Want a rewards card? Clean up credit first
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 was recently
approached by an independent business owner who is about to retire. He consults
in railroad cases as an expert witness and does quit well, in fact, he is the
main guy used in the United States and Canada. He has approached me about
working in his business and taking it over in 5 years. I would be subcontracted
to him under a written contract. The question I have is that my personal credit
history is not all that great at the present time. What would be the best card
to go for when starting up my business to cover my travel expense and items of
that nature? -- Dan
What a wonderful career opportunity!
You've reached the right person to ask this particular question. I've had the
pleasure of serving as an expert witness and testified about the devastating
effects of a bad credit report.
Not all employers check credit reports
when considering a person for a position, but some do, especially if the
information they can glean from them is pertinent. In the case you described,
it would be. As an expert witness, you'll need to be perceived as a responsible
person with a proven ability to manage his finances. Therefore, a consumer
credit report that shows a long list of overdue accounts, monitory judgments,
bankruptcies or tax liens won't be terribly impressive.
So what's going on, Dan? Who do you owe
and why is your credit so bad? Those are questions you need to ask and answer.
After you do, you'll need to deal with those matters so your report indicates
that you've done what it takes to mend the damage. Here's your step-by-step
- Obtain copies of your credit reports. You
can do this free of charge once a year from each of the big three credit
bureaus (Equifax, Experian and TransUnion) from AnnualCreditReport.com. With
them, you can identify all the areas that you need to work on. For example, if
you have an outstanding debt with a collection agency, that's going to stand
out to someone looking at it, so circle or highlight it. Go through the reports
carefully and make note of everything that doesn't look perfect.
- On a separate sheet of paper, prioritize
each issue. Some are going to be worse than others, and those that are more
recent, severe and frequent will need your immediate attention. For example, if
you owe a monitory judgment of $5,000 that just went into effect, that will be
at the top and a dentist bill of $100 that landed in a collection agency five
years ago will be at the bottom.
- Tackle the problems. Working your way
down the list, pay off the worst, latest and largest liabilities first. It
won't erase the past, but a satisfied debt always looks better than an
outstanding one. Mind those that are nearing the end of their time on a credit
file, though. Most negative information may only be reported for seven years.
If it's about to fall off, you might want to let it do so naturally. Be aware,
too, that there is a statute of limitations on collections for unsecured debt.
Check the statute for your state. If the collector can still sue you for the
debt, make sure you have the money to pay or wait until the time frame has run
before letting them know you exist.
- Establish a good credit history. While
you're working hard to rectify the past, charge responsibly so you can
reestablish a positive payment pattern. If you don't have an active account,
you can wait until you've cleared up some of the problems or get one now (a
secured credit card is a great place to start again). Buy a few things with it
and pay your bill on time and in full. Just a year of doing so will help your
report tremendously. When your credit score is higher, get another credit card account,
but this time one that that offers travel rewards and a high credit limit so
you can book flights and hotels with ease.
is going with your credit, you'll be Ok if you deal with it in such a systematic
fashion. I solemnly swear to it.
See related: 6 myths about credit report checks by employers
Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.
Send your question to Erica.
Published: October 3, 2012
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