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Re-opening & re-instating credit limits on closed creditcard accounts with my poor credit rating?
February 20, 2006 6:25 PM   Subscribe

I have finally paid off all my delinquent credit card debts. My credit rating is pretty crappy though. But I now have a secure job, and am now ready to re-open some of the closed accounts (if it's even possible), and also hopefully reinstate the original credit-limits on them. But there's that pesky issue of my credit rating standing in the way. What is my best strategy to get my credit back on track?

First some background (sorry this is so long):

I'm 31 years old, never went to college, and did not establish any sort of credit history until early 2001 (it's irrelevant to this discussion why this was the case, when I applied for my very first Capital One secured Visa card with a limit of $200. After only 6-8 months of diligently using and paying off this card on time, CapOne offered me the opportunity to apply for an unsecured Platinum Visa card. They accepted my application, and I was ecstatic to have a second creditcard, this time with a $1000 limit. About 6-8 months later, CapOne raised the limit on that card to $2000 (without me asking). Around the same time, i applied for a USAA Gold Mastercard, and was immediately approved for a $2000 limit, as well. A $500 limit Macy's card, and $1350 limit SearsCard followed shortly after.

And then...the floor fell out from under my life. First, the company I was working for suddenly went under. Not too far after that, my fiancee dumped me (after cheating on me with a close friend of mine), sending me into a horrible downward spiral of debilitating clinical depression which sapped all motivation for me to want to do much of anything in my life--phone calls went unanswered/unreturned, and envelopes from bill collectors piled up, unopened. Just around the time when the money from my savings nearly dried up, I stupidly (in retrospect) decided to attempt to start a company with a few friends of mine, because we were all in similar financial straits, but thought that our collective talents and contacts would get the train back on the rails. Needless to say, it never really did. I was living off my credit cards, only making enough money to make rent and basic utilities every month. Despite my working 17 hour days for nearly 2 years (and reading every issue of Inc. magazine and Fortune Small Business for inspiration), hoping that the company would finally take off, I had maxed out every ounce of credit I had, and had no way ot paying the debts off. So this is not a stereotypical case of financial irresponsibility. I have always lived a relatively spartan life, and am not the kind of person who needs to be constantly buying material things in order to be happy.

Most of these accounts were chronically late and/or unpaid for months on end, for a period of about a year and a half. CapOne ended up lowering the limit on the unsecured Visa back down to $1000 before ultimately closing the account. The same happened with the USAA and Macy's cards. The interest and late fees, of course, continued to pile up. Thankfully I never used the SearsCard, so that's the only account which has always been in good standing, even to this day. And although they threatened me many times, thankfully none of these accounts have been reported to the CRAs as having ever gone into collections. I *did* have a T-Mobile cellular account that actually did go to collections (and which I eventually paid off), but it doesn't seem to have been reported to the CRAs, for some reason.

In July of 2004, My life began to turn around for the better. I lucked out with finding a very prestigious, secure job (basically *the* job which I have been working so damned hard all my life to get). I immediately began chipping away at the debts on these accounts. As I have been earning more money at this job, I have been able to pay off these accounts in larger and larger amounts every month. I guess CapOne took notice of this, and last summer, sent me an offer for a new unsecured Platinum Visa card, which I applied for and was accepted, but with only a $500 limit.

A few months ago, I bit the bullet and decided to pay off the remaning balances in one large fell swoop (including the new CapOne card). So I am now officially debt free! Now the problem is that i only have $2000 of effective credit line to my name now (though $1350 of that is on the SearsCard, which doesn't do me any good if I need to buy a plane ticket or book a hotel), and since I'm much more financially secure now, I would like to get that line raised, if only for the sake of the future.

Would it be a good idea (or even possible) to request that these closed accounts be re-opened with at least the original creditline reinstated? What would be the best way of even doing this? Or do/should I start from square one and re-apply for new credit card accounts? I'm afraid of hurting my already pathetic credit score by re-applying for a bunch of new accounts, especially if all I can get approved for are $250-$500 credit lines.

As of Feb 18, My FICO scores are: 634/TransUnion, 643/Equifax, 665/Equifax. The report shows 19 consecutive months of timely payments.
posted by anonymous to Work & Money (13 answers total)
 
Speaking as someone who once trashed her credit way more than you did: time is your number one ally in getting those scores to increase.

In the meantime, i would say that you do NOT want to start opening a bunch of old accounts again. To creditors, all it will appear to signify is that you are returning to your old ways. Having $2000 credit to your name (even if a signifcant portion of that is the Sears card) isn't a bad place to start, though it indeed might be handy to have a little more of a limit on your CapOne card solely for things like plane tickets or unexpected car repairs. I'd consider requesting a modest credit increase from CapOne -- say, to $1000 -- and just leave it at that for awhile. And if they turn you down, just accept it and keep waiting. Seriously, once you've dug yourself out of your hole, improving your credit is as much -- if not more -- about doing nothing (i.e., waiting) as it is about doing something.

