How to Get a Credit Card After Bankruptcy
Bankruptcy can cripple your credit score, making it very difficult to get a mortgage, car loan, and even a credit card. But it’s not all doom and gloom. Over half a million Americans file for bankruptcy every year and most of these can still get new credit cards and use them to steadily rebuild credit and get back on the right track.
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In this guide, we’ll show you how to re-establish credit using a credit card, highlighting the best credit card offers and lenders to ensure you get the best possible deal.
Challenges of Getting a Credit Card After Bankruptcy
Theoretically, you can still apply for a credit card whole undergoing bankruptcy. However, lenders are understandably reluctant to accept anyone filing for bankruptcy, and even in the unlikely event that your credit score is respectable, you may still be refused.
Once you have filed, it gets a lot easier. In fact, many creditors specifically target individuals who have recently filed for bankruptcy. Your credit score may be poor, but creditors are happy to overlook that, as they know you can’t file for bankruptcy for several more years. They also know you’re probably hungrier for credit than you have ever been.
Credit card offers will start filling your mailbox as soon as you get the bankruptcy filing out of the way, but be careful what you apply for as those offers aren’t what they seem.
What Difficulties Might you Face?
A good rule of thumb is to avoid any offers that come to you. This is a rule that everyone follows when it comes to cold calls and email spam, but, for some reason, completely ignore where credit cards are concerned.
Of all the credit card providers offering vastly different rates, fees, and rewards, what are the odds that the perfect one will land in your mailbox?
By all means, read these offers and get a feel for what sort of rates they think you deserve, but do your own research and comparisons before you accept anything. Just because you’re in a difficult situation doesn’t mean you should accept the first offer that comes along.
How Does Bankruptcy Affect Your Credit Score?
The average FICO Score is just over 700 points. Anyone filing for bankruptcy with this score could lose as many as 200 points, but the number decreases the lower your score is. If you’re filing for bankruptcy at the end of a long and difficult road, there’s a good chance your score has already taken a beating, in which case it may only drop by 100 points.
Bankruptcy can remain on your credit report for up to 10 years, but its effect will diminish over time, which means you become increasingly likely to be accepted for respectable interest rates.
Getting a Credit Card After Bankruptcy
If credit card debt got you into this mess, be very careful when you apply for new lines of credit. Just because the slate has been wiped clean doesn’t mean you can start filling it again.
You’re in a vulnerable position after filing for bankruptcy because while credit is still widely available, it comes with very high fees, penalties, and interest rates, which means it’s easier to trap yourself in a cycle of persistent debt.
And if that happens, bankruptcy won’t provide you with an easy escape as you won’t be able to apply again for several more years. Look at credit repair programs, pick up a secured card, and stay on top of your credit report (from all credit bureaus). Only when you’re confident in your ability to manage debt and you’re sure you’re getting the best deals should you acquire more unsecured debt.
How Long After Bankruptcy Do You Need to Wait?
You can apply as soon as you want, but the longer you wait, the better the offers will be. The problem with early applications is that you’ll get nothing but high-interest rates and fees, with very little by way of a credit limit. If you complete these applications, you may receive a hard inquiry, which will reduce your credit score further.
But because bankruptcy’s effects diminish over time, the longer you wait, the better.
What Credit Score do you Need?
Even if your credit score has hit rock bottom, you can still get a credit card. However, that card will either be secured or have very high fees and interest. Secured cards are ideal for rebuilding your credit, but high-interest unsecured cards can destroy it more than bankruptcy if you’re not careful.
You will need a score of at least 600 before you start getting accepted for moderate interest-rates and a score of between 660 and 700 before you can secure a low-interest rate. However, if you apply for a secured card and use it for a few months, you may be upgraded to an unsecured card. Your credit history will also improve thanks to the repayments and the stable account.
These cards don’t have much by way of a credit limit and everything is pretty much leveraged against your cash deposit, but they can provide you with a convenient way to make purchases and all activity is reported to the credit bureaus.
Best Credit Cards After Bankruptcy
Bankruptcy may have reduced your chances of acquiring a high credit limit and a very low-interest rate, but you still have some options and the longer you wait, the better your options become. You can pick up a secured card or an unsecured card, the best of which we have outlined below.
Best Traditional Credit Card
An unsecured or “traditional” credit card gives you a credit limit that is not secured against an asset or a cash sum. You are given a credit limit based on your affordability and your credit score. Every month you can repay your balance and avoid any interest charges, but as soon as you miss a monthly payment the balance will roll over and interest will accumulate.
- Credit One Bank Platinum Visa: This card was designed for rebuilding credit, with no monthly fee, a small rewards scheme, and a low acceptance rate. You can apply even with a low credit score.
- Indigo MasterCard: Your credit score needs to be a little higher for this one, but the interest rates are generally very low when compared to other unsecured cards.
- First Access Visa: If you’re struggling to get accepted for a credit card then try this one. The fee is high, and the APR goes as high as 34.99%, but if you’re committed to clearing your balance every month and need a credit card, it could be your only option.
An unsecured credit card is a great way to rebuild your credit, but only if your credit score is actually strong enough to get a card with a respectable annual fee, credit limit, and interest rate. Otherwise, you could find yourself on a very slippery slope and maybe better off with a secured credit card.
Best Secured Credit Card
A secured credit card can help you to steadily rebuild your credit and doesn’t require a good credit score. These cards are offered to borrowers with bad credit and are secured against a cash sum.
You provide a security deposit that is used as leverage. If you fail to make your payments, then the lender will just take this deposit. Your credit limit is often the same size as the deposit, so you can’t spend any more money than you actually have. This secures the lender’s money, but it also prevents you from overspending.
- Discover It Secured Credit Card: This secured card comes with a rewards rate as high as 2%, as well as a $0 annual fee. It’s the secured version of one of the best reward cards available, so it’s a pretty good option. It’s also available for all users with bad credit, so it doesn’t matter how poor your credit history is.
- OpenSky Secured Credit Card: This credit card is unusual in that it doesn’t require applicants to have bank accounts and there is no credit check. Rates are 19.14% variable, however, and there is a fee of $35 a year.
- Green Dot Primor Secured Credit Card: With an APR of 9.99%, this is a good option if you’re concerned that you’ll struggle to repay your balance, although that’s something you should always avoid when rebuilding your credit.
Deposit aside, a secured credit card works just like any other credit card. Creditors report to major credit bureaus every month, which means all your successful monthly payments will be recorded and your score can steadily rebuild.
Many credit card companies will upgrade you to an unsecured card if you prove that you are reliable and meet your repayments for several months in a row. At this point, they will return your deposit.