The Road to Financial Recovery: 6 Major Lessons Learned From My Credit Mistakes

Like many college students, I opened a credit card, used it, and didn’t pay the bill.

Without thinking much about my future or the importance of good credit, I maxed out the card’s spending limit quickly and, depending on the month, waived between paying the bill late and not paying at all. When I did pay, I made only minimum payments.

These behaviors haunted me for years, especially once the account was sent to collections. Today, I want to share 6 lessons I learned so you can learn from my mistakes and see how these have shaped my current credit behaviors.

How My Debt Got Sent to Collections

College life can be a lot of fun. You have newfound freedoms and new friends to hang out with after class. Want to go out to dinner and a movie? Sure! Have the cash to pay for it? Maybe not!

Enter credit cards.

Opinions on hawking credit cards to college students aside, I was pre-approved for a Bank of America credit card with a $2,000 credit limit and earned cash-back on my purchases. I still remember the fun of swiping that card when going out with friends. Using the card didn’t feel like spending money I didn’t have, though that’s exactly what it was.

I also remember the feeling of the card being rejected — not once but multiple times. That’s because I reached the $2,000 credit limit quickly over the first few months after opening the card. I’d also made just the $30 minimum payment. Other months, I didn’t pay the balance at all, not understanding or considering the long-term effects of these behaviors. Couple that with the fact I made very little money from seasonal jobs between semesters.

My account was considered delinquent within a year, and then the phone calls started. Since I rarely answer calls from numbers that aren’t saved in my contacts, these usually resulted in voicemails like “Mr. Smith, this is (name) calling from Bank of America about your past-due credit card account.”

It took about 3 years from account opening until my credit card account was closed by the bank, written off as bad debt, and sent to collections. “Closed by account issuer” with notes about late payments isn’t a good mark on your credit report.

Collection agencies pestered me with calls and letters in the mail, trying to collect on the debt I owed.

How I Paid Off Outstanding Credit Card Debt

Compared to other people, I was pretty lucky. The collection account (which I ignored for a while) never had any major negative effects on my life. I was never denied an apartment I wanted to move into and never had my paycheck garnished to pay off the debt. Maybe the fact the outstanding debt was only a few thousand dollars kept the effects to a minimum.

However, I set a goal of paying off my debts and asked the collection agency if I could make a payment plan. As part of that request, I also asked to settle for less than the full amount. In the end, I paid $1,500 to settle the account — less than the $2,000 I’d originally charged to my account and less than the amount owed when late fees and interest were tacked on over multiple years. The balance was well beyond that amount, and I didn’t inquire about it to avoid hurting my negotiation attempts by drawing attention to the current figure.

This was in the fall of 2010. In the meantime, I’d stopped using credit cards and paid for everything in cash or with my debit card to avoid spending money I didn’t have. This prevented me from accruing additional credit card debt along the way.

What I Learned From Poor Credit Behaviors

Everything didn’t turn rosy immediately after paying off this credit card collection debt. Some of the effects followed me for a while.

1. Collection Accounts Haunt You for Years

Whether you pay them or not, collection accounts can stay on your credit report for 7 years. It is possible to request that paid collection accounts be removed from your credit report, but this doesn’t happen overnight. Moreover, if an account is legitimate and the facts about it on your credit report are accurate, it might not be removed.

You may try to negotiate with the original creditor to ask them to request removal, but none of these are guaranteed to work. And even if a removal request is approved, it can take up to 60 days for the accounts to disappear from your credit report.

This means you can suffer the effects of collection accounts even after they’re paid off. That includes damage to your credit report, a lower credit score, not being approved for a credit application, and more.

2. Banks Hold Grudges

As I mentioned, I paid off my Bank of America collection account in 2010.

In 2019, I applied for a Bank of America credit card and was told that my denial was based on the bank’s loss with late payments and settling for less than the full balance in the past. This was almost a decade after paying off the collection account.

