Apply for a credit card after bankruptcy
Deposit for bankruptcy Usually means taking a big hit on your credit score, but that doesn’t necessarily mean you’re completely shut out of all new credit.
Filing for bankruptcy on your credit reports will make credit approval more difficult. However, different lenders have different policies, and creditors look at several factors to determine your eligibility for credit. Factors such as your income and the time elapsed since the resolution of the bankruptcy also come into play.
Policies vary by issuer
Some credit issuers have explicit policies on how bankruptcy might affect credit approval. The registration page for Capital One Secure Mastercard®, for example, notes that applicants are not eligible if they “have an unreleased bankruptcy (which is still unresolved).”
Issuers are often not clear on the criteria on which they approve or deny applications. Most people don’t find out if they’ve been approved or denied until after they’ve applied and received a hard credit draw that can further ding their score. Each lender or card issuer has their own guidelines on who they accept for specific cards. These guidelines are not as simple as having a certain credit score or having a bankruptcy that was resolved over a number of years ago.
However, if you are looking to rebuild your post-bankruptcy credit with a credit card, a secured card is probably the best way to start.
What is a secure card?
Secure cards are designed specifically for people trying to improve their credit. They are different from normal credit cards in that they require you to deposit a security deposit, usually a few hundred dollars. Your deposit is usually equal to your line of credit: make a deposit of $ 400, for example, and you have a line of credit of $ 400. The deposit protects the sender if you don’t make your payments. This makes secured cards a relatively safe bet for lenders who extend lines of credit to people with lower credit scores.
Nerdy tip: A secure card is different from a prepaid debit card. With a secure card, your deposit serves as a safeguard in the event of non-payment of your invoice. With prepaid debit, the money you “load” onto the card is used to pay for your purchases. Prepaid debit cards do not help you create credit.
“Secured credit cards are obviously a good choice,” says Carlos Colón, financial education program manager for Mpowered, a nonprofit financial coaching organization in Colorado. “Depending on the bank or the credit union – and I like to defend credit unions because they are not-for-profit – they may have requirements in terms of the length of the bankruptcy. “
Credit card issuers can turn down and deny applicants with recent bankruptcy or other issues on their credit reports, even for secured cards. If you suspect that filing for bankruptcy may mean that you will be refused a secure card by a larger issuer, consider applying to your local credit union.
“Local credit unions are often more lenient and accessible than a large bank,” says Colón, especially for those looking to recover from bankruptcy. “Just make sure the secure card reports to all three offices.”
If a card doesn’t report to at least one of the top three credit bureaus, positive activity on your account, like making payments on time and keeping your balance low, won’t improve your credit score. The more offices a card reports, the better, as long as the information reported is positive.
Receive credit card offers after bankruptcy
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 bankrupt will receive credit card offers,” says Nina Heck, Director of Consulting and Customer Services at Guidewell Financial Solutions, a non-profit credit counseling organization. . “Creditors may even see them as a better risk than some other claimants because after going bankrupt they can’t re-file for seven to ten years. So, by itself, bankruptcy cannot prevent you from obtaining credit. It’s more a question of how this will affect the credit terms you receive.
If you have just come out of bankruptcy, all 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 definitely help your credit. But going straight back to using credit cards may not be the best immediate financial choice.
Repairing credit after bankruptcy
The best way to qualify for a credit card after bankruptcy is to repair your credit. But you can’t do this overnight. It involves conscious changes to move your financial outlook in the right direction.
“One of the main things to come out of bankruptcy is to consider how your finances are going to evolve,” says Jerry Buchko, member of the board of directors of the Association for Financial Counseling and Planning Education. The financial stability that lenders look for when they first approve you for credit is also important after bankruptcy, Buchko says.
Here are some steps you can take to improve your credit after bankruptcy:
1. Make sure all discharged debts are cleared from your credit reports
If your credit reports still show past due accounts after a bankruptcy discharge, chances are they are lowering your credit score.
“We often recommend that people who have filed for bankruptcy request and review a copy of their credit report before applying for new credit,” Heck explains. “Sometimes there are inaccuracies. For example, an account that has been included in bankruptcy may not be declared as such.
Everyone is entitled to a free credit report each year from each of the three offices. If you see any accounts that should have been declared closed during bankruptcy, contact the office this shows the error and fixes it. Make sure you have your bankruptcy documents handy to confirm any misrepresentation.
2. Get your non-credit finances in order
Although bankruptcy can result from medical bills or other unavoidable debts, it is often caused by fundamental problems of spending, saving and budgeting. Solving these issues before applying for a credit card can help put you in a better position overall.
“Do you have a paid job? Can you support yourself? Track your invoices? These things help, ”says Buchko. “It’s not just whether you have a credit card or not.
3. Build credit
Once your finances are in order, it’s time to consider strategic credit through a secured credit card or even a manufacturer credit.
The bottom line
Filing for bankruptcy will not affect your ability to get a credit card forever. The file will remain on your credit report for seven to 10 years. But if you take a long-term approach to rebuild your creditit will be easier to access a wider range of credit cards down the line.
Bankruptcy “does not necessarily have the same negative weight for the entire 10 years,” says Buchko. “So if your post-bankruptcy financial activity starts to look better on your credit report – you pay your bills on time, your debt-to-income ratio stays good, there is no more collection – your daily financial activity. will start to improve over time.The way your bankruptcy actually affects your credit score gets less and less, assuming everything is going well.