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Credit card life after bankruptcy

Summary

After bankruptcy, issuers will be wary of lending to you. Applying for a secured card is a way to boost your FICO score and show lenders you can be trusted again

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QuestionDear Opening Credits,
Which credit card companies do I qualify for after Chapter 7 bankruptcy? — Carl 

AnswerDear Carl,
Some creditors may cautiously welcome you back in the borrowing pool not long after climbing out from the depths of debt with a legal discharge. However, you’ll have to start at the shallow end for a good long time.

Credit issuers — from banks and credit unions to credit card companies — typically offer a wide variety of credit products to consumers. Some are for people with excellent credit, others for those who have un-established or damaged credit. So, it’s not so much the specific company you ought to pursue, but which type of card.

Your initial step to putting a piece of plastic back in your wallet is to find out what your credit score is today. Along with household income requirements, creditors use these numbers to know which product is right for which person.

Go to myFICO.com to get your FICO scores from each of the three credit reporting agencies. They are about $20 each, so if cash is tight you can just get one, but I think it’s a good idea to restart your charging life with complete knowledge of where you are at this moment.

FICO scores range from 300 to 850 and, as you’ll see, yours will almost surely be in the very low end of the scale. Any kind of bankruptcy is devastating to credit scores, but what usually precedes the notation sets the stage for anemic digits. Late payments, charge-offs, collection activity, monetary judgments … all would be recorded and bring the scores down.

The reason you might be eligible for a credit card even with a poor credit history is that at least some of your old financial obligations were wiped clean in the Chapter 7 bankruptcy. That puts you in the position of not having so much of your income promised to past liabilities. In other words, you may be able to afford to borrow again.

But will you repay according to the terms of the agreement? Trust has been broken, so lenders will have little faith that you will do so. To guarantee the arrangement, many will require security.

Check out the cards that are a good match for someone with your FICO scores in the “bad credit” section of this site. Focus your attention on the secured credit card offers. These are genuine credit cards, but instead of being granted based on faith that you’ll treat them right (which is how  unsecured credit cards work), these are secured by cash that you put down. The money goes into a separate account and is held there for the duration of your banking relationship. Charge with the card responsibly by paying by the due date and your savings sit there safely, even earning a little bit of interest. But let the account go delinquent and the credit issuer can pluck what they lent you from the cash held in deposit.

Apply for the secured credit card that looks best to you and wait for approval. If the creditor turns you down, either wait for the bankruptcy notation to get a little older or try again with a card that offers a lower credit line. Eventually you’ll qualify and when you do, make a commitment to using it perfectly. Just keep the debt to zero and make all payments on time. Do that for at least 12 months and your credit scores will improve. The bankruptcy notation will remain for a total of 10 years, but as time passes you’ll dog paddle your way back into deeper waters.

See related:When is a bankruptcy officially discharged?, Can you get a credit card after bankruptcy?

 

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