Bankruptcy is a great option for many, as it can help people get back on track with their finances. People can discharge their debts via Chapter 7 liquidation or can repay their debts over time through a Chapter 13 repayment plan. Plus, these bankruptcy options also provide protection from creditors.
Although bankruptcy can help you overcome debt, it will negatively impact your credit score, making it more challenging to obtain credit cards, loans, and other financial products. Here are some expert tips for rebuilding your credit and finding the best credit cards after bankruptcy.
Rebuilding Your Credit After Bankruptcy
Your bankruptcy will remain on your credit score for up to a decade. Those who declare Chapter 7 bankruptcy can expect it to remain on their report for 10 years after their filing date, and Chapter 13 will remain for seven years from your filing date.
Bankruptcies can impact your credit, but you can take steps today to rebuild your creditworthiness. It may take a bit of time, but with responsible financial management, such as paying bills on time, managing credit card balances, and building a savings account, you can begin to improve your credit score a lot in a short time following your bankruptcy case.
Find Bankruptcy-Friendly Credit Cards
One of the best tools at your disposal for rebuilding your credit is obtaining a credit card and using it responsibly. Typically, cards are available to people who have gone through bankruptcy. You may have to start small, with a secured card. But it should not take long for those who went through bankruptcy to qualify for a conventional, unsecured credit card. No matter what kind of card you end up with, make sure that they report to the three major credit reporting agencies so that you get the benefit of the work you are doing to improve your credit.
An unsecured credit card does not require collateral to obtain approval. Unlike secured credit cards, which require a security deposit that serves as collateral, unsecured credit cards are approved based on your creditworthiness, income, and other factors. With an unsecured credit card, the lender assumes the risk of lending money to the borrower without any collateral in case the borrower defaults on their payments.
If you’re looking to find unsecured credit cards that accept bankruptcy, initially you will only qualify for cards with high interest rates. According to Wallethub — a website that specializes in helping people find the best financial products — one of the best unsecured credit cards for those with bad credit is the Credit One Bank Platinum Visa for Rebuilding Credit. Unfortunately, it does have steep annual fees and a less-than-ideal APR: Its APR is 28.74% variable, and it comes with a $75 annual fee for the first year and $99 for each subsequent year.
Rather than getting an unsecured credit card, you may want to consider getting secured credit cards that accept bankruptcy, as these cards typically offer better terms and a lower APR. Deposits for a secured credit card typically range from $200 to $300, but with a higher deposit, you can expect a higher credit limit. According to Investopedia — an online educational resource for finance and investing — some of the best secured credit cards include Capital One Platinum Secured, Discover it Secured, and Self Visa.
Tips for Rebuilding Your Credit with Your Credit Card
Once you obtain your secured or unsecured credit card, you need to use it responsibly to build your score. Consider taking the following actions:
- Only make purchases you can afford. Consider creating a budget to ensure you don’t overspend.
- Pay your bills on time and in full.
- Keep your credit utilization rate below 30% as it shows lenders that you can manage your credit responsibly.
- Avoid opening too many credit card accounts. While having multiple credit cards can be beneficial for your credit score, it’s important to avoid opening too many accounts at once, as this can make you appear risky to lenders.
Becoming an Authorized User
Another option you have for rebuilding your credit is becoming an authorized user on a friend or family member’s account. As an authorized user, you are not responsible for paying the credit card bill, but you are allowed to use the card for purchases up to a certain limit set by the account holder. The credit card issuer will report the authorized user’s activity to the credit bureaus, which can improve your credit score.
However, it’s important to note that becoming an authorized user on someone else’s credit card account carries some risks. If the account holder does not make payments on time, it could negatively impact your credit score. Additionally, you should only become an authorized user for an account holder who you trust because they’ll have access to your personal information, potentially leaving you vulnerable to identity theft or fraud. For that reason, only become an authorized user for someone who’s financially responsible and trustworthy.
Contact a Bankruptcy Attorney
Finding the right credit cards after bankruptcy is a great start for rebuilding your credit, but you may need additional assistance with your finances. If you’re considering bankruptcy or recently declared in or around Indianapolis, you can contact the Sawin & Shea bankruptcy team for support.
With over 65 years of combined legal experience, you can count on us to assist you through the bankruptcy process, and we’ll work with you to get your finances back on track and rebuild your credit. Give us a call today at 317-759-1483, or you can request to schedule a FREE consultation with one of our attorneys here.