12/17/2012 6:45 PM ET|
After bankruptcy, new credit cards?
Getting started again with on-time payments is a sound way to rebuild your credit scores after a financial disaster.
It may sound like the stupidest financial move ever: signing up for credit cards after bankruptcy. But if you do it right, it may be one of the smartest moves you can make for your credit.
The main purpose for getting new credit cards after bankruptcy is to help boost your credit scores, which most likely took a hit when you filed. While it's difficult (though not impossible) to earn high credit scores while the bankruptcy remains on your credit reports, it is possible to improve your scores significantly if you make on-time payments on a revolving credit account. Current, positive information is critical if you want better credit scores.
There's a good reason to invest time and effort into improving your credit scores now, rather than wait seven to 10 years until your bankruptcy is no longer reported: Older accounts tend to help your scores more than recently opened ones. If you get several years' worth of payments under your belt, your credit scores will likely improve quickly once the bankruptcy is removed from your reports (in seven years in the case of Chapter 13, or in 10 years in the case of a Chapter 7). But if you don't, your credit scores may actually go down once that negative item is no longer reported.
The best credit cards to get after bankruptcy
A secured credit card is a great way to start over. This is one of the few types of credit cards that can be easy to get if you've been through bankruptcy or other credit problems. In most cases, a secured card is available as soon as your bankruptcy is completed (aka discharged). After you place a security deposit with the issuer, you will get a major credit card you can use just like any other credit card. To make sure you get the maximum benefit from a secured card:
- Choose a card that reports your payment history each month to all three major credit reporting agencies.
- Make your payments on time, all the time, with no exceptions. One late payment can cause your scores to drop significantly.
- Keep your balances low. Using 10% to 15% of your available credit is ideal. If you have a $250 credit line, for example, try to keep your balance at $25 to $35, or less. Try to avoid charging it up to the limit. If you do make a lot of purchases in one month, pay off your balance as soon as you can.
Once your credit reports show several months of payments with the secured card, you can apply for a second revolving credit account, such as a retail credit card or another major credit card.
What doesn't work
A prepaid card won't help your credit scores. These cards are debit cards, not credit cards, and they typically don't even appear on credit reports. That doesn't mean you should avoid them altogether, though. You can use one to help you stick to a budget after bankruptcy. For example, you can load your "spending money" onto one of these cards each payday, and when that money's gone, you know you have to put the brakes on your spending until the next paycheck.
Monitor your progress
If you are trying to rebuild credit after bankruptcy, you need to review your credit reports and scores. Assessing the damage won't be easy, but there's no getting around it. Get your credit reports from AnnualCreditReport.com about three months after your case is discharged. Dispute any mistakes you find. Then use Credit.com's Free Credit Report Card to check your credit score each month. If you have positive credit references reporting to the credit bureaus, you should see steady progress over time.
One more tip: Get new credit cards after bankruptcy, not before. Don't apply for credit until your bankruptcy is discharged unless your bankruptcy attorney gives you the OK. Taking on additional credit while you are still completing a bankruptcy could jeopardize your case.
More from Credit.com:
VIDEO ON MSN MONEY
There are a lot of ifs in the article: After bankruptcy, new credit cards. The best way to have the money to buy things you want is to save up for it and that's the hardest thing many people will have to learn how to do after bankruptcy. We are so conditioned to wanting to buy something right now this very minute whether it’s for a new car or a flat screen TV or what ever that we forgot how to save up for it. Remember when you apply for a credit card the credit line you receive is not your money! You have to pay it back! I repeat! When you apply for a credit card the credit line you receive is not your money! You have to pay it back! Think about this, for example, you use your credit card to buy something that cost 40 bucks. The next month you have to pay it back with interest when you could have used it to buy something else or you could have saved those 40 bucks for another day. Debit cards are becoming more and more popular because people are starting to save their money. You don’t have to worry about paying anything back or high interest rates or credit scores. Even in this article they kind of try to discourage you from using debit cards by stating a prepaid card won't help your credit scores. These cards are debit cards, not credit cards, and they typically don't even appear on credit reports. Why should it it’s your money! You have to make yourself learn how to save money. When you get the impulse to go out and buy something with your credit card stop and tell yourself I can save up for it and pay cash. So, when you want to buy a new home, a new car or go on a fabulous vacation, SAVE YOUR DAMN MONEY!!
You get more credit card offers afteer bankruptcy, than you ever will. However, the cards they off have high interest rates, high annual fees, and credit lines of only $500 or smaller.
People can get free consumer help with credit issues from free organizations such as "Bad Credit MD"
WAKE UP SHEEPLE !!!
Who ever wrote this article doesn't know what they are talking about. The people who have gone bankrupt are the one who couldn't pay back the money they owed. So now the this article is saying it's good you get credit cards again to improve your credit score. Today credit card companies are not going to take the "risk" in giving someone a credit card again because the person went bankrupt will probably do it again. The credit score advice in this article is all bull sh%t. I would not take this advice. The reporter who wrote this article probably has never gone bankrupt and is giving advice like an arm chair quaterback. People do not take this advice it you your credit score will not improve. Your are the only ones who can imporve your credit score. In this article it doesn't say any thing about getting a credit report after you have waited 7 to 10 years for your bankurptcy do be taken off your credit report. After the waiting period credit card companes will be sending you pre-approved cards this may good but watch out for interest rated. This wasn't mentioned the article. After you have built up good credit which takes a long time, the best card to get ts the American Express card. The bill comes you pay it your done. But here the catch don't get stupid where you can't pay back, because if you can't pay the money owed to American Express will never grant you a card again no execption. So like I said don't listem to the reporter who wrote this article because he or she don't know what they are talking about.
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