The Better Credit Blog

Many people will close credit card accounts in an attempt to rid themselves of temptation. Some people may even believe that closing credit card accounts will improve their credit score. I made this mistake. In fact, closing credit card accounts seemed logical to me at the time. I thought, “Ok, I have a bunch of credit cards, I have paid them off, and I don’t want to be tempted to use them again so I better close these accounts.” I also said to myself, “Hey, this will improve my credit score too! The magic FICO credit score generator will see that I am acting responsible by closing credit card accounts after I paid them off!” This couldn’t have been farther from the truth. Three months after I closed 3 out of 4 of my credit cards, my credit score dropped about 100 points.

Remember: your credit score is largely based on how well you manage open credit accounts. If the account is closed, there is nothing to go off of except the account history (which is probably bad if you closed the account). An excellent credit score reflects that the individual has had long term, well-managed credit accounts. Also, while it is true that too many open credit card (revolving) accounts can hurt your credit score, the key is to shy away from opening too many accounts, not closing the accounts. Never close an open credit card account –it will hurt your credit score.

What if I can’t control my spending?

Easy: throw the card in the garbage (cut it up first) and forget that it ever existed. Therefore the account is still technically open and is reported on your credit report –you just don’t have access to it. The key to building great credit more than anything is time. Open 2 or 3 credit card accounts and keep them open for at least 7 years. If you have bad credit and can’t get a normal credit card, get a secured credit card from here.

Attempt to reopen charge off accounts

Another technique you can try if you have already closed a credit card account is to contact the creditor and ask if they will consider reopening the account. You can be certain that they will recheck your credit report, so this usually only works if you have showed some improvement. You can also attempt to send them a small down payment to show that you will honor your agreements. This will only work with small creditors –Citibank, Capital One, Chase are too big to take notice.

Here is how I got Capital One to reopen my account after I paid off the balance and closed the account: First I got two other credit cards (one secured and one gas card). I kept up on the payments for one year. After the one year was up, I called their customer support and asked if they would “kindly consider reopening my account based on the recent steps I have taken to improve my credit score and the accounts I have in good standing as of right now.” They checked my credit report and a few weeks later I received a new Capital One credit card with a $500 limit.

Take home points:

1. Never close credit card accounts that are in good standing.
2. Avoid bad credit by not opening too many credit card accounts. (2 or 3 credit cards is plenty)
3. If you can’t control your spending it’s better to throw away the credit card than to close the account.
4. Attempt to reopen closed credit card accounts by contacting the creditor after you have proved that you can be trusted.

(1 votes, average: 5 out of 5)

I have had about a dozen people ask me if Orchard Bank credit cards are a scam. If you aren’t familiar with Orchard Bank credit cards, they are designed specifically for people with bad or no credit. Orchard Bank (HSBC) offers several types of these cards, such as Gold, Platinum, and Classic, but basically there are two types: a line of credit (like any traditional credit card), and a secured credit card. Both cards are available to people with really bad credit, but the secured credit card requires you to deposit the full amount you want secured before they will send you the card. This may sound more like a debit card, but it actually works like a credit card in almost every other way. A secured credit card is preferred by people that are still working towards financial self-control. I recommend this card. You can get it here.

Are you worried about the bad reviews over at Ripoff Report?

I have had two Orchard Bank credit cards over the past 3 years. I have never been late on a payment –this is the key to having a positive relationship with Orchard Bank. It’s important to remember that the vast majority of Orchard Bank card holders have bad credit. This is a liability for Orchard Bank. In order to protect their business they must have certain policies that are different from a normal credit card provider. This policy is their past due policy. Indeed, it is strict. If you pay your bill one day late, your account will be automatically charged $35.

This is why I am extremely skeptical about the bad reviews at Ripoff Report. For one, Ripoff Report allows anyone to post anything as many times as they want. I read about 300 posts about Orchard Bank credit cards, and most of them appear to be posted by the same person. Also, 90% of the complaints address one reoccurring theme: past due fees. Complaints usually say something such as, “I was 1 day late on my bill and I got charged an extra fee!!!! OMG!!!”. Sorry, but that’s not Orchard Bank’s fault, it’s yours –you signed the agreement, you are a risk, and if you want to truly rebuild your credit and gain the trust of creditors, you ought to pay your bill on time.

Orchard Bank is one of only a handful of credit card companies that will offer a card to people with bad credit. Don’t get me wrong, they aren’t doing it out of altruism, they are doing it to make money. Nonetheless, as a customer, I have been extremely happy with my Orchard Bank card. Here are some things that Orchard Bank offers that others do not:

• Awesome customer support via email. I haven’t ever called so I don’t know about their phone support.
• Online services such as account activity, bill pay, and credit limit increase requests.
• You can setup automatic bill pay (this is the only credit card for people with bad credit that offers this as far as I know)
• Report to ALL 3 credit agencies on a monthly basis (this is absolutely required if you want to improve your credit).

With all of my praise it may sound like I work for Orchard Bank, but I don’t. I have however always had a good experience with them. I hope this article has cleared up some uncertainties. Remember that simply negotiating debts will not alone fix your credit. In order to build a good credit score (725+), you need to have open lines of credit (2 or 3) with excellent payment histories.

Orchard Bank will not offer you the best rates (far from it). But it’s a good place to start when you can’t get one anywhere else. Remember, however, don’t be late on your payments.

The average credit score in the U.S. is 680

This average varies by state with South Dakota having the highest average (710) and Texas having the lowest (651).

