Getting Approved For a Credit Card after Bankruptcy.
Creditors are here to help you get your credit back up, but you need to know the difference in the types of credit available to you.
Reestablishing good credit after a bankruptcy can seem like an uphill climb. Once you have obtained your discharge, you may even start getting credit card applications in the mail. Creditors know that the majority of those who file for protection under the bankruptcy system only do so once in their life, so they are still willing to lend to a person recovering from a bankruptcy. Since you will be debt free after bankruptcy, you are a prime candidate for a new card. There are two types of credit cards to consider:
Unsecured Credit Cards
Unsecured credit cards are the most common types of cards available. They are called “unsecured” because there is no deposit or collateral required in order to get the card. While many unsecured credit card offers you will receive have high interest rates, low credit limits, or annual fees, they will help you to begin the rebuilding process as long as you maintain on-time payments.
Secured Credit Cards
Secured credit cards are another option, usually offered by banks or credit unions. A secured card means that a deposit equal to your credit limit is put into a savings account before the card is given. The money placed into the account will not be accessible unless the balance on the card is lower than the amount in the account. For example, a deposit of $500 is placed into an account with the lender. The lender would then issue a secured credit card for the same amount: $500.
Factors Considered by Lenders
- Employment History—Creditors want to see that you have regular income coming in. The longer you have worked at your current employer, the better chance you have at being approved.
- Other Types of Debt—Creditors look to see if you have a good relationship with debt. Maintaining a good payment history on your car loan, home mortgage, student loan, or other credit cards will improve your chances of being approved.
- Hard Inquiries—Do not apply for too many credit cards at once. When you apply for credit, the lender looks at your credit. This way, other lenders see how many times you are applying for other credit. Too many inquiries on your credit report can actually lower your credit score and decrease your chances of obtaining credit.
Things to Keep in Mind
Before making the decision to start rebuilding your credit by obtaining a credit card, there are a few things to keep in mind.
- Make sure the card reports to your credit report; if not, it is not helping to rebuild your credit.
- Only utilize a maximum card utilization rate of 11%. For example: If you have a $1,000 limit, you should never put more than $110 on the card. If you use higher amounts of your available credit, it will hurt your credit score.
- Pay off the balance in full each month, so you avoid fees and interest. Never charge more than you can pay off that same month.
If you need help, your Boleman attorney can point you in the right direction to aid you in recovering your financial stability.