Why Get A Credit Card After Bankruptcy
Although it may seem counterintuitive, applying for a credit card after bankruptcy can be a good move. If you use a credit card responsibly, you can rebuild your credit profile. To ensure you are using it responsibly, you must pay it off in full each month and do your best to avoid charging more than 10 to 30 percent of your credit limit. By following these tips, you can show that you are a safe credit risk and enjoy an increased credit score as a result.
Should I Get A Credit Card After Bankruptcy
After filing a bankruptcy or consumer proposal, most people believe they need a credit card. Getting a new credit card can be beneficial:
- Building credit after bankruptcy requires obtaining new credit and re-establishing a good payment history. A credit card is the best type of credit to begin your credit rebuilding.
- You may need a credit card for online payments, to rent a car or book a hotel room, instances where you cant use debit cards or transfer money from your bank account.
- A credit card might make keeping track of your spending easier than using cash.
- And of course, there are the standard credit card benefits like purchase protection and earning rewards or points.
What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy
There are a lot of subtle differences, but the end result with both, of course, is the same: you’re going bankrupt. Generally, most bankruptcy attorneys will probably tell you to go with Chapter 7 .
If you file Chapter 13 , you’ll be put you on a payment plan , so that you’re able to make your payments back after three to five years.
That can be very helpful if you’re wildly behind on your mortgage payments, and you don’t want to lose your house, or car payments, and you desperately want to hang onto the car.
That said, if you file for Chapter 7, which you may well do if you’re not behind on your mortgage, or not so far that you can’t catch up, you may be able to get bankruptcy exemptions that will allow you to get through the bankruptcy without losing your home or car.
So don’t automatically assume that you will lose your house or vehicle through Chapter 7. Again, talk to a lawyer and explain your situation. Everybody’s bankruptcy story is going to be different.
Many bankruptcy attorneys will suggest filing Chapter 7 because you’ll be able to get many debts discharged, for good, and you won’t have to pay them back: debts such as credit card debts, medical bills and unsecured personal loans.
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Become An Authorized Account User
To become an authorized account user, have a close friend or relative add you to their credit card account. Youre not responsible for repaying any of the money charged to the account. If the account is maintained responsibly, you will get positive marks on your credit report.
On the flip side, if he or she racks up unpaid bills, your score will reflect that. So, choose someone you would trust to make good financial decisions.
Best For Military Members And Their Families: Navy Federal Credit Union Nrewards Secured Credit Card
Heres why: Military members, veterans and their families emerging from a bankruptcy can take advantage of the cards low variable APR on purchases and balance transfers, plus a few bells and whistles that elevate this card above the rest.
Heres an important note before we get into the benefits the eligibility requirements to apply for nRewards® Secured Credit Card are strict. Youll need to be a member of Navy Federal Credit Union, which is open to all branches of the U.S. armed forces, veterans, Department of Defense officials and their families.
Cardholders earn one point per $1 spent on purchases. Points can be redeemed for cash back, statement credits, gift cards and merchandise. There are no annual fees or foreign transaction fees, too. Plus cell phone protection and a rental car collision damage waiver also come standard.
After six months, Navy Federal will review your account activity and may upgrade you to an unsecured credit card and return your deposit.
Learn more about the best credit cards for active-duty military personnel.
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How To Apply For Credit Cards After Bankruptcy
You can follow these steps to apply for after bankruptcy credit cards in Canada:
Getting a credit card during bankruptcy
You should avoid applying for credit cards or using your existing credit cards shortly before filing for bankruptcy. Your credit card provider can say that this credit use had dishonent intent, and may result in your credit card debt not being discharged. Your existing credit cards may be closed during the bankruptcy process even if theyre fully paid off.
If You’re Worried You Might Dig Yourself Into A Hole
While building credit is important, you won’t be able to raise your credit score if you’re still struggling to pay off your balance. A big part of your credit score is your “credit utilization ratio,” or how much debt you have compared to your overall credit limit. Normally, you’d want to keep debts under 30% of your limit. After a bankruptcy, you may want to set your ceiling around 15%. For example, if you get a credit card with a $500 limit, you should keep the balance under $75. This can be tough when you have a low limit. If you’re worried that access to a credit card will just end with you back in bankruptcy court, it’s okay to take a pass for now.
