Pretty much, but given the outstanding debt, you'll likely have to pursue secured cards from lenders that do not do a credit check:
Each of the above have annual fees, but are non-predatory. You can also check with your local bank or credit union for secured options.
Add a Shared Secured Loan (if you do not have an installment loan in good standing):
Self, Inc. Credit Builder Loan
After 3 months of paying on the Self Credit Builder Loan, you can use your "savings" (ie. secured loan deposit) to open a Self Secured Credit Card.
Secured cards do not need a high limit. You can put down whatever their minimum deposit is and work with that. Credit limit has nothing to do with your credit score, what matters is how you manage the utilization of the limit. A $200 secured card is just as beneficial as a $20K unsecured card when managed correctly.
Utilization: Keep your utilization low. Below 8.9% aggregate and below 28.9% on each individual card for best scoring results. I recommend using secured cards for light purchases and always pay the balance in full by the due date. Their sole purpose should be building a positive history, not day-to-day spend.
Keep in mind that your scores will suffer until all of the derogatory accounts drop off. If your charge-offs are still reflecting outstanding balances, those balances will factor into your overall utilization which will keep your scores suppressed. However - if you manage your secured accounts well, your scores will begin to skyrocket as those negatives drop.
Any questions?
Yes. Accounts drop off 7 years after the Date of First Delinquency (DOFD) which is the month/year the account first went delinquent and was never brought current. So - you're correct, it will be quite a while before you start seeing any real movement in your scores -- mainly because the accounts will remain unpaid which means they will continue to reflect outstanding balances and creditors may continue with monthly or sporadic updates of new negative notations in the payment history.
You can get the secured cards and not use them also -- but some lenders won't even bother with regular reporting during months of inactivity. So, while the accounts would be aged and in good standing (which is still a big plus), you run the risk of showing no history of repayment - which would not be very helpful should a lender evaluate your creditworthiness via manual review sometime down the road. You don't have to use them every month -- but I'd suggest at least running a small charge through each one at least once every 4-6 months, letting the balance report, then paying it in full. A small charge could literally be a bag of chips. Or, you can place a small recurring charge on each one and pay it in full -- maybe a Netflix or Cell Phone bill --something you already pay on a monthly or quarterly basis.
Some people just go credit free for the full 7 years and wait for all the negatives to drop off, then they start rebuilding from scratch. That's also an option; the only problem with starting with no history is that it can be difficult to obtain new, unsecured credit - you may be forced to start off with a secured card anyway just to build a bit of history so you can qualify for unsecured credit. If you obtain your secured cards now (one or two will do) then you'll already have some history from a tradeline in good standing when the time comes for all of your negatives to drop and you'll be able to acquire unsecured credit pretty easily.
Also - as for adding a secured installment loan -- that can abosolutely wait till you're maybe 6 months to a year away from all of your negatives dropping. Installment loans help with your 'credit mix' factor for FICO scoring - so it's a good idea to have positive installment history.
To help with the derogs, you can always try for a goodwill letter campaign. If the money is available, possible PFD. You may not get them all but may be able to reduce the numbers.
30 day post DC
60 days post DC
94 days post DC
@Anonymous wrote:Are we forgetting to mention that, if any of the charged off accounts were credit cards, that they'll still count against their utilization? If so, your scores will be depressed due to always having high utilization due to those charged off accounts until you can "balance" them out.
Noted in my very first post.
