Getting A Credit Card After Filing For Bankruptcy
Getting A Credit Card After Filing For Bankruptcy
There’s no question that filing for bankruptcy is a traumatic experience. Yet even though it is claimed that it gives you a clean slate, the truth is that this claim is not exactly true. Not only has recent legislation made it harder to file bankruptcy, there are debts that you can’t include in your actual filing, such as student loans and IRS debt. Furthermore, it is something that hurts your credit and stays on your credit report for the next 10 years. No wonder people always treat bankruptcy as a last resort!
After going through a bankruptcy filing, you need to start working as quickly as possible on getting back on your feet financially. More specifically, after bankruptcy, you can rebuild your credit score and your financial future. Post-bankruptcy credit cards can help.
Related: Open a bank account after filing for bankruptcy
Is it possible to get a credit card after bankruptcy?
This is one of the most common questions people have after filing for bankruptcy. To make a long story short, yes it is possible. In fact, it might be a lot easier than you might think. Here’s why: after you file for bankruptcy, most lenders are unlikely to give you credit, at least not before you build your credit score back up again. But there are some companies that specialize in extending credit to people with less than perfect credit histories. They routinely get lists of recent bankrupts and mail them credit card offers. They’re counting on the fact that other lenders will turn you down, which will make you eager to accept their offers so you can rebuild your credit as soon as possible. There’s a catch though: be prepared to pay shy-high rates for credit cards that offer relatively low credit limits. So if you’re going to apply for one of these offers, you’d better know exactly what you’re getting into.
Pre-approved credit cards
When the aforementioned credit card companies know about your bankruptcy situation, they may start sending you pre-approved credit card offers. Since they know of your need to rebuild your credit history, they assume there is a good chance you will accept the card. You should only accept the card if the terms and conditions are suitable to you. And make sure you read the fine print carefully, to avoid unpleasant surprises in the future. But generally those are not the best offers.
Your local bank or credit union
This option is easier if you’ve had long standing relationship with them. On the basis of that history, explain them your situation, tell them why you had to file for bankruptcy, and see if you are willing to give you a credit card. Depending on how good a customer you have been in the past and the length of your relationship, they might approve you for a credit card with a reasonable interest rate.
Apply for a secured credit card
Secured credit cards are ideal for people who want to rebuild their credit, because they’re given to you not on the basis on your credit rating, but on the basis of the collateral you can offer. Here’s how a secured credit card works: you open a special savings account with a bank and deposit some money in the account, say $500. This amount then becomes your credit limit: the bank gives you a credit card with a credit limit secured by the deposit that you made. Since you give the deposit as collateral, the bank has no fear of losing any money. If you don’t pay, they’ll take your deposit to pay off your balance. You are almost always guaranteed to get the approval for a secured credit card. You also need to make sure that the company you choose to get your card from does report to the credit bureaus, so that your timely payments can be reflected on your credit report.
Make your payments on time and avoid going over your limit and your credit score will increase fairly quickly. Look for the one with lowest interest rate and annual fees. Also, see if the bank will offer to move your secured card to a conventional card after a designated time period. If you pay on time every month, you should be able to get a traditional credit card in 6 months to a year.
There are tons of companies out there offering secured credit cards. The biggest downside to secured credit cards is that they often charge high interest rates and have other fees, but they are by far the easiest way to get a credit card after bankruptcy.
Get a co-signer
A cosigner is someone who promises to keep making the payments on a given credit card account in case the primary account holder defaults. You can get your family member, friend or relative to be a co-signer on your credit card application. Since there is someone else that the lender can go after, there’s a better chance they will overlook your bankruptcy and focus instead on the creditworthiness of the co-signer. When using this method to get a credit card, you need to make sure that both your name and the co-signer’s name will be reported to the credit bureaus: remember you’re doing this so you can rebuild your credit, so this is a vital piece of information.
Get a Credit Card From a Department Store or Gas Company
Department stores or gasoline companies are more likely than big credit card issuers to give you a credit card, which is why they are often suggested as the first options for young people trying to establish credit. They often open accounts with a very low credit limit. If you charge small amounts and pay off the balance in full each month, you will begin to build positive credit history. But be careful: these cards tend to charge very high interest rates. It’s recommended to pay off your balance each month, because carrying a balance will turn out to be pretty costly.
Avoid applying for too many cards
It may be tempting to throw caution to the wind and apply for every credit offer you can find, but this can be a pretty costly mistake. Every application puts a credit inquiry on your credit report. Having too many of these credit inquiries negatively affects your credit and makes you look desperate.
Another important thing that bears repeating is to make sure the credit card company is reporting the credit history to the main credit bureaus: rebuilding your credit history is your main focus at this point.
Where to apply for credit cards after bankruptcy
The best place to apply for your new credit card after bankruptcy is online. You will find several companies who will allow you to conduct your search over the internet, compare terms and conditions, apply, and get a decision within minutes.