It wasn’t until 2020 that I was approved for a personal credit card with Bank of America. That came after I’d had a checking account with the bank for almost 2 years, hoping to build a positive relationship. That means it took 10 years from the settlement date until I was no longer on the bank’s naughty list.

I’ve seen other reports online of people saying banks banned them from various activities — typically opening credit cards related to collections and debt — for 6 to 7 years. However, the timeline will vary based on how much you owed, how much the bank lost when settling the account (if you settled for less than the full balance), and what type of banking product you’re applying for. Having a banking relationship with the bank can change the timeline.

3. You Need Credit To Get Credit

As the saying goes, you need credit to get credit. Once you have credit, it’s easier to get more. But when you have none, getting credit to start is pretty hard. And that was even truer in my case when I didn’t have any credit and had negative marks on my credit report.

Some credit cards are easier to get than others, but issuers want to see that you’re trustworthy before approving you for a car loan, credit card, or other type of credit. I had nothing to prove I could be trusted, given that I had no credit cards, car loans, or mortgage and had a past collection account on my credit report. Why would a bank trust me with a new line of credit if there was no evidence I could make on-time payments for my debts?

I first had to open a secured credit card to get approved for a credit card. After using it responsibly for a year, I graduated to a traditional credit card. Now, I have multiple credit cards. Getting those was much easier than getting the first card.

4. Not Having a Credit Card Sucks

Paying for everything with cash or a debit card works theoretically. In practice, it sucked.

Have you ever rented a car with a debit card? The 2 times I did, the rental companies put a $500 hold on my debit card. That ate up significant funds in my checking account until I returned the car. And if you don’t have $500 plus the rental cost in your account, that could be a problem.

Or what if you desperately need to buy something today, yet payday isn’t until next week? When I had car problems once during this period, I worried about how much it would cost to get my car back on the road while my checking account balance was low. That was when I wished I had a credit card to potentially float money until payday or pay a balance over time for one of life’s necessities: getting to and from work.

5. Bad Credit Habits Are Hard To Break

Swiping a credit card is very easy. Sometimes, it doesn’t even feel like you’re spending money.

Learning good credit habits from the beginning seems much easier than unlearning bad habits, at least from my perspective as I look back. Pulling out a card and swiping it without thinking is easy to do. When the bill comes, though, how will you pay it?

That’s a change in behavior and mentality that I had to learn over time before I felt comfortable having and using credit cards. The bill will come eventually, and ensuring I’m ready and able to pay my card’s bill took practice. I eventually developed a system with 2 checking accounts.

My paycheck gets deposited into account 1. I can use that for cash withdrawals and auto-pay for my electric bill (which assesses a fee for any other payment method). When I make a purchase with a credit card, I move that amount of money from checking account 1 into account 2 — an account that’s off-limits for spending in my eyes. Now, the money is set aside, ready to pay the credit card bill when it comes.

Remembering to do that isn’t intuitive, though, even after several years. I try to move money at least twice a week to avoid lengthy receipt-finding escapades.

6. Some People Shouldn’t Use Credit Cards

If you routinely use credit cards for purchases without thinking about how you’ll pay them off, credit cards aren’t for you. Credit cards are a great tool for building your credit score and earning rewards, among other perks. However, I don’t believe everyone should have a credit card.

Those who haven’t learned how to use cards responsibly are better off without them — even with some of the inconveniences I mentioned above. I believe an inconvenience is better than debt. That’s an experience I learned after dealing with the complications from debt collectors, damaged credit, and the inability to get other forms of credit you might want even without a credit card — such as a car loan or mortgage.

Final Thoughts

My amount owed was rather small compared to people with mountains of credit card debt. Even still, it had ongoing effects for 10 years after I paid off the account for less than the full amount. The effects could be even more significant for those who have larger debts.

From my experience with this singular collection account, I learned these key lessons about credit cards and debt. I hope this can help you avoid some of my mistakes.