Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.
Dear Credit Guy,
My 24-year-old son has developed bad credit from failing to pay bills (insurance and credit cards) on time. He’s had his credit cards canceled because of this and has been declined (rightly so) when he applied for new cards. I’ve been trying to help him improve his financial habits with the eventual goal of improving his credit score (which, I understand, will take a number of years) so that some day he may be able to get a loan to buy a house. My son has just been turned down for a new job for “undisclosable” reasons, and I suspect his bad credit and spending habits showed up on a search. It’s very important that he straightens out his credit, as it’s difficult to function in the United States today without it. I’d appreciate any advice you could give him (and, I’m sure, many others who may be in the same predicament). Thanks in advance for your help. — Jim
Please know that your son is not the only young person to receive credit and mismanage it. Unfortunately, our nonprofit agency and many others like it see lots of people your son’s age who have found themselves in credit card debt with no means — or knowledge — of how to get themselves out. Not only does it severely damage their credit, as your son learned, but their bad credit ratings also make it difficult to obtain enough credit to boost their poor credit scores once they have learned how to manage credit the right way.
To help your son and any other young credit user who may be in a similar situation, the first thing he needs to do is pay what he owes. Potential creditors do not like to see late payments, but what really turns them off is nonpayment. If your son has not paid what he owes on his past due accounts, paying them should be his first priority. If he cannot afford to pay the entire balance on his credit cards, he needs to pay what is needed to bring the accounts current (make all past-due payments) and pay them on time moving forward until they are paid in full.
If the accounts have already been sent to collections, he will need to communicate with the collection companies and determine if he can work out a payment plan if he does not have the funds to pay the entire balance.
Next, I recommend that your son participate in a money management education course. Many such courses are offered for free online or in person. He might check with his local library or Consumer Credit Counseling Agency to find out what is available in his area or check for online courses at pioneercredit.com.
To improve your son’s credit score, he will need to obtain credit that will be reported to the three major credit bureaus and make all payments on time and as agreed. Because he has been declined credit already, he might want to start with a passbook savings loan and/or a secured credit card. Both of these credit options use the person’s own money to secure the loan or balance on the credit card and are therefore usually easier to obtain.
One last thought about his being turned down for an employment position. You are exactly right when you state that good credit is essential in our country for many reasons, not just for acquiring credit. If an employer requests to view a credit report as part of the application process, your son would be wise to be proactive and mention his credit problems before the employer sees them on a credit report. He’ll need to mention that he is working to improve his credit and that he has learned from his mistakes.
Take care of your credit!
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See related: Help for bad credit