Advice for re-establishing credit, where to go from here

[Anonymous]

So, I am 26 and unfortunately ruined my credit in college. It wasn't even reckless spending. I got a credit card and unfortunately forgot to pay it because my grandmother fell ill and there were many things going on at the time that I completely forgot until it was charged off. It was $180 (Discover). I would pay it in full if presented with an opportunity (charged off mid 2010) out of sense of responsibility, however, it will soon fall off my credit reports. Transunion already deleted, Equifax will fall off in April 2017, and Experian will fall off August 2017.

In July 2016 I opened a Capital One secured card with a $49 dollar deposit and it now sits at $500 (one-time CLI from 200 to 500).

In October 2016 I got lucky and was approved for a Chase Freedom (only $500 limit) and a Citi Double Cash ($1,000 limit).

I should note that I was actually a bit wise and when I turned 18 I went to my credit union and got a $1,000 loan secured with a $1,000 CD and that put a year of good payments on my credit history (2008-2009). It still shows on my report, so I have it until probably 2018-2019 and it probably helped to get me approved on some of the other cards.

My current FICO 8 scores for January are EX 625, TU 710, and EQ 638. EX and EQ show the chargeoff. The scores are actually a little higher because they showed 75% util on my Double Cash (38% overall util). This was because I spent a lot during Christmas in December and the statement cut off with a high balance, even though it was PIF. My overall util is down to 4% for February and I get my reports soon (I always pay in full but have now let small amounts show every month on the cut-off date to ensure the bureaus see use of accounts).

Capital One was basically acquired to get some history showing, but I don’t see any purpose other than being my first (no annual fee, so I won’t close it, just put Netflix on it). The Citi DC I definitely want to keep and hope to get a CLI at the six-month mark in April. Chase Freedom has good rewards but $500 is slightly low for long-term viability.

Eventually, I do want to buy a car, but I would want to wait until around August when my credit report is clean (I would expect all FICO scores at the 700-mark). I also would want to apply, eventually, for the AMEX Blue Cash Everyday for the rewards at the grocery store and down the line for a Chase CSP (mainly for primary auto collision rental insurance), but I know there is the 5/24 rule so I have to be careful since my three accounts are new. Of course, I won’t apply until I have larger limits on my credit cards so Chase can see my responsibly usage.

I know it’s a lot of information, but I would appreciate any advice. Should I take out another secured loan from my credit union to show positive recent installment history?

[rmduhon]

If you want to get back in with Discover in the future I'd suggest paying the charge off. It won't reset the reporting time if you are thinking it will. Some people are under that impression. The month (or 2) before you plan to car shop only let 1 card report a balance of less than 9% of that card's limit for optimal scoring. I wouldn't worry about getting a loan right now because it'll lower your AAoA and could cause a drop in your scores.

[Anonymous]

Thanks for the advice! Unfortunately/fortunately, I got closer today to getting all of the cards I hoped for. Coincidentally, I actually got notice that American Express had an offer for me for the Blue Cash Preferred. The offer came with a whopping $250 bonus after $1,000 in purchases in three months. Usually it's only $150; considering the annual fee is $95 for the preferred, the extra $100 made it a wash for the first year and would earn me greater rewards.. I applied and was approved ($1,000 limit). I know my AAoA will take a hit. They did pull Experian and was surprised they approved me (even though I had the offer). That said, I now have an American Express.

For Discover, while my plan isn't to "get back in" I will see if I can pay off the balance. I might wait till August after it's gone from all reports because I don't want the payment to temporarily (i.e. from now till August) show the recent activity as a sign that the chargeoff happened much closer than when it did almost seven years ago. One of my reports shows that I was late as recent as 32 months ago because of how Discover reported it. I'd rather it be gone and then pay.

[nolamike]

TX1990

Just for info on the CSP.

To qual for CSP they wanted at least 40K income and a low Debt To Income ratio. so low rent, low credit lines. Student loans are counted in their decision.

I just went through this with them. I had to call in and try for a Recon (my first and only one so far) and was successful. Once I included my Navy Disability Pension they were fine with my DTI, it is high because I have student loans that are still in abeyance. They won't come due until the end of 2020 six months after I complete my Doctorate. The last Masters was 60K and that made my DTI too high without including my pension.

Just something to keep in mind when you get ready to apply for the CSP

Mike

[Anonymous]

Thanks nolamike!

What's funny is that when I applied to Chase Freedom (I bank with them), their website had me prequalified for the CSP, Freedom, and Slate. I wasn't sure I would actually get the CSP upon application because of credit report or the fact that I lacked accounts showing long-term healthy usage of credit cards with healthy credit limits. Interestingly, after I got the card, Chase now says there are no offers on the prequalification site. I will keep your advice in mind if I ever do apply (I am now 4/24).

Good luck on your doctorate!