Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
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Dear Opening Credits,
I have horrible credit and
having been trying to fix it to no avail. I want to do what I can to fix it. My
sister is willing to make me an authorized user on one of her oldest accounts.
Will this help me by doing this? I am at a dead end. I have even tried to get a
secured credit card through Capital One and got denied. Thank you for your
assistance. -- Chris
There are very few true dead ends on
the credit map. You're experiencing a roadblock for sure, but you can move
forward and achieve your goals. Here's how.
Identify the problem. Did you have a credit card and run it
up to such a degree that you couldn't pay? In that case, the company would have
charged it off and sold the account to a collection agency or sued you for the
balance due. Both of these circumstances would have resulted in a big black
mark on your consumer credit reports, dropping your score and causing lenders
to reject you as a customer. Other possibilities include not paying taxes or
child support, defaulting on student loans, car notes or a mortgage.
Of course, many people have damaged
credit because unexpected unemployment led to not being able to pay bills or a
medical crisis that resulted in tremendous health care debt.
Whatever happened, you must locate the
wrong turn so you don't go there again. If the situation was preventable, make
a point to only borrow what you can afford to repay in the future. It's tougher
if the event that lead to debt was out of your control, but perhaps you can
increase your insurance coverage or save more of your income for emergencies to
offset extreme wreckage.
Satisfy newer, bigger, badder debts first.
Recency, frequency and severity are vitally important when it comes to credit
problems. So if you've paid an account late many times, owe an exceptionally
large bill or the balance just went to collections, well, you need to rectify
that, pronto. It's definitely holding you back from getting another card.
Review every debt you have and
determine who ought to get the most of your money now. Those that need your
immediate attention include the ones that you might have been (or will soon) be
sued for. Accounts that will drop off your credit report soon (seven years for
most negative information) or are past the statute of limitations for lawsuits
for your state should take lower priority.
As you satisfy each ignored or
delinquent debt, you're mending damage. As time goes by, anything that you
don't cure becomes increasingly old and less important to a creditor, which also
fixes the problem.
3. Borrow and repay, borrow and repay. Piggybacking on someone else's card is one way to
re-establish your credit. I don't usually recommend it, because it is risky for
both the authorized user
and the account owner. If your sister makes a mistake
and fails to pay as she should, the late payment notation could wind up on your
report. Or if you misuse the card and overcharge, she will be liable for the
big bill. Still, it could work out if she pays on time and keeps the debt low --
in that case, the positive activity will be reported to your file and your
rating will increase.
Another option is to apply for your own
credit after you've paid some of those balances off and have let time work its
magic. After that, pursue a secured card again. Capitol One is hardly the only
game in town, so look around. Check out the current deals, or if you have
a checking and savings account with a bank or credit union, ask those
institutions what they're offering their customers.
Once you have a credit card, start
charging. Pay the entire balance before the due date. A long, clean pattern of
regular borrowing and repaying is exactly what lenders love to see.
See related: What to expect when you're made an authorized user on a credit card, 7 bad credit card habits to break now
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