What To Do Before Obtaining A Credit Card
After your bankruptcy discharge, you should get a copy of your credit report from Experian, Equifax, and TransUnion. Then, thoroughly review each of these reports and look for incorrect information like discharged debts that may have not been removed or accounts that are not yours.
Once youve established that your credit report looks okay, you should research the various secured credit cards available to you and select the one that does not have an application fee and charges a reasonable annual fee. Additionally, make sure the credit card company will report to Equifax, Experian, and TransUnion. If it fails to do so, you wont be able to improve your credit rating by using your card responsibly.
Summary Of The Best Credit Cards For Bankruptcy
|$75 first year, then $99 annually||1% on eligible purchases||Poor or better|
|You choose up to the credit line approved with a $200 minimum||None||2% at gas stations and restaurants on up to $1,000 in purchases each quarter and 1% on all other purchases||Poor or better|
|$0, $59 or $75 the first year and $99 thereafter||None|
|$35, $59 or $75 the first year and $99 thereafter||None||Poor or better|
Secured Vs Unsecured Credit Cards
Choosing between a secured or unsecured credit card after filing bankruptcy can be confusing. Your options after bankruptcy will likely include mostly secured credit cards, which provide excellent opportunities to rebuild your credit just like traditional cards do. With a secured card, you’ll be required to supply a security deposit up front, usually ranging from $49 up to $200 depending on the issuer. The deposit will secure your line of credit and will generally be equal to your credit limit. Assuming you keep your account in good standing and pay all your bills, that deposit will be returned to you in full when you either close the account or are upgraded to a non-secured card.
Though the terms of a secured credit card might not be as appealing as those offered with unsecured cards, don’t discount them completely. Issuers of secured credit cards will report your payments to credit bureaus and help boost your credit score the same as other cards. However, as with other credit cards, compare several options to be sure you are getting the lowest fees and interest possible. And although they may appear similar, don’t confuse secured credit cards with prepaid cards. Except in rare instances, prepaid cards don’t report to the credit bureaus and won’t help your score.
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What Are The Best Credit Cards To Get After Bankruptcy
- Green Dot primor® Secured Visa® Platinum Card : $39 annual fee, security deposit of $200 to $5,000
If you do use one of these cards, we recommend paying your balance in full well ahead of the due date. Some consumer complaints revolve around payment processing time so dont wait until the last minute.
Can You Get A Credit Card After Bankruptcy Discharge
Yes, it is possible to get a . Many credit card companies want to offer another opportunity to establish credit. Customers may receive pre-approval applications in the mail after the bankruptcy discharge. The FICA breakdown for credit score that determines qualification for credit is 35% payment history, 30% amount owed, 15% credit history, 10% credit mix, and 10% new credit.
Cardholders must choose a credit card very carefully because not all credit card deals are beneficial. Many offers require expensive upfront payments to own a credit card. Other credit card companies offer high interest rates that may not be worth it. Some states do not have caps on the interest rates that can be charged. A situation like this can potentially push customers back into the same horrifying financial s as before. Looking over all of the documentation and reading the fine print is the only way to prevent future financial problems.
Customers should consider having credit card applications and credit card offers evaluated by an experienced individual within a credit counseling agency. These individuals are experienced in credit card terminology, bankruptcy laws, and credit laws that customers may not fully understand. The representatives can outline the customers options for credit cards to restore creditworthiness.
Best For Avoiding A Credit Check: Opensky Secured Credit Visa Card
Heres why: Theres no credit check necessary for the OpenSky® Secured Credit Visa® Card application process. Instead, your credit limit is determined based on your refundable security deposit, starting at $200. For those focused on credit building after bankruptcy, this benefit is especially enticing, because a hard credit check can ding your credit a bit.
Read our review of the OpenSky® Secured Credit Visa® Card for more thoughts on this option.
What Is A Chapter 13 Repayment Plan
Bankruptcy can help you get out from under considerable debt, but not all forms of bankruptcy allow you to keep many of your most important assets along the way. Those with regular income can file a Chapter 13 bankruptcy to help keep key assets like a home or car. In Chapter 13, debts are restructured over a three- or five-year period. If you make regular payments over that time, then some or all of your debts may be discharged.
The Chapter 13 repayment plan is the legal document that lays out how youll pay back your creditors. It must be drawn up and filed with the bankruptcy court within 14 days of filing the bankruptcy petition , after which the judge and your creditors will have a chance to assess and possibly challenge the plan. If the court ultimately OKs your plan, youll then follow through to pay back your eligible debts.
