Meet Jimbo, he’s seventeen, a highschool senior, runs track, likes Netflix and video games and girls, a typical young man about to enter adulthood. Fall semester he applied to several colleges, some in state, some out. He wants to study anthropology.
On his eighteenth birthday, his dad, who has an average credit of 700, adds Jimbo to his Cabela’s Capital One as an Authorised User, in essence offering a piggybacking credit card to help his son jumpstart his credit, saying “Jimbo, my good son, credit is important in this world. Protect it, it is your financial reputation.”
Jimbo’s dad doesn’t really know how credit works, but that’s alright, he knows the most important thing: Never miss a payment on your credit card, or any other outstanding loan.
Unfortunately, Jimbo’s dad is missing the second most important thing when it comes to credit cards: Always pay your monthly balance off so as to avoid interest charges.
–The Cabela’s Cap One has a utilization of 65%
With a piggyback service, Jimbo may have had an 800 credit score, but with only one thing on his credit, his score was 670, not terrible, but not stellar either.
Jimbo goes to college at UMass, drinks a lot, joins a fraternity, flirts with cheerleaders, all in the first month of his freshman year. At an event for the Business School, he meets a well-dressed man who offers him a student credit card. He asks, “Does getting a credit card improve credit score?” The man responds in the affirmative. Yes, his score will be improved. Well hell, Jimbo figures, sure, why not, get the $100 bonus this guy keeps talking about.
He is approved, thus adding another credit trade line to his reports.
He thinks he should maybe ask his dad about the whole thing, but nah, he’s an adult now. He works at a sandwich counter at a local deli. He can afford it. $100 buys a fair bit of beer, now just need to find someone of legal age to buy it–that’s what fraternity brothers are for!
He gets the card, and he starts to spend. He spends and spends. Every time he swipes he marvels, it doesn’t even feel like spending real money! He makes a payment, then another, but just the minimum, since that’s all that’s due. A few months go by, the payments creep up, and up. Then he sees the balance. $4,000. What!? He can’t pay that. He calls the company: “Will canceling a credit card hurt my credit score?”
The rep says she doesn’t know. The question takes too many things into account that she isn’t aware of.
“Whatever, just cancel it.”
The rep does.
Phew, glad it’s over, Jimbo puts the phone down and heads to the homecoming football game.
He gets some letters. He throws them away. Eventually the letters stop.
Then the calls start.
How’d they get the number?! Jimbo ignores them too.
They stop, though he gets one or two every month or so.
Now Jimbo is graduating. He gets a job. He needs a credit card. He looks at his score.
He has a drink.
He searches credit card offers for poor credit score.
There aren’t many.
He starts researching, he has that one nasty collection, but that’s about it besides his dad’s card, now consistently at under 10% utilization (go dad), and thinks…“I need to raise my credit score 100 points.”
But…how to do that. He starts to realize through his reading, that credit is made up of all kinds of things, he never knew! If your score is bad, you probably need to remove negative items (he does), and add positive data. He searches “How many points will my credit score increase when collection accounts are removed from report?”
He finds nothing conclusive, but engages a credit repair service. He has things to buy for his new apartment, and his paychecks don’t cover what he needs. He asks the repair service how long, the rep says a few months. Jimbo says “Dude! I need you to raise my credit score fast!”
The rep says okay, two months.
Jimbo gets the collection removed. His score sits at a 740. He applies for a new card.
He is approved.