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Best credit cards after bankruptcy

Believe it or not, getting a new card after your bankruptcy is completed is one of the best ways to begin rebuilding your credit scores.

By MSN Money Partner Nov 5, 2012 1:09PM

This post comes from Gerri Detweiler at partner site Credit.com.

 

Credit.com logoIt may sound like the stupidest financial move ever: getting credit cards after bankruptcy. But done right, it may be one of the smartest moves you can make for your credit.

 

Image: Man paying with credit card © UpperCut Images/UpperCut Images/Getty ImagesThe 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 a super-high score while the bankruptcy remains on your credit reports, it is possible to improve your scores significantly if you make an effort to add and maintain on-time payments. 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 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 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.

 

What are the best credit cards to get after bankruptcy?

A secured credit card is a great way to start over. These are one of the few types of credit cards that tend to be easy to get if you've been through bankruptcy or other credit problems. In most cases, they are available as soon as your bankruptcy is completed (discharged). You'll place a security deposit with the issuer and get a major credit card you will use just like any other major credit card.

 

To make sure you get the maximum benefit from a secured card, do three things:

  • 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, 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 card, 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 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 is gone, you know you have to put the brakes on your spending until the next payday.

 

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 on Credit.com and MSN Money:

 

3Comments
Nov 6, 2012 8:52AM
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Wonderful advice, Gerri, as always.  A few more important tips I'd include are:

1) make sure the credit card you select reports as UNSECURED to the credit bureaus, to show future lenders you're considered a good credit risk by someone

2) make sure there's no upfront fee (some secured cards start you out with an application fee and other fees that can actually equal the credit line you've acquired - so you're already deep in debt before you get started.

3) make sure the credit card has a grace period of at least 20 to 25 days so that you're not paying interest on your purchases from the day you buy something, but instead don't pay interest unless you actually carry a balance.

Keep up the awesome work,
Paula Langguth Ryan, author, Bounce Back From Bankruptcy
paulalangguthryan.com

Aug 16, 2014 12:34AM
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Wow, incredible blog layout! How long have you been blogging for? you make blogging look easy. The overall look of your website is magnificent, let alone the content! See http://www.sandiegobk.com/ for details about bankruptcy attorney san diego.
Nov 6, 2012 2:34PM
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You’re required to seek permission from their bankruptcy trustee before they apply for new credit. However, if you have already discharged from the suit, you don’t need to get permission. 
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