financial zen

Kiplinger.com’s Ask Kim section answers a legitimate question that msot pf bloggers may get, but not everyone does.

I know that I shouldn’t close old credit accounts that are in good standing because they can help my credit history. But what happens if I close an account that wasn’t in good standing? Will that information still appear on my credit record?

As we all know - you shouldn’t close an account (unless it’s newer and not needed). Jsut because you owe on that credit card - leave it open, make timely payments (for above the minimum - pay interest *AND* principal!). Closing it won’t hide it - it just makes it *seem* like it’ll go away, which is itself, a defense mechanism (if I can’t see it, I don’t have to deal with it!).

Rather then delve into the ways to avoid getting into this position, let’s talk about getting yourself out.

I once was in this position - I was a high school grad, and I knew I needed to start credit ASAP if I was ever goign to get a car or home loan. Turned down for a credit card, I went and got a Sears Card (with a $5,000 limit) That seemed reasonable for a high school grad with a low-income, doesn’t it? They weren’t preying on my ignorance at all! I was ignorant, and once I had established some credit with Sears, I was soon given two other credit cards - a student card with a $400 limit, and another card at the college fair for $4,000.

I was living in Chicago, job hunting on my own (because the school’s pitch was they’d help you get a job and pay for rent while you went to school full-time - which turned out to be a lie and why I lasted one quarter before moving home). In that time, I maxed out both cards paying for necessities (and, yes, they were - groceries, books, fare to go to work). I made the minimum payments (mistake #1). When they got maxed out, I closed them - I didn’t want to use the cards (fees!) and I wanted to forget about them - this being before I learned that keeping accounts open is important!

The next thing I did right - I left my Sears Card open. It’s been paid off, and I still have it (and they never closed it - after four years of non-use!) I also got a job working at a local factory for $14 an hour while living at home, and I worked 40+ hours a week, putting the majority of my paycheck towards the cards. I had my debt paid off in one month of grueling labor.

After this, I never got another credit card until I moved to Columbus and had my bills well under control. No more maxing out, no more paying fees - it was a hard lesson learned, but a mistake I made that was worth learning from.

What kind of “young and dumb” mistakes have you benefited from? Don’t just talk amongst yourselves, discuss in the comments!