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Credit Scores and Reports

5 steps to rebuild credit after prison

There is light at the end of the tunnel for ex-offenders’ credit profiles

Summary

Prison can wreck your credit. Bouncing back takes work, but these tips can help you get started on your journey to financial health.

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If you have been to prison, chances are that, upon your release, your credit will be less than perfect. Unpaid bills, closed accounts and collections all take a toll.

But there’s hope: By taking the right steps, those previously incarcerated can build or rebuild their credit.

That’s what Adam Jasinski did after serving four years in federal prison. A former reality TV star who won “Big Brother” in 2008, Jasinski got locked up for trying to sell oxycodone and evading income taxes the year he won the $500,000 grand prize on the show. His credit score had tanked to the 400s by the time he was released in 2012.

Through a series of carefully planned small steps, however, he went from getting declined for a Walmart credit card to seeing his score rebound enough to get a mortgage for his own house, another for a rental property and several home equity lines of credit.

“I was ahead of the game when I got out because I knew the importance of credit,” Jasinski said. “I worked really hard to get good credit.”

What happens to your credit in prison

Prison can do a lot of damage to your credit, which is why it takes work to bounce back.

First, when you’re incarcerated, your bills likely stop getting paid, said Martin Lynch, compliance officer and education director at Cambridge Credit Counseling, a nonprofit credit counseling agency. As part of a pre-release program, Lynch offers credit and financial counseling to people who are about to get out of jail.

While a fraction of prisoners have a loved one at home keeping their accounts current while they’re incarcerated, Lynch estimates that at least 80% of inmates fall behind on bills for credit card debt, medical payments, cellphone and cable TV services.

Payments on these accounts can get reported to the major credit bureaus as 60, then 90 and 120 days late and eventually get charged off and sent to collections.

In most cases, creditors and collection agencies have no idea the debtor is incarcerated. “The creditors are totally in the dark,” Lynch said.

In addition to credit that sinks due to late payments and collections, prisoners may experience identity theft, Lynch said.

In some cases, these incidents date back to childhood, for example, when an adult relative used the child’s Social Security number to turn on utility service they couldn’t get, due to their own poor credit. In other cases, prisoners have sold their personal data to other inmates, Lynch pointed out.

This combination of factors typically leads to scores in the 400s or, at best, low 500s. “Scores are usually rock bottom, or close to it,” Lynch said.

Rebuilding credit after release

Making a credit comeback should be top of mind for prisoners about to get out because good credit is key to renting an apartment, getting affordable car insurance and securing an auto or other loans down the road, said Todd Christensen, education manager at MoneyFit by DRS, a nonprofit debt relief company.

Christensen formerly worked with soon-to-be-released prisoners in his role as director of education and bankruptcy services for the nonprofit National Financial Education Center at Debt Reduction Services.

Christensen said that the No. 1 question he used to get was, “How can I rebuild my credit?”

And he said he often heard ex-prisoners say that fixing their credit gave them hope and enabled them to move forward.

Prisoners who have access to credit and financial counseling through a transition program might be able to start the credit rebuilding process before they get out, which can get the things started.

Here are five actions to take to rebuild credit:

1. Pull your credit reports and credit scores

Many prisoners have no idea what shape their credit is in because they haven’t been able to access their credit reports, Christensen said. “They don’t know who they owe money to or how much.”

To see where you stand, get copies of your credit reports from the three major bureaus for free at AnnualCreditReport.com.

If you’re still on the inside, however, the process can take months because you will likely have to mail a copy of your prison ID and a letter from a caseworker and wait for the bureaus to verify the request, Lynch said.

Once you get your reports, try to work with a credit counselor from a legitimate credit counseling agency to learn how to decipher the reports, identify negatives and figure out which collection account goes with which original debt.

Getting your credit scores is next. You can get them for free from Capital One (CreditWise), Chase (Credit Journey) and Discover (Credit Scorecard). You can also get a free FICO score from Experian. Both the VantageScore and FICO score ranges are the same: from 300 to 850.

