When can I apply for a credit card after bankruptcy? – Councilor Forbes
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Filing for bankruptcy can drastically lower your credit score and it will take some time to recover. Despite the damage to your score, it is still possible to get a credit card, but you will only be eligible for secured cards or cards designed for people with little or no credit.
Your best bet is to apply for a card as soon as you can after your discharge or bankruptcy is closed, so you can start rebuilding your credit immediately.
If you’ve recently filed for bankruptcy, here’s what you need to know about applying for a credit card.
The type of bankruptcy matters
There are two main types of personal bankruptcy:
- Chapter 7. This is where all of your debts are eliminated and any assets you own that are not exempt will be sold and used to cover your debts. This will wipe out what you owe your creditors, but also everything you own of any value. Chapter 7 is a fresh start because once bankruptcy is discharged or terminated, you will no longer have any liability to creditors, but your credit score will be severely damaged.
- Chapter 13. With this type of bankruptcy, your debts are restructured, which means that you and the creditor come to an agreement on how much debt you will pay off within three to five years. Any remaining portion of your debt is canceled. Although this type of bankruptcy is less damaging to your credit, it still has a strong negative effect.
Your bankruptcy must be discharged before you can apply
You cannot apply for new lines of credit, including a credit card, while you are in bankruptcy without court approval. The time it takes to settle and complete your bankruptcy proceedings will determine when you can apply for a credit card.
A Chapter 7 bankruptcy takes about four to six months after the initial filing to be completed and your debts discharged. After that you can apply for a credit card.
A Chapter 13 bankruptcy, however, can take anywhere from three to five years because it is a restructuring of your debt that you are paying off over time. It is only after you have made your last payment that your bankruptcy will be discharged. Until then, you will have to wait that entire period before applying for a credit card.
You will only be eligible for certain cards
Filing for bankruptcy, no matter the type and the circumstances, will have a lasting impact on your credit score. And, bankruptcy will show up on your credit report for a considerable period of time. A Chapter 7 bankruptcy will stay on your credit report for 10 years and a Chapter 13 will stay on your report for up to seven years.
With a less than stellar credit score, responsible use of a credit card can help rebuild your score. But it might seem like a Catch-22 since you won’t be eligible for many cards like those with rich rewards or premium perks.
The best thing to do is apply for a card designed for someone looking to build credit. A secured card is an ideal card for this purpose and even with a new bankruptcy you may be able to get approved. With a secured card, the credit limit you receive is usually equal to the amount of the security deposit you deposited.
There are also a handful of unsecured cards that won’t check your credit score or are willing to extend a line of credit even to someone with a bad credit history. These cards are usually charged with exorbitant fees and rates. Secure cards tend to be cheaper.
The job doesn’t stop when you get a credit card
With your new card, you should focus on improving your credit score so that you can eventually qualify for better credit cards and get cheaper rates on other types of loans, such as auto loans, mortgages or student loan repayments.
Make sure you pay your bills on time, every month, as this is the single most important factor affecting your score, accounting for around 35% of your FICO credit score. The total amount of credit you use as a percentage of your credit limit also weighs in at 30% of your score, making it a laudable goal for trying to keep your credit usage low.
You may also want to consider using a program like Experian Boost, a free program that counts your payment behavior from your linked checking account that you use to pay for your media, mobile phone, and video streaming plans. Or use it in conjunction with American Express’s free Score Goals program, which sets a credit building action plan to help you build a better credit profile over time.