Matt About Money

Adding second card may boost thin credit file


Adding a new card may help sagging score, but paying off debt in collections may help even more

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QuestionDear Opening Credits,
I just started building credit this past February. I am a co-signer on my vehicle and have one secured credit card from Capital One, and I have two medical bills in collections. Can I get another credit card to build credit? What can I do so my credit score can go up 100 points within a year? – Erica


Dear Erica,
What is holding your scores back are the bills that have gone into collections. Payment history is the most important factor in credit scoring calculations, and debts that have been purchased by collection agencies are a clear indication that you did not pay as agreed.

Still, there is some good news. The latest version of the FICO score (FICO 9) treats medical bills that have been sent to collections less severely than other debts in collection.

Even better, if you pay them off, this updated formula will disregard the fact that they went into collection in the first place.

So, if you have the spare funds to take care of these obligations once and for all, consider it. Will the action add the desired 100 points to your scores immediately? That I can’t guarantee, but it should give them a strong boost in the right direction.

Then again, you may be better off waiting it out. If the debts are several years old and past the statute of limitation for your state, then the debts are legally uncollectible. Recent activity is weighted more heavily than what happened long ago. As these debts near the end of their life span, their scoring poison is diluted.

The worst that can happen if you don’t pay is the debts will remain on your credit report until seven years from when they first went into collections. Collectors may still come after you, however, so if you are sued for the debts, be sure to appear in court if you receive a summons to prove that the debts have passed the statute of limitations. And don’t restart the clock on those debts by acknowledging they are yours or by agreeing to a repayment plan if they truly are beyond collection.

At this moment, you are probably eligible for another secured card. Many credit card issuers, not just Capital One, offer them. These products are ideal for people who want to repair a damaged credit rating. In most cases, all an issuer would require of an applicant is a steady income source and a cash deposit to guarantee the credit line. Check out the array of secured cards on this site to see what is currently available.

Adding a different credit card, whether secured or unsecured, to your wallet and then using it responsibly  charging small sums regularly and paying on time and in full  can help your credit scores rise. That’s because multiple accounts will augment a thin credit history.

Being a co-signer on the vehicle loan also is helping your scores ascend. Because you’re associated with this loan, it should be noted on your credit reports and factored into your scores. As long as the payments are made on time and the balance is steadily declining, being a co-signer on this loan is working in your favor. Pull your credit reports from today to check that all that positive data is showing up as it should.

In the meantime, along with whatever new card you get, keep using the secured credit card you have. After a year has passed, contact Capital One to request that it transition you to an unsecured card so you can reclaim your deposit. Some credit card issuers are willing to do this for cardholders who have managed an account well. Also, ask if it can do this without checking your credit history again. If so, you’ll avoid having an excess hard inquiry listed (which can temporarily reduce a score) on your credit report. Since it appears that every point counts for you, it pays to pay attention to details!

See related:Re-aging old card debt can land you in court, New bill targets paid-off medical debt


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