Its possible to DIY your own Chapter 13 plan, but the process can be complicated and detail-heavy. Thats why its best to work with a bankruptcy lawyer, who can help make sure your repayment plan meets all requirements for approval.
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Here’s How Soon After Bankruptcy You Can Get A Credit Card:
- Secured credit card: After bankruptcy discharged
These cards require a refundable security deposit, usually at least $200, which doubles as your credit limit. Because you’re putting up your own money, your approval chances are high.
The Discover it Secured Credit Card does not reject applicants for having a Chapter 7 bankruptcy on their credit history. And the Capital One Secured’s only bankruptcy requirement is that the case must be fully discharged. Some cards, like OpenSky, don’t even check your credit report when you apply, so they’re great for post-bankruptcy credit improvement.
- Unsecured credit cards for bad credit: After bankruptcy discharged
One example is the . Credit One Bank says a discharged bankruptcy won’t hurt your approval chances, but could lead to a lower credit limit and a higher annual fee.
If a friend or family member makes you an authorized user on their credit card account, that account will be added to your credit reports, and you’ll benefit if the main account holder pays the bill on time every month. If your friend or relative allows it, you will also get a card with your name on it to use for purchases.
In addition to finding the right credit card with which to begin rebuilding your credit, you should review your credit reports for errors and monitor your credit score moving forward. You definitely don’t want the problems that led to bankruptcy to repeat themselves.
7 Tips For Rebuilding Credit After Bankruptcy
Why You’ll Be Offered Credit After Bankruptcy
Even though you lose your cards during bankruptcy, you’ll still be able to obtain a credit card or other consumer financingâand possibly sooner than you might think. Once the Chapter 7 bankruptcy closes, you will be free to start rebuilding your credit. In fact, many people receive new credit card offers in the mail within months of receiving their Chapter 7 discharge.
While this might seem surprising, it will make sense once you understand why credit card companies will consider you a good risk. Here’s why:
- Bankruptcy wipes out all of your credit card debt, so you have more discretionary income to pay bills.
- Most people use credit cautiously after bankruptcy because they don’t want to find themselves in the same predicament .
- The credit card company knows that you can’t file for Chapter 7 bankruptcy for another eight years, and so there is lots of time to collect against you, if necessary.
Of course getting a credit card soon after bankruptcy is not a wise choice for everyone. You are in the best position to decide what will work for you.
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What Is The Easiest Credit Card To Get After Bankruptcy
A secured card will be, by far, the easiest credit card to get after bankruptcy. These cards are designed specifically for those with bad credit who want to rebuild their score.
If you’re hoping to get an unsecured card, we like the Credit One BankÂ® Platinum VisaÂ® mentioned above. It is one of the easier unsecured cards to get for those coming out of a bankruptcy.
As you get further out from your discharge date, other unsecured cards from Discover, MasterCard and Visa should become available to you. These won’t be lucrative rewards cards but some may come with nice benefits such as no annual fee.
Keep A Close Eye On Your Credit Reports And Credit Scores
Every year, you are entitled to one free copy of your credit report from each of the three major credit-reporting institutions: Equifax, Experian and TransUnion. Take advantage of this and regularly examine your reports for errors or missing information. If you find any inaccuracies, such as a delinquent account that doesnt belong to you, you can report it to the appropriate credit-reporting agency. When the negative mark is removed, your credit score will likely rise.
Why this matters: Inaccurate information on your credit reports can cause a low credit score.
How to get started: Use AnnualCreditReport.com to access each of your credit reports for free. Through April 2021, you can access each of your reports once a week. Many credit card companies also provide you regular updates of your credit score to monitor.
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How We Picked These Cards
A bankruptcy usually has a strong negative effect on credit scores, so we focused our research on options that remain accessible to people who may have serious derogatory marks on their credit reports. We also wanted to select cards with features that can help people rebuild credit.
It may be tough to qualify for a standard unsecured credit card after bankruptcy. For that reason, we primarily picked secured cards, and the one unsecured card we chose offers the option to apply for prequalification. Its typically easier to be approved for a secured card, so the secured cards listed can be valuable to people dealing with the effects of bankruptcy who are also trying to rebuild their credit.
We wanted to highlight features that could help you to rebuild credit effectively. The basic structure of secured cards makes them useful tools after a bankruptcy. But its the possibility of an increased credit limit , or a change from secured to an unsecured credit line, that can help you build a credit history that appeals to lenders.
