pay on time. I heard that the account that was in collections will stay on my credit report, though. How long till it's off? Can I get it removed somehow? Will it stop me from getting new credit cards for the entire time until it falls off my report? I'd just like to get an idea of how much I should worry about this account and what I can actually do about it. — Rebecca

ADear Rebecca,

Well, that's what I'd call a very generous Christmas present. The last thing you want is for your mom's generosity to go to waste — and for you to need her help again at the end of next year.

It's true that the collection account will stay on your credit report for seven years after the date your account became 180 days past due — and there's nothing you can do about that.Ask Eva

However, the fact that the debt was paid off is a positive, and the negative effects of that debt will diminish over time. The key is to fill your credit reports with lots of healthy behavior. Just follow these steps:

1. Keep up the good work. Keep up your regular payments on your mortgage and credit card; those positive behaviors are already helping offset some of the damage from the account that went into collection.

2. Balance income and expenses. Take a closer look at how you manage your finances, so you never again spend more than comes in.

  • Make a list of your fixed monthly expenses, so you know exactly how much discretionary income you have to spend. Make spending cuts if necessary.
  • Set a goal to pay off your credit card in full each month.
  • Start keeping careful records of what you charge to your credit card, so you're not caught off guard at the end of the month by a higher-than-expected credit card bill.

3. Build an emergency fund. No matter how disciplined you are with balancing income and expenses, you remain financially vulnerable unless you have some money stashed away to deal with unforeseen events, such as medical expenses, major car repairs and unemployment. So, decide how much you can save monthly and slowly begin to build an emergency account. The standard recommendation is to have enough money put aside to cover three to six months of living expenses.

4. When you're ready, consider another credit card. Your damaged credit score will mainly be an issue if you are planning to refinance your mortgage or take out a car loan. If none of those items are on your to-do list, you could focus on the above steps and slowly let your credit recover. To accelerate your credit-building, adding one or two more credit cards would help, as it will demonstrate that you can juggle a variety of credit accounts skillfully.

However, you may be better off waiting a year or two before moving on to this step. Why? First of all, you'll have more credit card options available to you if you give your credit score time to recover. Because of your checkered credit past, you may only qualify for a secured credit card — which will require you to make a deposit and pay an annual fee. Second, before adding more credit, taking some time to work through steps two and three will ensure that you gain greater control over your finances, so you won't end up making the same mistakes again.

A new year approaches, Rebecca. I hope you enjoy — and maintain — your freedom from debt.

Got a question for Eva? Send her an email.