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What Will My Credit Score Be After Bankruptcy
After bankruptcy, your credit score will take a hit. The higher your score, the harder the blow. There are other factors that matter, as well. The more debts you need to discharge the more your credit will suffer for it.
You are a much greater risk to a lender by defaulting on a $50,000 debt than a $500 debt. So, expect the consequences to reflect that.
If your credit score is 680, you will lose an average of 150-180 points. Good credit scores 780 or higher will lose 200-240 points. This means even if you have a perfect FICO credit score of 850, bankruptcy will leave still a noticeable dent on your credit report for years to come.
This sounds harsh, but it follows the logic of lenders perfectly. If you had to be forgiven a large amount of debt, that sends signals to lenders that doing business with you may cost more than its worth.
How To Choose The Best Credit Card After Bankruptcy
For the most part, youll be limited in terms of credit card options after you complete bankruptcy. Most credit cards youll be able to qualify for will be secured credit cards, meaning youll have to put down a cash deposit to get started.
However, you should remember that dont have to be forever. The purpose of a bankruptcy credit card is to give you an opportunity to prove your creditworthiness once again. Eventually, you should be able to improve your credit score and move up to a credit card with better perks and rewards.
As you consider all the card options available to you right now, here are the main factors you should weigh and compare:
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Was Your Bankruptcy Due To An Unforeseen Event
Perhaps your bankruptcy was the result of extraordinary circumstances, such as a medical emergency, divorce, job loss or natural disaster, rather than bad money management. In that case, youre more likely to be ready to open a credit card and begin rebuilding your credit.
Just make sure to shore up other areas of your financial well-being such as a stable job and an emergency fund so you can be prepared for any unexpected challenges you may face in the future.
Talk To A Bankruptcy Lawyer
Need professional help? Start here.
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Should You Get A Credit Card After Bankruptcy
Getting a credit card after bankruptcy can be a smart move, provided you can manage it responsibly.
The bankruptcy will have damaged your credit score, and making on-time credit card payments is one of the best ways to rebuild your creditworthiness. Before filling out a credit card application after your bankruptcy, though, consider why you got into financial trouble and if you can responsibly manage a new credit account.
Other Tips To Help Fix Your Credit After Bankruptcy
Heres some more advice on how to revive your credit score after bankruptcy:
- Avoid : Dont fall for con artists who claim they can remove a bankruptcy from your credit report. Nobody can remove bankruptcy from a credit report before the allotted 7-10 years have ended.
- Avoid frequent job changes, if possible: Your state of employment has no direct effect on your credit score, but lenders may put less faith in borrowers drifting from job to job.
- Keep account balances low: From where the credit bureaus stand, maxed out credit cards are a sign of strained finances. Aim to keep your credit utilization ratio below 30%. Also, keeping your balances low will lower your debt-to-income ratio , which in turn will amplify your shot at landing a low-cost loan.
- Not applying for new credit often: Lenders and credit bureaus take note when borrowers rapidly apply for credit. Its not a good look. It makes you look desperate, which makes you look risky. Remember, lenders abhor risk.
- Saving money: This one is less about restoring your credit score and more about making sure youre financially sound. If youre dealing with the consequences of bankruptcy, youre probably not in the best financial shape to handle surprise medical bills or unforeseen car troubles. Saving a little money from your paycheck every week can bridge the gap when you need it most. It doesnt take a fortune to mitigate misfortune. Three to six months worth of living expenses should do the trick.
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How Do I Get A Credit Card After Bankruptcy
When you apply for a credit card after bankruptcy, youll most likely start with a secured card.
As opposed to a typical credit card, secured cards require a deposit, which will usually serve as your credit limit. If you put down a $500 deposit, for example, youll typically only be able to spend $500 on the card before its maxed out.
Secured cards generally come with fees and high interest rates, and most dont offer rewards like points or cash back. But they can still be a great way to build your credit. Unlike prepaid debit cards, most secured cards report your payments to the credit bureaus.
