When it comes to reestablishing your credit after a bankruptcy, the first thing that you must consider is how long you should wait. Not everyone’s circumstances are the same; some will not have the extra income to take on debt, some will still be repaying old debt based on their Chapter 13 bankruptcy repayment schedule, and they will all have a different credit score.
However, when you do finally decide that you are ready to begin the process of rebuilding your credit profile, there are different roads that you can take. Which method you are able to start out with will depend largely on what your credit score is and what your overall credit profile looks like. For many, it can take 5 or more years to get their credit back to where it was or they may have to wait for the bankruptcy to fall off of their credit report altogether.
Secured cards are one of the best ways to reestablish your credit profile when you continually get denied for unsecured cards. With a secured card, you will send the lender a check for a certain amount of money (usually $200-$500) and they will send you a credit card that has an equal credit limit. Even though they have your money, you will still receive a monthly bill. Your bill will include interest and late payment fees if you don’t pay it in full every month. The idea is that, if you default, the lender can use the money you sent them to secure the card toward your debt.
Eventually, if you use your card responsibly and pay on time, the lender will unsecure your card by sending you back your money (sometimes with interest) and allowing you do keep your credit line. Although you may be able to qualify for a low-limit, high annual fee unsecured credit card (for example, a $300 credit line that comes with a $150 annual fee), a secured card may still be a better option because you will eventually get your money back and you won’t have to pay the high fee each year to keep the card listed as “open” on your credit report (which is important when rebuilding credit).
All in all, it is important to remember that, as someone who has been through bankruptcy before, the last thing you need is to get trapped by predatory lenders who will loan you money and then charge you ridiculously high interest rates and fees. These lenders will be the first to line up at your post-bankruptcy door, but the best thing to do is to avoid them so that you don’t end up in over your head once again this time with no way out.
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