Unfortunately, by the time you consider filing for bankruptcy protection, your credit score is usually in pretty poor shape. And, filing bankruptcy does further damage to your credit score. After navigating bankruptcy, you need to move forward with your life and rebuilding your credit is an important part of that process.
There are many strategies for rebuilding your credit after bankruptcy, such as: monitoring your credit reports to ensure accurate credit reporting, paying your reaffirmed debts on time, paying your monthly bills on time, and righting your finances. However, one of the most common credit-building strategies is actually very counterintuitive: applying for a new credit card.
Taking out a new credit card may seem like exactly the last thing you would want to do after having gone through bankruptcy. After all, excessive credit card debt might have contributed to the need for filing bankruptcy in the first place. However, if managed carefully, a new credit card can be a powerful tool for rebuilding your credit.
Some people think that it will be impossible to qualify for a new credit after bankruptcy. In reality, exactly the opposite is true. Most bankruptcy filers receive multiple credit card offers within a few months after completing their bankruptcy case. However, many of these credit card offers come with high interest rates and other disadvantageous terms. You should be careful about which offer you accept.
If possible, you should avoid credit cards with high fees or high interest rates. Likewise, you should avoid credit cards that require you to call a 900 number, because you will be charged for the call. Finally, you should confirm that the credit card will report your payment history to the three major credit bureaus (Experian, Equifax and TransUnion).
We recommend using a secured credit card. With a secured credit card, you deposit a sum of money for the bank to hold as collateral. The amount of money you deposit becomes your credit limit. If you fail to make your required payments, the bank can seize your deposit to pay off the debt.
When using the new credit card, keep your balances low. If your credit limit is $500, try not to have a balance of more than $50 at any time. And, of course, pay off your balance in full each month; never carry a balance to the next month. By charging small amounts and paying off the balance each month, your credit will gradually improve. This arrangement is beneficial for both you and the bank: You can begin to rebuild your credit history and the the bank is protected against missed payments.
One final note: You should wait until after your bankruptcy is complete to apply for a new credit card. Taking on new credit while you are still in bankruptcy could cause serious problems for your bankruptcy case. If you have questions about whether you should apply for a credit card or not, you should discuss that issue with your bankruptcy attorney.