Applying for credit cards does have the potential to hurt your credit scores, albeit usually only slightly. So, you should be selective about which card you apply for and make sure you have a good chance of getting approved.
To get an idea of which cards might be a good fit for you, check your credit scores and look for pre-qualified credit card offers in the mail or online. And, before filling out a credit card application, read the fine print to ensure the credit card issuer doesnt have any restrictions when it comes to bankruptcies.
How Do I Make My Deposit
You can set up a payment to deduct from your checking or savings account. Some card issuers also allow you to make installment payments to satisfy the deposit requirement, provided you make all payments within the timeframe they impose. Once you make your deposit in full, your provider mails your credit card.
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Will You Get Approved For A Credit Card Following A Bankruptcy
A Chapter 7 bankruptcy can remain on your credit report for 10 years, whereas a Chapter 13 bankruptcy typically stays on your credit report for 7 years. During this time, it can be difficult to get approved for a credit card.
Youll have the best shot at getting approved for a credit card after bankruptcy if you spend some time working on improving your credit score before you apply. If youre able to move the needle and get your FICO score into the fair range , for example, lenders and card issuers may be more willing to approve you for their products. Want to see if you pre-qualify without affecting your credit score? Check out our CardMatch feature and get matched with a card that best fits your needs.
How Long After Bankruptcy Can I Get An Unsecured Credit Card
Most lenders or credit card companies will not approve you for a card while you are going through the bankruptcy process. After your bankruptcy is discharged, the amount of time it takes before youre likely to be approved for an unsecured credit card depends on which type of bankruptcy filing you did.
You could be approved for a new credit card after just months of filing bankruptcy through Chapter 7. But it could take years before you are approved for a new card if you filed for Chapter 13 bankruptcy.
Before you apply for a new credit card post-bankruptcy, look at your overall financial situation. You want to make sure that your financial habits and situation have changed from those that caused you to file bankruptcy. If your situation is the same or similar, you may find yourself heading right back toward bankruptcy.
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How Soon After Bankruptcy Should You Apply For A Credit Card
You can apply for a credit card right after bankruptcy, but youll need to be realistic about the type of credit card you can qualify for. Generally speaking, youll have a better shot at getting approved for a credit card for bad credit after a bankruptcy. You may also want to consider a secured credit card that requires a cash deposit as collateral since this card is considerably easier to get approved for.
Unsecured Vs Secured Credit Cards
Most people have unsecured credit cards. When you use an unsecured credit card to make a purchase, you are basically borrowing money from the credit card company and paying interest until you pay back the amount you borrowed. These types of credit cards are riskier for a credit company because if you fail to pay, the credit card company can only sue you for the balance. Additionally, credit card companies know that if you file for bankruptcy, unsecured credit card debt will probably get discharged.
Following bankruptcy, you may receive offers to obtain an unsecured credit card. However, these offers will likely come with high interest rates or a low introductory interest rate that quickly skyrockets into a very high one. Unsecured credit cards may also charge you annual or monthly fees.
Secured credit cards differ from unsecured credit cards because you must deposit money into a savings account in order to use them. If you opt for an unsecured credit card, the bank will set your credit limit at a percentage of your deposit. This percentage can be as low as 50 percent and as high as 120 percent.
The payments you make on these types of credit cards will be reported to major credit bureaus, making them less risky than unsecured credit cards and a great option if youve filed for bankruptcy and are trying to rebuild your credit.
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Can I Get Credit Cards After Bankruptcy Discharge
You can definitely apply for credit cards after bankruptcy discharge but you may be rejected if your bankruptcy still shows on your credit report. Until you can qualify for a regular credit card, you may want to apply for a secured credit card to build your credit while you spend money. This will make sure your credit score is in decent shape when your bankruptcy ends.
You may also want to consider rebuilding your credit without a credit card. For example, you could take out a or apply for a bad credit car loan to increase your credit score. You could then take out a Visa Debit or Debit Mastercard with your bank or sign up for a prepaid card to enjoy the convenience of a credit card without needing to qualify.