Editorial Policy

Bounce back from youthful credit mistakes

Erica Sandberg

January 16, 2015

QHi Erica,

When I was younger, I piled up some debt that I'm still paying off (I pay on time now). It was for stupid stuff, like furniture and clothes. Now, I'm older and smarter, and feel that if I could just talk to a real person, I could get a credit card with decent terms. Will banks talk to me, rather than requiring an online application? –Zack

ADear Zack,

The very first credit card I got was a store card. The very first purchase I made with it was an expensive coat. And I promptly stuffed the first bill under some magazines because I couldn't afford to send even the minimum payment.

We all do stupid things when we're young! With age, however, comes wisdom.

Now that you've learned the errors of your ways, you're ready to move on and treat your finances much differently (and responsibly). The problem is convincing lenders that you're a changed man.Ask Erica

But before you approach lenders, you need to know where your credit stands.

First, pull at least one of your credit reports for free at AnnualCreditReport.com and check for inaccuracies and problems. Dispute any errors while you're at it.

See problems of your own creation? Your credit report will list any late payments, charge-offs and collection accounts for seven years. If these dings happened within a year or two, you've got a considerable wait ahead of you. Worse, recent information is factored into credit scores more heavily than what occurred a long time ago. Since most card issuers use these reports and scores to make lending decisions, you could be denied on the spot.

However, you can make a dent on your mishaps immediately by paying down as much debt as quickly as you can. Whether that means taking on a second job, selling unwanted items on Craigslist or cutting your expenses, do it now. Meanwhile, those dings won't go away until seven years have passed,  but as each month passes, they will lose importance.

Now, get your FICO scores from MyFICO.com to learn what type of credit rating you have. A score for one of the three major credit bureaus will run you about $20. Even if your score is bad (300 to the mid-600 range out of an 850 score), there are credit-building products available. In general, the approval process is purely objective. Based on your income (which you list on the application) and credit history, either you qualify for a specific credit card or you don't.

The only exception to this anonymous, instantaneous process is if you have accounts at a small local bank — or even better, at a credit union. Many credit unions encourage their members to establish a personal relationship with them. As such, you may be able to meet with a supervisor and discuss ways to get around past borrowing mishaps so you can obtain a card through them. These nonprofit financial institutions tend to take into consideration how you've managed your savings and checking accounts, making their approach to lending more personable.

Don't discount larger banks and card companies, though. You may be eligible for a perfectly fine card from one of the major issuers.

Of course, the higher credit rating you have, the better card you're likely to get no matter which financial institution you go through. The cards that you're eligible for at this point may not have the lowest interest rates and fees or come with the greatest rewards programs, but that's OK. You have to restart somewhere, then work your way up.

Apply for the best credit card in your category, and when you get it, use it the way you now know is smart: Charge frequently, make payments on time, and never keep a running balance.

When your credit scores have reached above 700, you might want to add another card to the mix. If you use two cards perfectly, you'll really begin to see a scoring hike. It won't be long before creditors are competing for your business, not the other way around!

Got a question for Erica? Send her an email.