And congrats for being on your way to better credit! Keep doing what you're doing now, and you really will see a difference down the road.
posted by scody at 6:49 PM on February 20, 2006


Oh, and I forgot to say this: while it is certainly handy to have some extra credit for things like plane tickets, it's actually a far better thing to have a cushion of savings for things like that -- especially if you are only talking about an extra $500 (or so) in credit. It's infinitely better for your long-term financial health to have an extra $500 (or more, obviously) in savings than in credit to use for things like that.
posted by scody at 6:53 PM on February 20, 2006


Look at the forums on www.artofcredit.com

There is plenty of excellent advice on this site, although I have found it somewhat difficult to navigate.
posted by 6:1 at 6:59 PM on February 20, 2006


As of Feb 18, My FICO scores are: 634/TransUnion, 643/Equifax, 665/Equifax. The report shows 19 consecutive months of timely payments.

These are actually not terrible scores. I wouldn't worry about this.

time is your number one ally in getting those scores to increase. In the meantime, i would say that you do NOT want to start opening a bunch of old accounts again. ... I'd consider requesting a modest credit increase from CapOne -- say, to $1000 -- and just leave it at that for awhile.

This is excellent advice.
posted by frogan at 8:54 PM on February 20, 2006


Yeah, just be responsible with your credit and the whole thing will blow over in seven years. In about three or four years you'll start getting offers for unsecured platinum reward cards and your life will be basically back to normal.
posted by kindall at 8:54 PM on February 20, 2006


I trashed my credit in much the same situation as you, but defaulted on a car loan as well. Five years later, I decided to get my credit back in order. I had two cards with $500 limits, one secured, one unsecured. I started to make payments on them religiously. I got a retail card as well from Express with a $250 limit, which I would purchase a shirt every now and then and make $25 payments on each month. After seven years had passed from the default, and regular monthly payments, the credit card offers started rolling in. I turned down all of them for quite a while. Finally, I took one card at about a 16% interest rate and closed the other two cards. They gave me a $1500 limit. As the card offers kept rolling in, I would only accept one if the interest rate was at least 2% lower, there was a 0% introductory offer, and there were no annual fees. When I did accept one, I would call the other and tell them to close it. They would counter-offer with a credit limit increase and lower interest rate. I have three credit cards now with a total credit limit of $8500 -- one at $4000, one at $3000, one at $1500, all with ratings less than 10%. This is three years after I started getting serious about my credit. I have no idea what my score is, but I have gotten free credit reports to see what's on my record. Of that $8500 in credit, I never owe more than $2000, and make sure I pay off all but a couple hundred each month. The only card that carries a balance is the card with the introductory 0% offer. All it takes is patience and regular payments. I started online banking and automatic payments in order to avoid the bill sitting on the desk past the due date. You can do it if I can, so Good Luck!
posted by Roger Dodger at 10:21 PM on February 20, 2006


One thing to note regarding plane tickets and such, is, if all you want is the convenience of being able to use your credit card to pay for something, rather than your credit to afford it, then it's possible to buy them on a $500 limit card - if you put the money on account first. When I used to have a very low limit credit card, I used to do this sort of thing. Make an extra bill payment of $500 or $1000 dollars, whatever your ticket is going to cost, then buy the ticket while your account balance shows a credit.
posted by jacquilynne at 6:53 AM on February 21, 2006


Note that jacquilynne's suggestion is tantamount to giving the credit card company an indefinite interest-free loan. They certainly wouldn't offer you those terms - why would you want to do that for them? Best is to keep it in a separate higher-yield demand account (hsbcdirect is paying somewhere in the mid 4-percent) and then withdraw it (they give you an ATM card) if you need to pay off a plane ticket you've already charged to the credit card.
posted by aberrant at 5:21 PM on February 21, 2006


Sure, that works if your credit limit is high enough to afford what you're buying on the card. If you're more concerned with convenience (i.e. not getting singled out for security check because you paid for your plane ticket with cash), perks offered by your credit card like travel insurance, or about improving your credit history, then you might want to jump through this hoop.
posted by kindall at 8:22 PM on February 21, 2006


aberrant: no. You keep the money elsewhere (savings, as you say), then pay it to the credit card (online banking) a couple minutes before buying the plane tix. You can buy arbitrarily large things on a credit card if you have the money, regardless of the limit.

It is possible to get a $0 limit VISA card and do exactly this.
posted by polyglot at 5:37 AM on February 22, 2006


Right, I'm not suggesting you randomly keep a few hundred dollars credit on the card just because. But if you know you need to buy $800 plane tickets on a $500 limit card tomorrow, making a payment of $300 (+ whatever other balance you're already carrying) today will give you the breathing room to do it.

Paying for things with credit cards as a method of payment (vs. buying things on credit because you don't actually have the money) offers a number of great advantagess - added insurance, card rewards, the ability to chargeback if you get scammed in some way, as examples. I use my credit cards extensively, but never for things I couldn't have just plunked down cash for if I'd had to. Back when I had less credit than cash, pre-paying major purchases was a workable solution. These days, I have more credit than cash, so I don't have to jump through hoops anymore, I just have to make sure I don't overcharge my available cash reserves.
posted by jacquilynne at 10:21 AM on February 22, 2006


For what it's worth, what boosts your FICO score more than anything is large amounts of un-used revolving debt.

So if you do open up more credit cards, suck it up and pay the annual fees, get around $20K in un-used CC lines, and you'll see a 750+ FICO score in no time.
posted by TeamBilly at 4:07 PM on February 22, 2006


polyglot/jacquilynne: sorry. I misunderstood. That's actually an interesting tactic if you can apply it strategically to imminent purchases.
posted by aberrant at 6:13 PM on February 22, 2006


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