Repairing credit damage incurred as a young adult

Opening Credits columnist Eric Sandberg
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

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Question Dear Opening Credits,
I'll be turning 24 next month, and over the past year or so I've begun repairing (slowly) my credit that I destroyed in my teens. Discover gave me one of those student credit cards with a limit of $500. I made some dumb decisions and ended up maxing it out and racking up $913 dollars in fees and all that. I stopped paying it in 2013 and haven't paid since. Should I attempt to settle with them, and hope they offer to take half? Fixing my credit has become a top priority for me, and I'd like to boost it in any way possible. Last June my credit score was at 500. My mom co-signed on a car for me and nine months later, my score is up to 640 (depends on who you ask, CreditKarma says 603). I also have a $130 medical bill I refuse to pay because I received no medical treatment, so any advice there would be appreciated  – Timothy


Dear Timothy,
I'm glad you're committed to repairing the damage your mistakes had on your credit history. 

A credit score of 500 (whether it’s from FICO or the VantageScore, which CreditKarma provides) is on the low end, since scores range from 300 to 850. As you discovered, they vary depending on which score you get, but not tremendously.

Your credit score is definitely improving. The loan you have as a courtesy of your mom is making a major difference. It’s appearing on your (and her) credit reports, so keep it in positive standing by paying on time. The declining balance will continue to push your credit scores upward. 

What will bring your scores down with a thud, though? Any bill that’s gone into collections. Do not let that happen! Call the health care provider immediately and dispute the unpaid bill with them. If you have any documentation that proves you’re in the right, you should be the victor.

Send letters and emails explaining exactly why you’re not responsible for that medical bill, and follow up to make sure you’re purged of it. You might even want to take the matter to social media. No one, doctors included, wants bad reviews and disgruntled customers.

If no resolution comes about, you may want to just pay the medical bill. You’ll save your credit score from backsliding, not to mention avoiding nasty collection calls.

Now let's talk about that old student credit card. When that card was active, it appears you used the entire credit line that you were initially given, and then the accumulated fees bumped up the balance to nearly double what you spent. That’s the ugly consequence of not paying your debt quickly and then not at all. 

To rectify the problem, you can propose a debt settlement, but at this point you probably would not be dealing with Discover. That company is long gone from the equation. After six months of nonpayment, the issuer would have sold the account to a third-party collection agency for a fraction of what it’s worth.

Many collection agencies do negotiate with debtors and will settle for a reasonable sum. For example, if the debt was purchased from Discover for a lesser amount instead of the $913, you may be able to get the collection agency to agree to take less than the $913. The final sum would be based on such factors as how much the collector really paid for the debt and how old the account is.

Also, know that each state has its own statute of limitations for debt collection. For example, in California, if the debt is older than four years, the statute of limitations has passed. In that case, the worst thing the creditor can do is continue to try to collect from you and report it on your credit file, but the collection agency can’t sue you.

Without the threat of a lawsuit, you have more bargaining leverage. Find out what the statute of limitations is for your state.

You have an array of choices to deal with this card debt. You can:

  1. Pay the entire balance. If you have the money and are especially eager to enjoy a credit score boost, pay what's owed and delete the bill.
  2. Attempt a settlement. You can save some money with a settlement, but it does take some time and effort to arrange, and there is no guarantee that the collector will accept less. If you go in this direction, be sure you follow through with payment promises. If you don’t, the collector knows where you are and that you have some cash in your pocket, so the collector may press you for the total. Worse, the agreement can re-age the collection timeline.
  3. Let the debt stay. If the statute of limitations has passed or is close to it, you may want to sit tight. As bad debts get older, they become less impactful to credit scores. After seven years, the account will age off your reports, and when it does, your credit scores should rise naturally.

However you choose to proceed, I suggest that you add a new credit card to your wallet. There are cards for people with all kinds of credit ratings. You would probably do best with a secured card, which requires a deposit that serves as your credit line.

When you have a new card, charge mindfully. Never maintain a balance and always pay on time. Do so and the youthful sins of the past will be but a memory – and your scores will escalate on into the future.

See related: How to rebuild credit in 5 steps, 9 things to know about secured cards

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Updated: 03-23-2019