When I graduated from college five years ago, I enrolled in a debt-management program to resolve a mixture of college and post-college credit-card debt. I made all the payments on time, and now I only have student loans. But I can't get a credit card. My credit report shows zero balances and all accounts closed, but a late payment from five years ago is still there. I thought that my credit would be repaired after I finished the debt program, but that doesn't seem to have happened.
Of all the questions I get from twentysomethings, credit problems are at the top of the list. Your situation actually involves several common issues.
First, you're to be congratulated for seeking help to get out from under your credit-card debt. Don't worry, your efforts will pay off -- not just in the psychological satisfaction of being debt-free but also in the ability to get a mortgage loan and other credit down the road.
But you should know that although a debt-management program can get rid of your debt, it doesn't necessarily get rid of black marks on your credit report. Those stay on your record for seven years, so your late payment of five years ago is still showing up. The good news is that "a late payment that's five years old has much less impact than one that's five months old," says David Rubinger, of Equifax, one of the three major credit bureaus. Rubinger recommends that you file a brief note with your credit report explaining what you've done to get on top of your debt.
In the past, a debt-management program actually might have counted against you if you repaid less than the full amount or negotiated a lower interest rate. That's no longer the case, says Maxine Sweet, of Experian, another credit bureau.
Nowadays, says Sweet, "with things so automated, creditors typically just look at your credit score, which doesn't usually include any reference to a debt program. What counts is making your payments on time." If creditors do know about the program, they may regard it as a plus.
What's really counting against you is probably not your five-year-old late payment, but your lack of a recent credit history -- which you erased when you closed all your old accounts. "That's just like starting over," says Sweet.
Next: How to get credit when you're starting out -- or starting over.
GETTING STARTED