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Budgeting After Chapter 7 Bankruptcy
Many people file for bankruptcy due to no fault of their own after experiencing an unexpected event, such as an illness, job loss, or divorce. Even so, everyone can benefit from cutting unnecessary costs and building a nest egg to fall back onnot just those who filed for bankruptcy to wipe out credit card balances.
Reviewing your spending habits and making a comfortable budget is a commonsense place to start. Avoid buying items on credit that you can’t afford to pay for in cash. If you take out new credit cards, pay off most, if not all, of your account balance each month so that you don’t accrue interest.
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Reaffirming Credit Card Debt In Bankruptcy
If you have credit cards when you file bankruptcy, then any card on which you owe money will be listed among your debts. Most credit card companies will allow you to keep the card if you reaffirm the balance and enter into a new agreement.
Reaffirming credit card debt in bankruptcy should be used only as a last resort, however, because once you do that, your debt won’t be discharged. Think hard about whether you really need that card, and read about your other options below.
Still, if you have a card with a very low balance, you might consider reaffirming. Ultimately, creditors will make the decision of whether this is an option in your specific case. But because companies don’t want to incur loss because of discharged debt, most will allow you to reaffirm the debt.
Think Twice About Working With Credit Repair Agencies
Instead of paying a credit repair agency, consider using that money to increase your emergency fund and savings. Focus your efforts on the habits and circumstances that led to your bankruptcy and how you can change them.
There are many unscrupulous agencies out there that will claim they can remove a bankruptcy or fix a credit report, says Samah Haggag, a senior marketing manager for Experian. There is nothing a credit repair organization can do that you cannot do yourself.
Why this matters: Credit repair agencies take the heavy lifting out of credit-building, but they charge fees. If youre willing to put in the work of checking your credit reports and disputing errors, you can save that money and use it to continue paying down existing debt.
How to get started: Take a look at your budget and request copies of your credit report yourself before looking into credit repair agencies.
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The Work Doesnt Stop When You Get A Credit Card
With your new card, you should focus on improving your credit score so you can eventually qualify for better credit cards and get more favorable rates on other types of loans, like car loans, mortgages or student loan payments.
Make sure to pay your bills on time, every month, as thats the single biggest factor affecting your score, accounting for approximately 35% of your FICO credit score. The amount of total credit you use as a percentage of your credit limit also weighs in at 30% of your score, making it a worthy goal to try to keep your low.
You may also want to consider using a program like Experian Boost, a free program which counts your payment behavior from your linked checking account that you use to pay your utility, cell phone and video streaming media plans. Or use it in conjunction with American Express free Score Goals program, which maps out a blueprint of credit-building actions to help you achieve a better credit profile over time.
Make Sure You Use But Dont Overuse Your Secured Credit Cards
To gain any benefit from secured credit cards, or any credit cards for that matter, you need to actually use them. The optimal way to do this would be to charge a small amount, wait for the monthly statement and then pay on or preferably before the due date. This way, it will demonstrate that you can handle your credit responsibly.
Make sure not to charge too much. Although some experts will say to charge no more than 5% of your available balance, a commonly acceptable amount is 20% to 30%. Some would even suggest up to 50% but thats getting a bit too high. So now youre probably asking, does this mean if I send in a $1000 deposit, I should not have a balance of any more than $200 or $300 at any given time? YES! Thats exactly right. Theres nothing worse than charging $950 on a card with a $1000 limit. Or worse yet, maxing it out and making it go over the limit with the interest charges. This will report to the credit bureaus and lower your score because it looks like youre short on cash or in financial trouble especially if its like that every month.
Remember not to charge more than 20% to 30% of your available credit limit. Charge your cell phone bill, Internet bill or hydro bill to your secured card. In fact, set up automatic payments so that you never have to worry about late payments again! If you dont have any bills to charge to your secured credit card, use it to pay for gas for your car or routine purchases.
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Receiving Credit Card Offers Post
Some people might actually receive an influx of credit card offers soon after bankruptcy. Approach such offers with caution.
In our experience, consumers who have gone through bankruptcy will receive credit card offers, says Nina Heck, director of counseling and client services at Guidewell Financial Solutions, a nonprofit credit-counseling organization. Creditors may even view them as a better risk than some other applicants, because having been through bankruptcy, they cant declare again for seven to 10 years. So in and of itself, bankruptcy may not disqualify you from obtaining credit. Its more a question of how it will affect the credit terms you receive.
If youre fresh off a bankruptcy discharge, any incoming credit card offers are likely to have low limits and high interest rates. Accepting an offer for this type of card and using it wisely can certainly help your credit. But jumping right back into credit card use might not be the best immediate financial choice.