Young and in Credit trouble, need Help

[Anonymous]

I'm new to this site and a bit overwhelmed when it comes to dealing with all of this so please bear with me. I'm only 23 and I have credit trouble. A lot of people I hear about with these problems are older so they at least have old opened accounts on their side with some credit history. What happened was, in 2005 I was sick and went to the hospital. Afterwards, they sent me many bills (most of them fairly small). One was like $52. Being young and careless I somehow misplaced the bill, and unlike these companies normally would, they never sent me a second notice.

A year and a half later I went to get an apartment and a CC only to find my credit was declined. My parents have never been very good financially so they never taught me about CCs and credit. So after realizing my problems I took it upon myself to figure it all out. I went out and got an Orchard Bank secured card with a $500 limit. That was almost 3 years go. But only recently have I started to realize there was more I needed to know. Now that I understand I need more than one open account to improve my score, I've opened a second unsecured OB card with a $300 limit, and a Capital One card with a $200 limit. But this has hurt my average open account length time.

I'm not in school so I have no student loans, I rent an apartment so I have no mortgage, and my car is a used car paid in full so I have no auto loans.

I need to know what I should do next, please any advice you guys can give would be great Thank you!

[Anonymous]

I also wanted to add that the above Collection I mentioned was eventually paid about a year and a half later when I realized it was still unpaid. However I am concerned it will not go off my report after 7 years cause my Experian Report is not showing a "Date Paid" and has a lot of "Not Reported"s in it. What should I do about that?

[Anonymous]

Matt,

It sounds like you don't really have any debt right now.  That's a good thing.  We all know how tempting it is to have things now and pay later, but I think everyone on this board would tell you that if they could go back to your age, they would have saved for the things they wanted, paid cash and avoided debt.  The advise on this board might sound like a bunch of old geezers at times, but if you read enough, you can avoid the mistakes we made that make a board like this necessary.   That said, my personal opinion is don't worry about your scores right now.  Your credit scores only matter if you are applying for credit, or for certain jobs.  You have a car and you have a place to live.  Work on doing the things that will build a solid credit history.  Such as:

1) Don't miss any payments on anything.  Any bill you don't pay can end up on your credit report even if it doesn't report now (cell phones, utilities, insurance, etc).

2) Fund an emergency savings account with at least 3 months expenses. 

3) Live within your means (spend less than you make).

4) Don't apply for credit unless you absolutely need to, and then only after shopping around and doing your research.

5) Plan for the things you want to buy and save cash so you can pay in cash.

Over time, your scores will go up if you practice good financial management.  It sounds like your collections will drop in a few more years.  It would also be a smart idea to take a financial management course, many community colleges offer these.

With your 3 cc's, you have enough revolving credit.  You would probably benefit from adding an installment account to your mix.  My advise would be to save up the cash first, then apply for something about 2-3K through a bank or credit union. 

At some point, you will want to buy a house.  That's a good idea.  Plan for it now and start saving for a down payment.

One of the best things you can do for yourself now is to learn.  Both on the job and through school.  The more knowledge and skills you have, the easier it will be to stay employed and earn more money. 

Don't forget to start saving and investing for your retirement too.  You'll appreciate that when you're older and realize that you wont have to work until you are 70.  I ran the numbers a year or so ago, and had I started funding my retirement at your age, I would be looking at living the good life when I'm 45.  Now, after cleaning up the mess I made of my finances in my 20's, I'll be drawing social security before I can afford stop working.