Filing for bankruptcy lowers your credit score in the short-term and will remain on your credit report for seven to ten years. However, it is a myth that people who file for bankruptcy cannot get loans or credit cards after bankruptcy.
After bankruptcy people are able to get loans, including car loans, mortgages, and lines of credit. It is true that filing for bankruptcy may temporarily limit your access to credit, or force you to pay higher interest rates or annual fees for credit you do obtain. However, many of our clients are surprised by how quickly their credit score begins to recover after bankruptcy.
One way to help rebuild your credit after bankruptcy is by getting an appropriately using a credit card.
How a Credit Card Helps Rebuild Your Credit
Obtaining a credit card after bankruptcy is not to create debt problems again. The purpose of obtaining a credit card after bankruptcy is to help your credit score recover more quickly. A higher credit score means more favorable borrowing terms, which is a component to overall financial wellbeing.
A credit card can help you establish a record of borrowing and repaying your debt. This looks good on your credit report and helps improve your credit score.
How to Appropriately Use Your Post-Bankruptcy Credit Card
Charge only the amount that you can and will pay off in full and on time each month.
With each monthly payment, you are re-establishing your record of borrowing and repaying. Do not run up charges that you cannot afford to pay off in full. To manage your credit card charges choose to pay for only one specific thing with it, like gas or groceries. You do not want to start the vicious debt cycle again once you have your financial fresh start after bankruptcy.
How to Get a Credit Card After Bankruptcy
After bankruptcy, you have a few options in getting a credit card.
Secured Credit Card
The lending bank will hold an amount of money you give to secure the card, which also serves as the charging limit on the card. Secured cards are easier to obtain because the lender is not taking on a risk of non-payment since it can keep the security money if you do not pay the bill. Shop for the card with the best rates, lowest fees, and read all the terms and conditions before you sign up it.
Unsecured Credit Card
These are the most common type of credit cards. Many people are able to qualify for certain unsecured credit cards right out of bankruptcy; however, these often come with unfavorable terms like high-interest rates and annual fees.
Be selective about which credit card you apply for because being denied credit and/or applying to too many cards can harm your credit score.
Credit Worthiness After Bankruptcy
Once you receive a discharge of debts in bankruptcy you are precluded from filing again for a number of years. This makes people out of bankruptcy viable candidates to lend money to. Further, after filing you have little to no debt, making your debt to income ratio favorable. This also makes you a viable candidate for a loan or line of credit.
When you get a credit card after bankruptcy make sure you only charge what you can afford and you pay your bill in full, on-time every month.
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.