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 new credit. I owe $1,500
on my two credit cards, and it's going to be two months since I didn't pay the minimum
on those. Before that, for four months, all the balances were fully paid. I
relocated to a different state and have not been able to find a job yet. Please tell
me how long before the nonpayment is going to reflect on my credit rating and
go into collections. Is there any way I can save myself and stop them for two
more months before they ruin my credit? I have a few interviews lined up in
coming days. -- Pratap
I hope I caught you before you missed
another payment cycle! You're heading into dangerous credit damage territory
as the recentness, frequency and severity of problems weigh heavily on credit reports
and scores. Any debts that are large enough to sit at the top of your credit
line for a long time and have been delinquent in the very near past will submerge your rating like it was tied to a brick.
Can you rectify the damage? It's
possible, but you must take immediate action. You seem to have a short
history of paying the accounts just fine, and that's still showing up on your
reports. However, you broke pattern as soon as you stopped sending at least the
minimum requested payments. When that happened, your issuers dinged your credit
by reporting a 30-day late, and then a 60-day late notice when you missed
another. Your credit card issuers will continue to do so until they either
charge the debt off and sell it to a collection agency, or sue you for the
What you need to do now is call both of
your credit card companies and see what you can work out with them. If you've found
a job, you can probably offset the collectors and lawsuits. The late payments
will continue to be on your credit reports for seven years, but the older they
get, the less important they become -- especially if you start charging and
paying on time again.
If you still aren't working and are unable
to pay, plead with your issuers to give you some sort of hardship plan where
they suspend payments for a few months while you continue your job search in
earnest. They can only say no, so give it a try.
In the meantime, try not to fret too
much about what a prospective employer might think of your credit reports. Some
pull them but not all do, so it might be a non-issue. Much depends on the
industry and position -- if you'll be handling money or in a management
position, they are more likely to check. If they ask for your permission to
pull your report, you may have reason to rejoice. That typically means that
they're interested in you as a candidate.
Consider their request as your
opportunity to shine. Set up a meeting with the human resources department.
Explain that while you've been out of work, bills piled up. They will see some
late payment notices on your credit report, but you take your obligations very
seriously. The moment you begin to earn a salary, you will get your debt under
control. If you've negotiated a plan with your creditors, say so. That shows
initiative and a take-charge attitude that most employers find impressive.
So, Pretap, get in there and project an
attitude of "Yes, I had some financial difficulties, but I can and will handle
them responsibly." And then do it.
See related: FICO's 5 factors: The components of a FICO credit score, 6 myths about credit report checks by employers
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