Credit Cards & Bankruptcy
After your Chapter 13 or Chapter 7 bankruptcy filing you may think that you will not be able to obtain credit cards. In our society it is often difficult to do any business without a credit card; ordering over the Internet, arranging for airline or hotels or making any type of major purchase without a credit card can be difficult or impossible. Despite your bankruptcy, you will qualify for credit cards; however you will probably have to accept higher interest rates and fees and a lower credit limit.
Although your bankruptcy can remain on your credit report for seven to ten years, lowering your FICO credit score by as much as 220 points, using credit cards and other forms of good credit can actually improve your score, helping to rebuild your credit over time.
Perhaps surprisingly, you may see a flood of credit card offers in your mailbox or email box soon after your bankruptcy is discharged. Just be wary of the card/s you sign up for, check the interest rates and fees very carefully as interest rates can soar to 24% or higher. Take the time to carefully compare and contrast interest rates, late fees, monthly fees and cancellation fees. You don’t want to get into financial hot water again! You will also need to make sure that the issuing bank reports your credit history to the credit bureaus since you want them to record your timely payments and good credit standing. This is how you improve your credit score.
Some credit card companies may even consider you as a somewhat less-risky customer now that you have filed bankruptcy since you are not allowed to file again for seven years. You are very likely to pay off your balance in full each month and not accumulate large amounts of credit. Again, you need to be very careful as to how you use credit following your Chapter 7 or Chapter 13 bankruptcy.
Unsecured vs. Secured Credit Cards
Most people have unsecured credit cards in their wallets. These effectively let you borrow money from the credit card company, which then charges you interest on the unpaid balance until it is paid off.
Secured credit cards differ from unsecured cards in that you deposit money into the account to use the card; it is similar to having a line of credit. The credit card company sets your credit limit at a percentage of your deposit. You will still need to pay the balance off each month or be liable for fees. When you cancel the account, you will get back any unused money. Since you are essentially using your own money on these cards, you cannot spend more than you can afford. The credit card companies also assume much less risk since, again, it is your money. It may be much easier to obtain a secured credit card than an unsecured card following your bankruptcy and is a good way to start rebuilding your high-quality credit.
Talk to your bankruptcy attorney; he or she will know some of the best credit cards for you post-bankruptcy. They will also confirm that your bankruptcy has been fully discharged before you apply for any credit card. To speak with an experienced bankruptcy rep from Client First Bankruptcy, please call us toll free at 800-383-6004. Why not call now?!