If you have had to declare bankruptcy for any reason, it is easy to get overwhelmed by the sheer volume of things to consider. But, getting a credit card after bankruptcy is one of the best ways to begin rebuilding your credit score, if you are careful and selective about choosing the right card and provider.
Let’s face it; a bankruptcy is a huge blow to your credit-worthiness. However, a sober assessment of your situation, followed by learning from the mistakes that may have led to the bankruptcy, is key to getting your financial house back in order by obtaining lines of credit that you can use to rebuild your credit score.
Get Credit Reports From All 3 Major Credit Bureaus
The first step to finding the best rates on a credit card after bankruptcy is getting a copy of your credit report from each credit bureau. Lenders rely on the credit reports from 3 main credit agencies to determine your credit-worthiness, and the rates that you will pay on borrowed money. These agencies are: Experian, Equifax, and TransUnion.
After you receive your reports, carefully examine them for inaccuracies that can continue to undermine your efforts to re-establish credit. If you discover claims that are false, contact each agency and:
- Keep a record of all correspondence.
- Write a letter to each agency disputing the inaccuracies.
- Notify the business that reported the false claim in writing and tell them that you are disputing it.
- Request that the agency contact the business so that the dispute can be resolved.
- Make sure that a record of your disputes is included in future credit reports.
Secured vs. Unsecured Credit Cards, Which is Best For Your Situation?
There is no stock answer that will work for everyone on this. The particulars of each person’s situation will dictate which option will work best for them but here are some facts to inform your decision:
Secured Credit Cards
Secured credit cards are cards that are issued from banks or credit unions that guarantee a specific line of credit as long as you have a corresponding balance in your account that they can use as collateral if you default on a payment. For example, if you have a $500 line of credit, you must maintain a balance of $500 in your account.
Because your debt is secured by a predetermined amount, you can generally get a more favorable rate of interest from these lenders. But, it is recommended that you pay the full balance each month to keep your account in good standing. Look for a card that will offer the option of becoming unsecured after a period of responsible use.
Unsecured Credit Cards
Unsecured credit cards are easily available from all sorts of lenders and there lies the rub, easy availability. These cards offer huge come-ons about increased lines of credit without the need to maintain a balance, but you run the risk of repeating some of the same mistakes that may have contributed to your bankruptcy in the first place.
In fact, there are many credit card outfits out there that specifically target people that have filed for bankruptcy and take advantage of this by offering egregiously high interest rates. Also, they further leverage their position by nickel and diming you with all sorts of application fees meant to prey on your financial vulnerability.
Whichever type of credit card that you choose, make sure that you explore all of your options, and read the fine print before you sign the agreement. There may be hidden fees and costs that will hinder, not help, you in your quest to rebuild your credit rating. Also, make sure that you do not apply for more than 1 or 2 different credit cards. Each rejection will negatively affect your credit rating, and defeat the purpose of getting a credit card in the first place.
Getting a credit card after bankruptcy to start rebuilding your credit rating is a marathon, not a sprint. You must carefully plan when and how to use your credit card so that it becomes an asset instead of a liability.
Make sure that you pay off the full balance each month, well before the due date, and use your credit card only when absolutely necessary. After every 6 months of responsible credit management, call your lender and ask for a lower interest rate. They might not honor your request each time, but they will like the fact that you are actively pursuing the means to manage your credit more effectively.
The next time you reach for your wallet and don’t have the cash on hand to make a purchase, ask yourself, “Is this a want or a need?” If the answer is the former, put your wallet away and congratulate yourself for making another step on the long road of credit rating recovery.
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