2. Pay down or settle delinquent accounts

If you have outstanding accounts in collections, choose a few with low balances and work on paying off those. Getting a few collection accounts marked as paid in full will boost your score, Lynch said.

If you were in prison for several years, however, you may have accounts that are getting close to the state statute of limitations.

In that case, consider consulting a lawyer about your options before taking any action, Lynch advised. The statute of limitations limits the time in which you can be sued for an unpaid debt, and you can accidentally restart the clock if you make a payment, promise to pay or even admit you owe the debt.

You can talk to a consumer attorney or seek help from a local Legal Aid office.

3. Budget and save toward goals

Budgeting is essential to rebuilding your credit and improving your overall financial picture.

For many of those who were previously incarcerated, the top goals are to get a job and save enough to pay fees to get a driver’s license, then to get an inexpensive used car and obtain auto insurance to have better job options. Finding a steady job is key to rebuilding finances and credit, and many jobs require reliable transportation.

That was the case for Julio Briones, who served time in prison and now coaches other former prisoners. He said that after his release, his then-girlfriend, now his wife, co-signed a car loan that got him on the road to re-establishing credit.

“With that vehicle, I was able to accept a position I had been offered in a local home care company, using it as a starting point for my new life,” Briones said.

4. Get started slowly with credit cards

Those previously incarcerated often feel pressured to start building credit right away, so they apply for three or more major credit cards in a short time span and get repeatedly declined, Christensen said. “I remind them they have to start small,” he added.

For example, a good option could be to ask a family member with excellent credit to add you as an authorized user on a credit card account. If they’re leery due to your criminal history, tell them they don’t need to actually give you the authorized user card, Lynch said.

The payment history and credit line of that card will then show up on your credit reports, which can help jump-start your credit.

Getting a secured credit card is a good next step. Secured cards require a deposit that often serves as your credit line for that card.

For example, when Jasinski was released from prison, he landed a phone sales job that paid only $400 a week. He saved up enough to get a secured credit card with a credit limit of $200, then he got two more.

Once you have a secured card, use it regularly for small purchases and pay off the entire balance each billing cycle. Once your credit score starts to get in the high 600s, you may want to apply for a gas or retail store card, either of which is easier to get than traditional cards, Christensen said. “Retail cards have lower limits so the bank is not taking as much of a risk.”

Note that gas and store cards have higher-than-average interest rates, so it’s particularly important to avoid interest charges by paying off any charges in full every month.

5. Diversify your credit with a loan

A good mix of credit is important in building a high score, so consider taking out a small loan from a reputable lender.

For example, if you’ve saved up a healthy down payment for a $5,000 used car, consider getting a loan for the rest. Go through a legitimate lending institution such as a credit union, not a “ready credit” outfit that charges exorbitant interest rates, Lynch said.

A credit builder loan is another good option, Christensen said. These loans are secured, so, for instance, the credit union or bank might put $1,000 in a savings account that you can’t access until you’ve paid off that amount.

For example, after getting his secured credit cards, Jasinski went to the credit union his grandfather had used for years and took out a $400 secured loan. He set up automatic payments to make sure the loan got paid on time.

A few years after his release, Jasinski applied for and received a CareCredit medical credit card, borrowing $2,000 for dental work. His mom had to co-sign for the card. A few months later, he was able to get a $1,000 Home Depot credit card on his own, and, after that, several more retail cards.

Jasinski kept his credit utilization rate (the amount of available credit he was using) below 30%, and paid off anything he charged right away. Eventually, Jasinski’s score reached the low 700s, which is officially considered good credit.

“Fixing my credit gave me hope,” said Jasinski, who has given up partying and drugs in favor of sobriety and financial security. “I’m building my credit and moving forward.”

See related: Going to jail? 10 tips for reducing the financial damage

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