Credit Scores range from 300 to 900

300 indicates horrible credit and 900 indicates perfect credit (I doubt anyone actually has a 900 credit score). You can also have a credit score of 0, but this isn’t included in the range because it would simply mean that you have no credit.

Statistics from creditreport.com

Hi Ryan,

I wish I would have found your blog sooner. Last summer I made an arrangement with a debt collector over the phone. This arragement was for a XXXX-XXXXX account that was in charge off status for the past year or so. The debt collector said that if I paid $867, the account status would be changed on my credit report from ‘charge off’ to ‘paid in full’. Instead after I paid him, my credit report was updated to ‘paid charge off, $1400 written off’. My credit score only went up 4 points. I think you could understand how horrible this felt because I thought I was doing the right thing and I got screwed. My question is, now that I read some of your blog, is there anything I can do?
Thanks,
Will

Will

Unfortunately this happens a lot and there is very little you can do. The problem is that the deal was made over the phone -you can’t prove the scumbag collector made that offer. Trying to communicate with the collection agency now will be useless because they have already been paid. In this case, you can try to dispute the record with the credit reporting agencies and see what comes from it -you never know. Check out my dispute article here. Nonetheless, I recommend that you ‘write it off’ as well and begin rebuilding your credit. Start out by getting a credit card. Check out my recommendations.
Best of luck,
Ryan

Negotiating for a creditor to completely remove a negative record on your credit report will usually increase your credit score more than if you pay the account off and the creditor changes the account status to ‘PAID IN FULL’. This is because even though your credit report may reflect that you have paid off the account, it still shows the history of the account (i.e., late payments).

Before you continue

If you have already made arrangements with a creditor or given them any money, you have lost your power to negotiate!

Negotiating a debt is intimating if you aren’t the “car salesmen type”. In fact, I am advising you against attempting to negotiate a debt over the phone. Keep in mind that debt collectors are not only well trained to get as much money from you as possible, but they also have the advantage of negotiating debts all day, everyday –that’s a lot of practice.

It’s important to remember that collectors project a hostile and very aggressive demeanor over the phone. This naturally puts you at a disadvantage because humans tend to become abrasive and on the defense when in the presence of such behavior. This means that you are more likely to let emotion skew your logic –ruining your chance to negotiate a lower debt.

Instead, I am going to discuss how to negotiate a debt by writing letters. In this situation you have the advantage. Here are a few reasons why:

1. You have time to gather your thoughts and compose a letter that reflects your intention and not your defensive emotions.
2. You are not being rushed and lied to by an aggressive debt collector.
3. Most important: A written correspondence offers you legal protections. On the other hand, if you come to an agreement over the phone and they fail to honor the agreement (it happens a lot), it’s difficult to prove.

There are also disadvantages (or minor inconveniences, rather) to negotiating via mail. Corresponding with creditors through the mail can be an exhaustingly long process –often it can take several months to receive a response. You have to decide if you’re willing (or if it’s worth it) to wait for the peace of mind that a negotiation can provide. I say go for it if you are the type of person that can mail a letter and forget about it. However, if you are the obsessive, nervous type, the waiting period can be stressful.

Your best chances for a successful negotiation

If you haven’t yet made any agreements with the creditor, you have a very good chance. This is because you still have the upper hand –they want something from you, not the other way around. Nonetheless, I have found that some types of accounts can be very difficult to get removed completely from your credit report.

Accounts and success rates

• Closed accounts (ex: Charge off) that have been since paid are extremely difficult to get removed. If you still carry a balance and the creditor is actively attempting to collect, getting a complete removal will have about a 1 in 3 chance of success.
• Open accounts, regardless of the account type (i.e., installment, revolving), that are delinquent have a marginal success rate of complete removal if you offer to pay the balance in full.
• Open/Active accounts that are reported as ‘LATE’ have a very high success rate of complete removal. This is particularly true if the account is in Collections.

Creditors often claim that they cannot remove records from credit reports. This is false. Creditors absolutely have the ability to completely remove a record.

Shooting for the stars

Keep in mind that getting a creditor to completely remove a negative record from your credit report is the best case scenario so try not to get your hopes up too much. However don’t let this bring you down, because you have nothing to lose by attempting to negotiate a complete removal. Also, don’t trick yourself into believing that you can negotiate a complete removal by promising to pay a small amount of the debt. In most cases, the creditor will only consider a complete removal if you offer to pay off the debt in full (or very close), in a short period of time.

To give you an example

I was able to get a $2000 credit card debt in ‘charge off’ status completely removed from my credit report by proposing to pay the creditor IN FULL over a 3 month period.

I hope I have provided you with an informative overview of the negotiation process. Take note that I cannot get too specific on this topic because individual situation are so widely varied. And ultimately your individual situation will determine your chances of getting a complete removal.

Now you’re ready to download My Free Removal Negotiation Letter

One last note: The success rates I have stated in this article are from my own personal experience. Your success might be different. Nevertheless, I’d love to hear how it works out for you, so drop me a line with your story

Independent Thought

Most companies have a dedicated consultant for debt management. Because companies rely so heavily on debt capital they have to have a specialist. Corporations risk bankruptcy if they don’t manage their loans. Why most companies don’t like to be bankrupt? Because they won’t be getting bankrupt loans or any other help when they are off the business. Firms with a bad credit history find it difficult to secure a bad credit loan. Such a loan is on stern conditions. If all goes wrong a reputable debt relief agency can rescue a ailing company.