Many people avoid filing bankruptcy because they fear a scarlet letter “B” will bar them from ever getting credit again. While going bankrupt can deal a serious blow to your credit score, it also wipes your slate clean, relieves you from debt, and gives you a chance to start over.
Using credit cards again is an important part of rebuilding your credit, so you'll want to begin looking as soon as you feel ready for the responsibility. And, although creditors will have different rules and expectations for someone with a recent bankruptcy, getting a credit card afterward may not be as hard as you think.
How Bankruptcy Affects Your Credit
As you probably know, you have a credit report that contains a history of your credit accounts. Bankruptcy will go on your credit report and stay for seven to 10 years, depending on the type of bankruptcy you filed.
If you had a high credit score when you filed bankruptcy, your credit score may drop 200 points or more once the bankruptcy goes through. Your credit score may not fall as much if it was already low. The total impact will depend on how much debt and how many accounts you discharged when going bankrupt. As usual, creditors will pull your credit report when you submit a credit card application, but your low score may not automatically block you from getting a credit card.
Know When You're Ready for a Credit Card
Before you apply for a credit card, make sure you’re ready for the responsibility. You won’t be able to file bankruptcy again for several years, so if you get into new credit card debt, you won't have the same option for relief.
As part of the bankruptcy process, you were probably required to go through debt counseling. Make sure you’ve applied those lessons to correct the bad spending habits that got you into debt in the first place. You might even consider asking a family member with good credit to add you as an authorized user on their account. This will give you practice and build your score in the process.
When you get a credit card again, discipline yourself to charge only what you can afford and pay your balance in full each month. Start with low balances and work your way up.
Adjust Your Expectations
Don’t expect your first post-bankruptcy card, or maybe your first few credit cards afterward, to have great terms. Credit cards with rewards and low-interest rates are reserved for consumers with excellent credit scores. If you’re diligent about proving your creditworthiness, you’ll eventually qualify for these types of cards.
Avoid applying for cards you included in your bankruptcy. These companies are more likely to deny your application. Also, make sure the card you choose reports to at least one—preferably all three—of the three major credit bureaus. This ensures that your new credit card habits will have a positive impact on your credit report.
Check Your Mailbox for Credit Card Offers
Some credit card issuers, knowing you can’t file bankruptcy again for several years, will be quick to send offers for their credit cards. These credit card offers are some of your best chances of getting approved, so keep your eye on the mail.
Keep in mind that pre-approved credit card offers don’t necessarily guarantee approval. You’ll still have to apply and go through the application approval process. If you’re denied, the credit card issuer will send a letter explaining why your application was turned down. Also, remember that each card application you file will ding your credit score, so don't apply for too many at once, and wait four to six months between rounds.
Consider Getting a Secured Credit Card
A secured credit card requires you to make a deposit against the credit limit and may come with fees attached. Because it's less risky for the card issuer, you’re more likely to get approved for one of these after going bankrupt. Some secured credit cards may not approve you if you had a bankruptcy discharged within the past year or two; read through the qualification criteria before you spend time applying. Here are a few secured credit cards to consider:
Your credit limit will be equal to your security deposit, so put down as much as you can. After several months of keeping your secured card in good standing, you may be able to convert your card to an unsecured credit card or apply for a standard card with another issuer.
Retail Credit Cards Are a Good Option
Retail credit cards—those offered by stores you shop—often have less strict approval criteria for applicants. You’re more likely to be approved for a closed-loop retail credit card, which is one that doesn’t have a network logo like Visa or MasterCard and can only be used in the retail store (or its family of stores). These cards don't have as significant of an impact on your credit scores as co-branded ones, but every little bit counts when you're rebuilding credit.
Know Which Credit Cards to Avoid
Many of the credit cards offered to applicants who recently filed bankruptcy have high interest rates and fees. While you may not qualify for the upper echelon of cards, that doesn’t mean you should accept any credit card that will approve you.
Avoid any credit card with an extremely high interest rate (above 25% in your situation) or that charges high upfront fees. These credit cards aren’t the best option for starting over, as they put you back into debt before you ever receive the card in the mail. If, as a last resort, you choose one of these cards, pay off the fee before your statement even arrives and pay your balance in full every month to avoid expensive interest charges.
While you may be tempted to swear off credit cards to avoid dealing with debt again, they offer one of the best ways to rebuild your credit score, and you'll need a decent score if you want to finance a car or home. Charge only a small amount and pay your balance on time and in full each month. You'll stay out of debt and, in time, improve your credit score.