Best card to build credit post-bankruptcy

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
In November 2015, I received a discharge from Chapter 7. I would like to reestablish credit through the use of a credit card. What kind of card would you recommend? We have been bombarded by Capital One. They say we have been pre-approved.   -- Raymond


Dear Raymond,
It’s like you want to find a nice person to date, but you’re turning down a decent prospect because she’s making herself too available! Capital One is a respectable bank and credit issuer. Be happy for the correspondence. It’s not as desperate as you suspect. Unlike prescreened offers where the lender has reviewed your credit profile thoroughly and determined that you’re the right match for their product, pre-approval is fairly meaningless. You could apply, but also be rejected.

That said, I’m glad you have a goal of getting back on the credit horse. Many issuers may be willing to let you saddle up, even with a Chapter 7 bankruptcy so fresh on your consumer credit reports. This type of bankruptcy will remain listed for a total of 10 years from the filing date. It will have the worst impact in the first 24 months, so you’re still in this bleak period. That doesn’t mean you can’t qualify for a new account, but you need to try for the correct card.

Review the letters you’ve been receiving to see what kind of credit card Capital One is promoting. If it’s a secured card and the credit limit is low, your chance if being approved is pretty high (as long as you have a job; another key requirement). But don’t stop your research there. Check out a variety of secured cards from different issuers that require collateral.

Secured cards are a fantastic way to refresh your sullied credit reputation. They differ from regular, unsecured credit cards in that the bank issues you a credit line equal to the sum of a deposit you make to “secure” the credit line. Many credit issuers offer them and most send data about the account to the three major credit reporting agencies -- TransUnion, Experian and Equifax. If it is not apparent that they do that on the application, call to make sure. Do not pursue cards that don’t report to the credit bureaus, as they won’t help you achieve your goal.

The reason a secured card is the best way to re-enter the borrowing world is because the issuer takes virtually no risk in providing you with a credit line. If you don’t repay in a timely manner, it has the right to take the funds held in deposit. Simple and fast.

It’s very important that you don’t mess up this time, though. You must use this account in a way that proves you can and do follow through on your financial promises. Once you have it, charge a little and pay a lot -- the entire balance -- by the due date every month. This way the issuer can send only positive activity to the credit reporting agencies. Credit scoring systems (like the FICO and VantageScore) will input all that data into their algorithms that produce lending risk scores. Recent activity is weighted heavier than older activity. Your perfect payment pattern and zero debt will work in your favor and your scores will steadily climb.

As the bankruptcy ages, your scores should improve to the point where you’ll be eligible for a good unsecured credit card. Just keep the secured card open, as it will indicate longevity, which is also helpful for a credit rating.

Look, there’s nothing wrong with being selective when it comes to assessing credit issuers. Being careful is smart. Just don’t reject one because it’s saying, “Hey, I’m here and willing to take a chance on you!”

See related: Steps to rebuild credit after bankruptcy

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Updated: 11-22-2017