How to Get Credit Cards After Bankruptcy

Lauren faced a mountain of debt combined with dwindling resources due to a recent layoff from her high-paying corporate job. After struggling for months and considering all her options, she consulted a bankruptcy attorney who walked her through the process, took care of the filing, and gave her advice about how to begin addressing the damage as soon as possible after the court discharged her debts. As part of that process, the lawyer recommended obtaining bankruptcy-friendly credit cards quickly to begin establishing a new, positive credit history.

Lauren isn’t alone. In 2015, more than 819,000 people filed for bankruptcy in the United States. The majority of people who file for Chapter 7 or Chapter 13 bankruptcy dread the process and the repercussions, but it’s important to know that filing for bankruptcy doesn’t mean that your financial life is over. Bankruptcy doesn’t have to be a dirty word. It offers a fresh start and a clean slate.

Taking the right steps after the bankruptcy is discharged can transform your credit score from poor to excellent, often within one to three years.

Finding the best credit card after bankruptcy

Once the court discharges your debt, the single most important thing to do is to pay your bills on time. Getting a credit card is another step toward establishing a new history, although finding the right credit card for your needs may take a little time. After all, the low credit score after bankruptcy makes you a high-risk applicant, and you may have your hands full sifting through high-interest-rate card offers with substantial annual fees attached.

To find the top credit cards for poor credit, verify that the card issuer reports to all three major credit bureaus. Look for a card with clear, easy-to-understand terms and compare several to choose the one with the lowest APR and annual fee. Read all the fine print in the offer and note all of the important requirements. For example, some unsecured cards may require proof that you have a checking account. Applying for a gas or retail credit card after bankruptcy is another option.
Secured credit cards

In some cases, your credit may be so low that you don’t qualify for a standard unsecured credit card. In this situation, a secured credit card might be the best or only option. Many major credit card companies offer secured credit cards with a fast online application. These cards carry a lower risk for lenders because the new cardholders must deposit money into the account before using the card. For example, to obtain a card with a $500 limit, issuers require a $500 deposit. Some cards may also require an additional security deposit.

Compare several different secured credit cards to choose the one with the lowest application fees, annual fees, and APR. Use the card, make timely payments, and manage your finances responsibly just as you would with an unsecured card. After approximately one year of responsible use, most cardholders become eligible to apply for an unsecured card with better terms.
Keep an eye on the prize

Be responsible with your new accounts, make payments on time, and keep a low balance. Beyond how you use your credit, it’s also time to start keeping a close eye on your credit report (you can get a free credit report card from Credit Sesame). As part of the federal Free Credit Reporting Act (FCRA), consumers are eligible to get a free credit report once every 12 months from each of the three agencies. Review the information carefully to identify any mistakes or errors that could weigh a credit score down further.

If you notice any mistakes, contact the credit bureau online or write a letter. Include your name, address and a list of any errors on the credit report. Enclose supporting documentation and send the paperwork using certified mail. The credit bureau investigates every claim within 30 days.

Moving on after bankruptcy

Lauren could have simply continued struggling and paying her debts in drips and drabs. Her credit score would have continued dropping and she could have put herself and her family in danger of losing their home. After the bankruptcy court discharged her large credit card debts, Lauren was able to retain her home and her car.

The bankruptcy judgment stayed on her credit report for 10 years, but she opened a new credit card. Within a few years of making regular, timely payments, her finances and life after bankruptcy were on the road to recovery.

In the beginning, the process might feel a little scary and overwhelming. After your score recovers, creditors begin sending standard credit card offers and lower-interest loans, which is particularly important if your financial plan includes buying a house after bankruptcy. Bankruptcy isn’t the end of the road.

Consult a knowledgeable bankruptcy attorney, complete credit counseling, and work to turn your credit history around to become eligible for low rates and more options while shopping for a car loan, credit card, or a mortgage after bankruptcy.

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Published April 26, 2016
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